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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 2000
REGISTRATION NO. 333-92827
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
ON
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
HONDA AUTO RECEIVABLES TRUSTS
(Issuer with respect to the Securities)
AMERICAN HONDA RECEIVABLES CORP.
(Originator of the Trusts described herein)
(Exact name of Registrant as specified in its charter)
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CALIFORNIA 6146 33-0526079
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF ORIGINATOR'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
Y. KOHAMA
700 VAN NESS AVENUE
TORRANCE, CALIFORNIA 90501
(310) 781-4100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE WITH RESPECT TO THE REGISTRANT)
------------------------------
COPIES TO:
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WARREN R. LOUI, ESQ. REED D. AUERBACH, ESQ.
O'MELVENY & MYERS LLP STROOCK & STROOCK & LAVAN LLP
400 SOUTH HOPE STREET 180 MAIDEN LANE
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10038
(213) 430-6605 (212) 806-5400
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
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If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED TITLE OF SECURITIES PROPOSED MAXIMUM PROPOSED OFFERING AMOUNT OF MAXIMUM REGISTRATION
TO BE REGISTREED AMOUNT TO BE REGISTERED PRICE PER UNIT(1) AGGREGATE OFFERING PRICE(1) FEE(2)
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Asset Backed Securities $6,000,000,000.00 100% $6,000,000,000.00 $1,584,000.00
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Of which $264.00 previously has been paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INTRODUCTORY NOTE
This registration statement contains (i) a form of prospectus relating to
the offering of one or more series of asset backed notes and/or asset backed
certificates by various trusts created from time to time by American Honda
Receivables Corp. and (ii) two forms of prospectus supplement relating to the
offering by each separate trust of a particular series of asset backed
certificates or of asset backed notes and asset backed certificates described in
the prospectus supplements. Each form of prospectus supplement relates only to
the securities described therein and is a form which may be used, among others,
by American Honda Receivables Corp. to offer asset backed notes and/or asset
backed certificates under this registration statement.
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SUBJECT TO COMPLETION, DATED JUNE 26, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
IS NOT PERMITTED.
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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 June , 2000.
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TABLE OF CONTENTS
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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
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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.................................... 56
Yield Supplement Account; Yield Supplement Agreement...... 57
Distributions on the Securities........................... 57
Credit and Cash Flow Enhancement.......................... 58
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................................................. 64
List of Securityholders................................... 65
Insolvency Event.......................................... 65
Payment of Notes.......................................... 65
Seller Liability.......................................... 65
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3
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Termination............................................... 65
Administration Agreement.................................. 66
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES.................... 66
General................................................... 66
Security Interests........................................ 67
Repossession.............................................. 69
Notice of Sale; Redemption Rights......................... 69
Deficiency Judgments and Excess Proceeds.................. 69
Certain Bankruptcy Considerations......................... 70
Consumer Protection Laws.................................. 71
Other Limitations......................................... 72
MATERIAL INCOME TAX CONSEQUENCES............................ 73
Tax Treatment of Owner Trusts............................. 73
Tax Treatment of Grantor Trusts........................... 81
Federal Income Tax Treatment of FASITs.................... 88
Material State Tax Consequences With Respect to Owner
Trusts.................................................. 92
Material State Tax Consequences With Respect to Grantor
Trusts.................................................. 93
ERISA CONSIDERATIONS........................................ 94
UNDERWRITING................................................ 95
LEGAL OPINIONS.............................................. 95
INDEX OF TERMS.............................................. 96
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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.
5
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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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6
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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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8
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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.
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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.
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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 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 90 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 most senior 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 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 30 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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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 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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(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
44
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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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<PAGE>
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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<PAGE>
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:
1. the Indenture Trustee's or the Trustee's short-term unsecured debt
obligations have a rating of "P-1" by Moody's Investors Service, Inc. and
a rating of "A-1+" by Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc. (the "Required Deposit Rating"); or
2. each of those accounts is maintained in a segregated trust account in
the trust department of the Indenture Trustee or the Trustee, as the case
may be.
If the short-term unsecured debt obligations of the related Indenture
Trustee or the Trustee, as the case may be, do not have the Required Deposit
Rating, 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 (1) a bank
whose short-term unsecured debt obligations have the Required Deposit Rating or
(2) the trust department of the related Indenture Trustee or the Trustee.
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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 either (1) to purchase
the Receivable as described below or (2) make Advances on each subsequent
Payment Date in amounts equal to the amount of any reduction to the related
Scheduled Payments to be paid by the related Obligors during the subsequent
Collection Periods.
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 one month prior to the Final Scheduled
Maturity Date unless it is making advances corresponding to reduction in
Scheduled Payments as described above; and
5. it will not increase 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.
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
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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 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
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Excess Payments relating to Simple Interest Receivables will be applied as a
prepayment in full 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 also be required to make Advances with respect to each
Receivable that it does not purchase as described above under "--Servicing
Procedures" as to which it has made any modification that reduces the amount of
Scheduled Payments to be paid by the related Obligor during subsequent
Collection Periods.
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.
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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 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).
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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 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. Earnings on investment of funds in the Yield Supplement Account in
Eligible Investments will be paid to the Seller on each Payment Date. Any monies
remaining on deposit in the Yield Supplement Account upon the termination of the
Trust also will be released to the Seller.
YIELD SUPPLEMENT AGREEMENT. If a Yield Supplement Account is to be
established with respect to a class or series of Securities, on or prior to the
related Closing Date, the Seller, any third party responsible for making
deposits into the Yield Supplement Account and the related Trustee or Indenture
Trustee, as the case may be, will enter into a "Yield Supplement Agreement" with
the Servicer and the entity with which the account is maintained. The Seller
will assign its rights under the Yield Supplement Agreement to the applicable
Trustee for the benefit of the applicable Securityholders.
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
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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 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.
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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.
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 Base Servicing Fee paid to the Servicer with respect
to the related Collection Period, the amount of any unpaid Base Servicing
Fees and the change in that amount from that of the prior Payment Date
and the amount of any additional servicing compensation 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, and the change in those
amounts from the preceding statement;
8. the amount, if any, otherwise distributable to one or more subordinated
classes of notes or certificates that has instead been distributed to
more senior classes of notes or certificates on that Payment Date;
9. the aggregate outstanding principal amount, 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;
10. the amount of Advances made in respect of the related Receivables and
the related Collection Period and the amount of non-recoverable Advances
on that Payment Date;
11. the balance of any related Reserve Fund, Yield Supplement Account or
other credit or liquidity enhancement on that date, after giving effect
to changes thereto on that date and the amount of those changes;
12. the total amount of monthly prepayments (or portions thereof) determined
by the Servicer to be due in one or more future Collections Periods on
deposit in the related Account or held by the Servicer with respect to
the related Receivables and the change in that amount from the
immediately preceding Payment Date;
13. the amount of Trust fees and expenses;
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14. the Available Amounts, as that term is defined in the prospectus
supplement;
15. 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
16. 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."
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
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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.
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 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 remedied, the related Indenture Trustee or
holders of notes of the related series evidencing not less than 51% 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
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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, 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 51% 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
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 51% 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
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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
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; provided that the amendment will not
materially and adversely affect the interest of any Noteholder or
Certificateholder.
An amendment will be deemed not to materially and adversely affect the
interests of any Noteholder or Certificateholder of any class if (a) the
amendment does not adversely affect the Trust's status as a grantor trust or a
partnership, as applicable, for federal income tax purposes, (b) each rating
agency then rating the related certificates or notes confirms that that
amendment will not result in a reduction or withdrawal of its rating on the
certificates or notes of that class, and (c) the Servicer shall have delivered
an officer's certificate stating that the amendment will not materially and
adversely affect the interest of any Noteholder or a Certificateholder.
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
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 or change the Interest Rate or the Pass
Through Rate or the required amount in the related Reserve Fund 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.
An amendment referred to in clause (A) above will be deemed not to
"adversely affect" a Certificateholder or Noteholder of any class only if each
rating agency then rating the related certificates or notes confirms that that
amendment will not result in a reduction or withdrawal of its rating on the
certificates or notes of that class. In connection with any amendment referred
to in clause (A) above, the Servicer shall deliver an officer's certificate to
the Indenture Trustee and the Trustee stating that the Noteholders and the
Certificateholders whose consents were not obtained were not adversely affected
by the amendment.
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LIST OF SECURITYHOLDERS
Three or more holders of the notes of any class in a series or one or more
holders of those notes of that class evidencing not less than 25% of the
aggregate principal amount of those notes then outstanding may, by written
request to the related Indenture Trustee, obtain access to the list of all
Noteholders maintained by that Indenture Trustee for the purpose of
communicating with other Noteholders with respect to their rights under the
related Indenture or under those notes. If stated in the applicable prospectus
supplement, an Indenture Trustee may elect not to afford the requesting
Noteholders access to the list of Noteholders if it agrees to mail the desired
communication or proxy, on behalf of and at the expense of the requesting
Noteholders, to all Noteholders of that series.
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 25% 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.
The Indenture Trustee or the Trustee, as the case may be, will provide to
the Servicer within 15 days after receipt of a written request from the
Servicer, a list of the names of all Noteholders or Certificateholders, as the
case may be, of record as of the most recent applicable record date.
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.
SELLER LIABILITY
Under each Trust Agreement, the Seller will agree to be liable directly to
an injured party for the entire amount of any losses, claims, damages or
liabilities (other than those incurred by a Noteholder or a Certificateholder in
the capacity of an investor with respect to that Trust) arising out of or based
on the arrangement created by that Trust Agreement as though that arrangement
created a partnership under the Delaware Revised Uniform Limited Partnership Act
in which the Seller was a general partner.
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
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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
- 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 Children's Hospital Los
Angeles.
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) plus the appraised value of any other property held as
part of the Trust (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
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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.
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
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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 "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.
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REPOSSESSION
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. 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 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.
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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 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, O'Melveny & Myers LLP 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.
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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 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
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(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 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 O'Melveny & Myers LLP. 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, O'Melveny & Myers LLP, counsel to AHRC, 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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 O'Melveny &
Myers LLP. In addition, certain United States federal and California state tax
and other matters will be passed upon for the related Trust by O'Melveny & Myers
LLP. Certain legal matters will be passed upon for the Underwriters by Stroock &
Stroock & Lavan LLP.
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INDEX OF TERMS
<TABLE>
<S> <C>
Accounts............................. 53
Actuarial Receivables................ 21
Administration Agreement............. 68
Administration Fee................... 68
Administrative Purchase Payment...... 54
Administrative Receivable............ 54
Administrator........................ 68
Advances............................. 56
AHFC................................. 20, 24
AHMC................................. 24
APR.................................. 21
asset test........................... 91
Auction.............................. 42
Base Rate............................ 34
Base Servicing Fee................... 57
Benefit Plan......................... 96
Bond Equivalent Yield................ 43
Business Day......................... 35
Calculation Agent.................... 38
Calculation Date..................... 38
California Contracts................. 73
CI................................... 47
CD Rate.............................. 38
CD Rate Security..................... 34
Cede................................. 25
Certificate Balance.................. 27
Certificate Owners................... 78
Certificate Pool Factor.............. 27
Certificateholder.................... 33
class................................ 27, 33
Clearstream, Luxembourg.............. 45
Clearstream, Luxembourg
Participants....................... 48
Closing Date......................... 20, 51
Code................................. 75
Collection Account................... 52
Collection Period.................... 55
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................... 60
DTC.................................. 44
DTC Participants..................... 28, 46
DTC Services......................... 44
Eligible Investments................. 53
equity interest...................... 96
ERISA................................ 96
Euroclear............................ 48
Euroclear Operator................... 48
Euroclear Participants............... 45
Events of Default.................... 29
Excess Payment....................... 56
FASIT................................ 90
FASIT Certificateholders............. 90
Federal Funds Rate................... 40
Federal Funds Rate Security.......... 34
Final Maturity Scheduled Date........ 54
Financed Vehicles.................... 20
Fixed Rate Securities................ 34
Floating Rate Securities............. 34
Foreign Certificate Owner............ 82
Foreign Grantor Trust
Certificateholder.................. 90
Foreign Owner........................ 77
FTC Rule............................. 72
Grantor Trust........................ 83
Grantor Trust Certificateholders..... 84
Grantor Trust Certificates........... 84
H.15(519)............................ 39
H.15 Daily Update.................... 39
HCFI................................. 24
High Yield Receivable................ 85
Indenture............................ 27
Indenture Trustee.................... 24
Index................................ 43
Index Currency....................... 36
Index Maturity....................... 39
Indexed Principal Amount............. 43
Indexed Securities................... 43
Indirect DTC Participants............ 46
Industry............................. 44
Insolvency Event..................... 63
Insolvency Laws...................... 71
Interest Period...................... 37
Interest Rate........................ 28
Interest Reset Date.................. 36
Interest Reset Period................ 36
interests test....................... 91
IRS.................................. 75
LIBOR................................ 40
LIBOR Security....................... 34
London Banking Day................... 37
London Business Day.................. 35
Low Yield Receivables................ 85
Money Market Yield................... 39
New CI............................... 47
New York Business Day................ 35
New Regulations...................... 78
Note Owners.......................... 76
Note Pool Factor..................... 27
Noteholder........................... 28
Obligors............................. 20
OID.................................. 76, 84
OID regulations...................... 76
Original Certificate Balance......... 27
Owner Trust.......................... 75
Pass Through Rate.................... 33
Payahead Account..................... 53
Payment Date......................... 33
Payments Ahead....................... 53
</TABLE>
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<TABLE>
<S> <C>
permitted assets..................... 91
Plan Assets Regulation............... 96
Pool Balance......................... 57
Pooling and Servicing Agreement...... 20
portfolio interest................... 90
Precomputed Advance.................. 56
Precomputed Receivables.............. 21
Prepayment........................... 56
Principal Balance.................... 57
Principal Financial Center........... 35
prospectus supplement................ 20
PTCE................................. 96
Purchase Agreement................... 51
Rebate............................... 52
Receivables.......................... 20
Receivables Pool..................... 22
Related Documents.................... 32
Relief Act........................... 74
Required Deposit Rating.............. 53
Required Rate........................ 58
Required Yield Supplement Amount..... 58
Reserve Fund......................... 59
Reserve Fund Initial Deposit......... 59
Retained Yield....................... 85
RIC.................................. 91
Rule of 78s Receivables.............. 21
Sale and Servicing Agreement......... 20
Schedule of Receivables.............. 51
Scheduled Payment.................... 21
SEC.................................. 25
Section 1286 Treasury Regulations.... 86
Securities........................... 20
Securities Act....................... 25
Securityholders...................... 25
Seller............................... 20
Servicer............................. 24
Servicer Default..................... 63
Servicer Letter of Credit............ 62
Servicing Fee Rate................... 57
Short-Term Note...................... 76
Simple Interest Advance.............. 56
Simple Interest Receivables.......... 21
Specified Currency................... 36
Spread............................... 34
Spread Multiplier.................... 34
Strip Certificates................... 33
Strip Notes.......................... 28
Supplemental Servicing Fee........... 57
Systems.............................. 44
TARGET Business Day.................. 35
Telerate Page 56..................... 42
Telerate Page 57..................... 42
Telerate Page 120.................... 40
Terms and Conditions................. 49
Total Servicing Fee.................. 57
Transfer and Servicing Agreements.... 51
Treasury Bills....................... 42
Treasury Rate........................ 42
Treasury Rate Security............... 34
Trust................................ 20
Trust Agreement...................... 20
Trustee.............................. 24
U.S. Person.......................... 77
UCC.................................. 52
Underwriters......................... 97
Underwriting Agreements.............. 97
Warranty Purchase Payment............ 52
Warranty Receivable.................. 52
weighted average life................ 26
Yield Supplement Account............. 58
Yield Supplement Agreement........... 58
Yield Supplement Deposit............. 58
</TABLE>
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<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 27, 2000
THE INFORMATION CONTAINED IN THIS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE , 2000)
HONDA AUTO RECEIVABLES [ - ] OWNER TRUST
AMERICAN HONDA RECEIVABLES CORP.,
SELLER
AMERICAN HONDA FINANCE CORPORATION,
SERVICER
$ ASSET BACKED NOTES
$ ASSET BACKED CERTIFICATES
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE S-17 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, American Honda Motor Co. Inc., 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 three or more classes of securities.
- Only the securities described on the following table are being offered by this
prospectus supplement and the accompanying prospectus.
- The securities will accrue interest from , .
- The price to the public and the proceeds to the seller listed below exclude
interest accrued from , the date the securities will be issued.
- The proceeds from the sale of the securities exclude expenses, estimated at
$ .
<TABLE>
CLASS A NOTES
CLASS C
A-1 NOTES A-2 NOTES A-3 NOTES CLASS B NOTES CERTIFICATES
<S> <C> <C> <C> <C> <C>
Principal Amount..... $ $ $ $ $
Interest Rate........ % % % % %
Final Scheduled
Payment Date.......
Price to Public...... % % % % %
Underwriting
Discount........... % % % % %
Proceeds to Seller... $ $ $ $ $
</TABLE>
CREDIT ENHANCEMENT
- The reserve fund, with an initial deposit of [$ ].
- The class B notes are subordinated to the class A-1 notes, the class A-2 notes
and the class A-3 notes, and the certificates are subordinated to the notes to
the extent described herein.
[The trust has applied to list the notes on the Luxembourg Stock Exchange and
for permission to deal in the notes on the Stock Exchange of Hong Kong Limited.]
[UNDERWRITERS]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS .
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS... S-6
SUMMARY OF TERMS............................................ S-9
RELEVANT PARTIES............................................ S-9
Issuer.................................................. S-9
Seller.................................................. S-9
Servicer................................................ S-9
Indenture Trustee....................................... S-9
Owner Trustee........................................... S-9
RELEVANT AGREEMENTS......................................... S-9
Indenture............................................... S-9
Trust Agreement......................................... S-9
Sale and Servicing Agreement............................ S-9
Administration Agreement................................ S-9
Purchase Agreement...................................... S-9
RELEVANT DATES.............................................. S-9
Closing Date............................................ S-9
Cutoff Date............................................. S-9
Payment Dates........................................... S-10
Final Scheduled Payment Dates........................... S-10
Record Date............................................. S-10
DESCRIPTION OF THE SECURITIES............................... S-10
Offered Notes........................................... S-10
Offered Certificates.................................... S-10
Receivables............................................. S-10
Terms of the Notes...................................... S-11
Terms of the Class C Certificates....................... S-12
Optional Redemption..................................... S-13
Credit Enhancement...................................... S-14
Reserve Fund............................................ S-14
Yield Supplement Account................................ S-15
Listing................................................. S-15
Tax Status.............................................. S-15
ERISA Considerations.................................... S-16
Eligibility for Purchase by Money Market Funds.......... S-16
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Ratings................................................. S-16
RISK FACTORS................................................ S-17
The class B notes and the class C certificates are
subject to greater credit risk because the class B notes
are subordinate to the class A-1 notes, the class A-2
notes and the class A-3 notes and the class C
certificates are subordinate to the notes............... S-17
The geographic concentration of the obligors and
performance of the receivables may increase the risk of
loss on your investment................................. S-17
Occurrence of events of default under the Indenture may
result in insufficient funds to make payments on your
securities.............................................. S-18
Paid-ahead simple interest contracts may affect the
weighted average life of the notes...................... S-18
The securities are not suitable investments for all
investors............................................... S-19
Withdrawal or downgrading of the initial ratings of the
notes and the class C certificates will affect the
prices for the notes and the class C certificates upon
resale.................................................. S-19
Prepayments on receivables may cause prepayments on the
securities, resulting in reinvestment risk to you....... S-19
Subordinated noteholders may not be able to direct the
indenture trustee upon an event of default under the
indenture and may have limited rights upon nonpayment of
interest and with respect to removal of the servicer.... S-20
Because the trust has limited assets, there is only
limited protection against potential losses............. S-21
Prepayments, potential losses and change in order of
priority of principal payments following an event of
default under the indenture............................. S-21
THE TRUST................................................... S-22
General................................................. S-22
CAPITALIZATION OF THE TRUST................................. S-23
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE................. S-23
THE RECEIVABLES............................................. S-23
MATURITY AND PREPAYMENT CONSIDERATIONS...................... S-27
DELINQUENCIES, REPOSSESSIONS AND LOAN LOSS INFORMATION...... S-27
WEIGHTED AVERAGE LIVES OF THE NOTES......................... S-30
NOTE FACTORS, CERTIFICATE FACTORS AND POOL FACTORS.......... S-33
USE OF PROCEEDS............................................. S-33
THE SELLER AND THE SERVICER................................. S-34
THE NOTES................................................... S-34
General................................................. S-34
Payments of Interest.................................... S-34
Payments of Principal................................... S-35
Indenture............................................... S-35
Notices................................................. S-36
Governing Law........................................... S-36
THE CERTIFICATES............................................ S-36
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
General................................................. S-36
Payments of Interest.................................... S-36
Payments of Principal................................... S-37
Notices................................................. S-37
Governing Law........................................... S-37
PAYMENTS ON THE NOTES AND THE CERTIFICATES.................. S-38
Calculation of Available Amounts........................ S-38
Payment of Distributable Amounts........................ S-39
SUBORDINATION; RESERVE FUND................................. S-43
Subordination........................................... S-43
Reserve Fund............................................ S-43
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS........ S-44
The Transfer and Servicing Agreements................... S-44
Sale and Assignment of Receivables...................... S-44
Accounts................................................ S-45
Collections............................................. S-45
Advances................................................ S-45
Servicing Compensation.................................. S-46
Yield Supplement Account and Yield Supplement
Agreement............................................... S-46
Net Deposits............................................ S-47
Optional Purchase....................................... S-47
Removal of Servicer..................................... S-47
Duties of the Owner Trustee and the Indenture Trustee... S-48
The Owner Trustee and the Indenture Trustee............. S-50
MATERIAL INCOME TAX CONSEQUENCES............................ S-51
Tax Characterization of the Trust....................... S-51
Treatment of the Notes as Indebtedness.................. S-51
ERISA CONSIDERATIONS........................................ S-51
The Notes............................................... S-51
The Certificates........................................ S-52
UNDERWRITING................................................ S-52
NOTICE TO CANADIAN RESIDENTS................................ S-55
Resale Restrictions..................................... S-55
Representations of Purchasers........................... S-55
Rights of Action (Ontario Purchasers)................... S-55
Enforcement of Legal Rights............................. S-55
Notice to British Columbia Residents.................... S-55
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
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<S> <C>
Taxation and Eligibility for Investment................. S-55
LEGAL OPINIONS.............................................. S-56
Index of Terms.......................................... S-57
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-5
<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-57 in this prospectus supplement and under the caption "Index of
Terms" beginning on page 96 in the accompanying prospectus.
S-6
<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-7
<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-8
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE NOTES AND THE
CERTIFICATES. YOU WILL FIND A DETAILED DESCRIPTION OF THE TERMS OF THE OFFERING
OF THE NOTES AND THE CERTIFICATES 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 AND THE CERTIFICATES. YOU SHOULD CONSIDER
BOTH DOCUMENTS WHEN MAKING YOUR INVESTMENT DECISION.
<TABLE>
<S> <C>
RELEVANT PARTIES
ISSUER..................................... Honda Auto Receivables Owner Trust [ - ].
The trust will be established by a trust agreement.
SELLER..................................... American Honda Receivables Corp.
SERVICER................................... American Honda Finance Corporation.
INDENTURE TRUSTEE.......................... [ ].
OWNER TRUSTEE.............................. [ ].
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, the owner
trustee and the Delaware 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 [ ].
CUTOFF DATE................................ [ ]
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
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
[ ].
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 B
notes, as described on the cover page.
OFFERED CERTIFICATES....................... The offered certificates consist of the class C
certificates, as described on the cover page.
The trust will also issue [$ ] initial principal
amount of class D certificates. The trust is not
offering the class D 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.
RECEIVABLES................................ The trust's main source of funds for making payments
on the notes and the certificates will be collections
on its motor vehicle retail installment sale
contracts, also known as the receivables.
The principal balance of the receivables on [ ],
referred to as the "cutoff date," was $[ ]. As
of [ ], the receivables had the following
characteristics:
- number of receivables..................... [ ]
- average principal balance................. [$ ]
- weighted average annual percentage rate.... [ %]
- weighted average remaining term to
maturity............................... [ months]
- approximate weighted average original
term to maturity....................... [ months]
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
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.
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 amount of interest due on each payment date for
any class of notes will equal the product of:
- the outstanding principal balance of the notes of
that class as of the preceding payment date (or in
the case of the first payment date, as of the
closing date); and
- one-twelfth of the interest rate for that class on
a per annum basis.
Interest on the notes will be determined on the basis
of a 360-day year consisting of twelve 30-day months
and/or the actual number of days in a 360-day year.
The interest rate for each class of notes is set
forth on the front cover of this prospectus
supplement.
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 collection period;
2. any prepayments (full or partial) on the
receivables allocable to principal received during
the prior collection period;
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
3. the principal balance of each receivable which the
seller or the servicer became obligated to
purchase; and
4. the principal balance of liquidated receivables.
Principal payments on the notes as described above
will be made from all available amounts after the
servicing fee and non-recoverable advances have been
paid and after payment of interest on the notes.
- 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 B 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, principal payments will be made
first to the holders of the class A-1 notes, the
class A-2 notes and the class A-3 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 and the class A-3
notes have been paid in full, 100% of the principal
distributable amount will be applied to make
principal payments on the class B notes until the
class B notes have been paid in full.
- FINAL MATURITY DATES: The trust must pay the
outstanding principal balance of each class of notes
by its final maturity date as follows:
</TABLE>
<TABLE>
<S> <C> <C>
CLASS FINAL MATURITY DATE
---------------- ----------------------
A-1 [ ]
A-2 [ ]
A-3 [ ]
B [ ]
</TABLE>
<TABLE>
<S> <C>
WE REFER YOU TO "PAYMENTS ON THE NOTES AND THE
CERTIFICATES-- CALCULATION OF AVAILABLE AMOUNTS" IN
THIS PROSPECTUS SUPPLEMENT FOR MORE DETAILED
INFORMATION REGARDING PAYMENTS OF PRINCIPAL ON THE
NOTES.
TERMS OF THE CLASS C CERTIFICATES.......... PAYMENT DATES:
Interest and principal on the class C certificates
will generally be payable on the 15th day of each
month, unless the 15th day is not a business day, in
which case the payment will be made on the following
business day. The first payment will be on [ ].
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
INTEREST:
The amount of interest due on each payment date for
the class C certificates will equal the product of:
- the outstanding certificate balance of the class C
certificates as of the preceding payment date (or
in the case of the first payment date, as of the
closing date); and
- one-twelfth of the pass through rate, on a per
annum basis.
Interest on the class C certificates will be
determined on the basis of a 360-day year consisting
of twelve 30-day months. The rate of interest for the
class C certificates is set forth on the front cover
of this prospectus supplement.
PRINCIPAL:
- AMOUNTS ALLOCATED TO THE CLASS C CERTIFICATES:
Principal of the certificates will be payable
generally in an amount equal to the class C
certificateholders' percentage of the principal
distributable amount.
Principal payments on the class C certificates as
described above will be made from all available
amounts after the following amounts have been
distributed:
1. the servicing fee and non-recoverable advances;
2. interest and principal on the notes; and
3. interest on the certificates.
- ORDER OF PAYMENT AMONG CLASSES: No principal
payments will be made on the certificates until the
principal on the notes has been paid in full and no
principal will be made on the class D certificates
until the class C certificates have been paid in
full.
- FINAL MATURITY DATE: The trust must pay the
outstanding principal balance of the class C
certificates by its final maturity date as follows:
</TABLE>
<TABLE>
<S> <C> <C>
CLASS FINAL MATURITY DATE
---------------- ----------------------
C [ ]
</TABLE>
<TABLE>
<S> <C>
WE REFER YOU TO "PAYMENTS ON THE NOTES AND THE
CERTIFICATES-- CALCULATION OF AVAILABLE AMOUNTS" IN
THIS PROSPECTUS SUPPLEMENT FOR MORE DETAILED
INFORMATION REGARDING PAYMENTS OF PRINCIPAL ON THE
CERTIFICATES.
OPTIONAL REDEMPTION........................ The servicer may 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.
</TABLE>
S-13
<PAGE>
<TABLE>
<S> <C>
WE REFER YOU TO "DESCRIPTION OF TRANSFER AND
SERVICING AGREEMENTS--OPTIONAL PURCHASE" in this
prospectus supplement for more detailed information.
CREDIT ENHANCEMENT......................... Credit enhancement of the notes and the offered
certificates will include the following:
1. The class B notes and the certificates will be
subordinated to the class A-1 notes, class A-2
notes and class A-3 notes;
2. The certificates will be subordinated to all
classes of notes; and
3. The class D certificates will be subordinated to
all classes of notes, the class C certificates and
the reserve fund.
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 class B notes, which
have an initial principal balance of [$ ] which
represents [ %] of the initial principal balance of
all the notes, will not receive any principal
distributions until all principal owing to the class
A-1 notes, the class A-2 notes and the class A-3
notes has been paid in full or any interest
distributions until all interest owing to the class
A-1 notes, the class A-2 notes and the class A-3
notes has been paid in full.
The certificates have an initial principal balance of
[$ ] and represent [ %] of the initial
principal balance of all the notes and the
certificates. The certificates will not receive any
principal distributions until all of the principal
and interest owing on the notes have been paid in
full. The class C certificates will not receive any
interest distributions until all interest owing on
the notes has been paid in full.
RESERVE FUND............................... On each payment date, the trust will use funds in the
reserve fund for distribution to the noteholders and
the holders of the class C certificates to cover any
shortfalls in interest and principal required to be
paid on the notes and the class C certificates.
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 deposit
[$ ] into the reserve fund, which is [ %] of
the initial aggregate principal balance of the
receivables as of the cut-off date, and which is less
than the specified reserve fund balance. On each
payment date, after making required payments to the
servicer and to the holders of the class A-1 notes,
the class A-2 notes, the class A-3 notes, the class B
notes and the class C certificates, the
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
trust will make a deposit into the reserve fund to
fund and maintain the specified reserve fund balance.
FOR MORE DETAILED INFORMATION ABOUT THE RESERVE FUND,
WE REFER YOU TO "SUBORDINATION; RESERVE FUND" IN THIS
PROSPECTUS SUPPLEMENT.
YIELD SUPPLEMENT ACCOUNT................... On each payment date, the trust will withdraw from
funds on deposit in the yield supplement account the
aggregate amount by which (1) one month's interest on
the principal balance of each receivable at a rate
equal to the weighted average interest rate on the
notes and the class C certificates plus 1.00% (the
servicing rate) exceeds (2) one month's interest on
that principal balance at the annual percentage rate
of that receivable.
On the closing date, the seller will deposit
[$ ] 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.
FOR DETAILED INFORMATION ABOUT THE YIELD SUPPLEMENT
ACCOUNT, WE REFER YOU TO "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENT--YIELD SUPPLEMENT ACCOUNT AND
YIELD SUPPLEMENT AGREEMENT" IN THIS PROSPECTUS
SUPPLEMENT.
LISTING.................................... [The trust has applied to list the notes on the
Luxembourg Stock Exchange and The Stock Exchange of
Hong Kong Limited. The trust has requested that the
listings be made effective on or about .]
TAX STATUS................................. Subject to important considerations described in this
prospectus supplement and the accompanying
prospectus, O'Melveny & Myers 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. If you purchase the certificates,
you will agree to treat the trust (1) as a
partnership in which the owners of the certificates
are partners or (2) if you are the sole 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-15
<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. The
certificates may not be acquired by an employee
benefit plan or by an individual retirement account.
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,
Moody's Investors Service, Inc. and Fitch IBCA, Inc.:
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
CLASS POOR'S MOODY'S
----- ----------------------- -----------------------
<S> <C> <C> <C>
A-1 [ ] [ ]
A-2 [ ] [ ]
A-3 [ ] [ ]
B [ ] [ ]
C [ ] [ ]
<CAPTION>
FITCH
-----------------------
<S> <C>
[ ]
[ ]
[ ]
[ ]
[ ]
</TABLE>
S-16
<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>
THE CLASS B NOTES AND THE If you buy the class B notes, you will bear a greater risk
CLASS C CERTIFICATES ARE than the holders of the class A-1 notes, the class A-2 notes
SUBJECT TO GREATER CREDIT RISK and the class A-3 notes because payments of interest and
BECAUSE THE CLASS B NOTES ARE principal on the class B notes are subordinated to payments
SUBORDINATED TO THE CLASS A-1 of interest and principal on the class A-1 notes, the class
NOTES, THE CLASS A-2 NOTES AND A-2 notes and the class A-3 notes to the extent described
THE CLASS A-3 NOTES AND THE below.
CLASS C CERTIFICATES ARE
SUBORDINATED TO THE NOTES. Interest payments on the class B notes on each payment date
will be subordinated to servicing fees and interest payments
on the class A-1 notes, the class A-2 notes and the class
A-3 notes. Principal payments on the class B notes will be
subordinated to principal payments on the class A-1 notes,
the class A-2 notes and the class A-3 notes. No interest
will be paid on the class B notes until interest owing to
the class A-1 notes, the class A-2 notes and the class A-3
notes has been paid in full, and no principal will be paid
on the class B notes until principal of the class A-1 notes,
the class A-2 notes and the class A-3 notes has been paid in
full.
If you buy the class C certificates, you will bear a greater
credit risk than the notes because payments of interest on
and principal of the class C certificates are subordinated
to payments of interest and principal on the notes. Interest
payments on the certificates on each payment date will be
subordinated to servicing fees and interest and principal
payments on the notes. In other words, no interest will be
paid on the certificates on any payment date until all
required interest and principal payments on the notes have
been made.
In addition, principal payments on the certificates will be
subordinated to principal payments on the notes because no
principal will be paid on the certificates until all
principal owing on the notes has 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.
</TABLE>
S-17
<PAGE>
<TABLE>
<S> <C>
As of [ ,] American Honda Finance Corporation's records
indicate that the billing addresses of the obligors of the
receivables were in the following states:
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
PRINCIPAL BALANCE
-------------------
<S> <C> <C>
%
%
%
%
%
</TABLE>
<TABLE>
<S> <C>
FOR A DISCUSSION OF THE BREAKDOWN OF THE RECEIVABLES BY
STATE, WE REFER YOU TO "THE RECEIVABLES" 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 specified
SECURITIES. classes of notes within five days of the due date, the
indenture trustee or the holders of the most senior class of
notes outstanding may declare the entire amount of the notes
to be due immediately. If this happens, the holders of a
majority of the most senior notes outstanding then may
direct the indenture trustee to sell the assets of this
trust and prepay the notes. After the trust pays the notes
with the proceeds of the liquidated assets and if the notes
are paid in full, the trust will distribute any remaining
trust assets to pay the certificates. There may not be
sufficient funds to pay the certificates in full under those
circumstances.
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 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.
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
The payment by the trust of the paid-ahead principal amount
on the securities will generally shorten the weighted
average life of the securities. 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.
THE SECURITIES ARE NOT The securities are not a suitable investment for any
SUITABLE INVESTMENTS FOR ALL investor that requires a regular or predictable schedule of
INVESTORS. payments or payment on specific dates. The securities are
complex investments that should be considered only by
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.
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 AND THE CERTIFICATES securities do not necessarily mean the same thing. You
WILL AFFECT THE PRICES FOR THE should analyze the significance of each rating independently
NOTES AND THE CLASS C from any other rating. A rating agency may change its rating
CERTIFICATES UPON RESALE. of the securities after the securities 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
securities.
PREPAYMENTS ON RECEIVABLES MAY You may receive payment of principal on your securities
CAUSE PREPAYMENTS ON THE earlier than you expected. If that happens, you may not be
SECURITIES, RESULTING IN able to reinvest the principal you receive at a rate as high
REINVESTMENT RISK TO YOU. as the rate on your securities. Prepayments on the
receivables will shorten the life of the securities 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-19
<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 securities.
If this is the case, the weighted average life of each class
of securities will be correspondingly shorter.
SUBORDINATED NOTEHOLDERS MAY If an event of default occurs under the indenture, only the
NOT BE ABLE TO DIRECT THE holders of the most senior class of notes outstanding (for
INDENTURE TRUSTEE UPON AN example, the class A notes, or after the class A notes have
EVENT OF DEFAULT UNDER THE been paid in full but the class B notes are still
INDENTURE AND MAY HAVE LIMITED outstanding, the class B notes) may waive such event of
RIGHTS UPON NONPAYMENT OF default, accelerate the maturity dates of the notes or
INTEREST AND WITH RESPECT TO direct or consent to any action under the indenture. The
REMOVAL OF THE SERVICER. holders of the outstanding subordinated class or classes of
notes will not have any rights to direct or to consent to
any action until each of the more senior class or classes of
notes have been paid in full.
The indenture also provides that failure to pay interest
when due on the outstanding subordinated class or classes of
notes (for example, for so long as any of the class A notes
are outstanding, the class B notes), will not entitle
holders of the subordinated notes to declare an event of
default, cause the maturity of the notes to be accelerated
or to direct or consent to any action under the indenture.
Holders of notes will also have the right under limited
circumstances to terminate the servicer prior to holders of
certificates. If you buy the certificates, you will not be
able to remove the servicer until the notes have been paid
in full.
WE REFER YOU TO "DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS--RIGHTS UPON SERVICER DEFAULT" AND "--WAIVER OF
PAST DEFAULTS" IN THE ACCOMPANYING PROSPECTUS.
</TABLE>
S-20
<PAGE>
<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 (or other form
PROTECTION AGAINST POTENTIAL of credit enhancement). The securities are not obligations
LOSSES. of, and will not be insured or guaranteed by, any
governmental agency or the seller, the servicer, American
Honda Motor Co., Inc., 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 securities. Although funds in the reserve
fund (or other form of credit enhancement) will be available
to cover shortfalls in payments of interest and principal on
each payment date, the amounts deposited in the reserve fund
(or other form of credit enhancement) will be limited. If
the entire reserve fund (or other form of credit
enhancement) has been used, the trust will depend solely on
current collections on the receivables to make payments on
the securities. Any excess amounts released from the reserve
fund (or other form of credit enhancement) 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.
PREPAYMENTS, POTENTIAL LOSSES An event of default under indenture, which could be caused
AND CHANGE IN THE ORDER OF by the failure of the trust to make payments of principal
PRIORITY OF PRINCIPAL PAYMENTS and/or interest, may result in prepayments of the securities
FOLLOWING AN EVENT OF DEFAULT and/or losses and changes in the priority of payments of the
UNDER THE INDENTURE MAY RESULT securities. If the trust fails to pay principal of the notes
IN A LOSS ON YOUR INVESTMENT. when due, or fails to pay interest on certain classes of
notes within five days of the due date, the indenture
trustee or a majority of the outstanding principal amount
the most senior class of note then outstanding may declare
the entire amount of the notes to be due immediately. If
this happens, the trust will pay all principal collections
to the noteholders until all principal on the notes has been
paid prior to any principal payments to certificateholders.
As a result, payments of principal on the certificates may
be substantially delayed. Also, if the trust fails to pay
principal on the notes when due, the holders of a majority
in outstanding principal amount of the most senior class of
notes then outstanding may direct the indenture trustee to
sell the assets of the related trust and prepay the notes.
Under these circumstances, the trust will not pay principal
or interest on the certificates until all principal and
interest on the notes has been paid. After the trust pays
the notes in full, the trust will distribute any remaining
trust assets to pay the certificates. The certificateholders
will not have any right to direct the indenture trustee or
to consent to any action until the notes are paid in full.
If the trust makes prepayments on the securities, you may
not be able to reinvest the prepaid amount at a rate of
return that is equal to or greater than the rate of return
on your securities. If the trust is required to sell the
receivables in the circumstances described above, the amount
received from the sale may not be sufficient to pay all
amounts owed to you.
WE REFER YOU TO "THE NOTES--INDENTURE--EVENTS OF
DEFAULT--RIGHTS UPON EVENT OF DEFAULT" IN THE ACCOMPANYING
PROSPECTUS.
</TABLE>
S-21
<PAGE>
THE TRUST
GENERAL
The Honda Auto Receivables [ - ] 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 [ ], 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 [$ ], excluding amounts deposited in the
Reserve Fund. Class D certificates with an original principal balance of
[$ ] will be sold to the Seller and the class C certificates may be
sold to third party investors that are expected to be unaffiliated with the
Seller, the Servicer or their affiliates or the Trust. The equity of the Trust,
together with the net proceeds from the sale of the notes and the certificates,
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 and the
Yield Supplement Account will be maintained by the Indenture Trustee for the
benefit of the Noteholders and the Class C Certificateholders.
The Trust's principal offices are in [ ], in care of
[ ], as Owner Trustee, at the address set forth below under "The
Owner Trustee and the Indenture Trustee."
S-22
<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 the certificates had
taken place on that date:
[TABLE]
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
[ ] is the Owner Trustee under the Trust Agreement.
[ ] is a [ ] and its principal executive offices are
located at . The Seller and its affiliates may maintain normal
commercial banking relations with the Owner Trustee and its affiliates.
[ ] is the trustee under the Indenture (the "Indenture Trustee").
[ ] is a [ ] and its principal executive offices are
located at [ ]. 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 [ ], 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 [ ] (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 [ ]% to
[ ]%;
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;
4. has a remaining term to maturity of not less than [ ] months and not
more than [ ] months;
5. is not more than [ ] days past due;
6. was originated prior to [ ];
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).
S-23
<PAGE>
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 [ ]% and [ ]% of the Receivables (based on the Initial Pool
Balance) constitute Precomputed Receivables and Simple Interest Receivables,
respectively. By aggregate principal balance, approximately [ ]% of the
Receivables constitute Precomputed Receivables and approximately [ ]% of the
Receivables constitute Simple Interest Receivables. 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................................. $
Number of Receivables.......................................
Average Principal Balance................................... $
Average Original Amount Financed............................ $
Range of Original Amount Financed......................... $ to
$
Weighted Average APR(1)..................................... %
Range of APRs............................................. % to
%
Approximate Weighted Average Original Term to Maturity(1)... months to
Range of Original Maturities.............................. months
Weighted Average Remaining Maturity(1)...................... months
Range of Original Maturities.............................. months to
months
Percentage by Principal Balance of Receivables of New and % (New)
Used Motor Vehicles....................................... % (Used)
Percentage by Principal Balance of Receivables Financed % (Honda)
through Honda and Acura Dealers........................... % (Acura)
</TABLE>
------------------------
(1) Weighted by Principal Balance as of the Cutoff Date.
S-24
<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>
Totals........................................
</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 RECEIVABLES RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
----- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Alabama..................................
Alaska...................................
Arizona..................................
Arkansas.................................
California...............................
Colorado.................................
Connecticut..............................
Delaware.................................
Florida..................................
Georgia..................................
Hawaii...................................
Idaho....................................
Illinois.................................
Indiana..................................
Iowa.....................................
Kansas...................................
Kentucky.................................
Louisiana................................
Maine....................................
Maryland.................................
Massachusetts............................
Michigan.................................
Minnesota................................
Mississippi..............................
Missouri.................................
Montana..................................
Nebraska.................................
Nevada...................................
New Hampshire............................
New Jersey...............................
</TABLE>
S-25
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE PERCENTAGE
NUMBER OF NUMBER OF CUTOFF DATE OF INITIAL
STATE RECEIVABLES RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
----- ----------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
New Mexico...............................
New York.................................
North Carolina...........................
North Dakota.............................
Ohio.....................................
Oklahoma.................................
Oregon...................................
Pennsylvania.............................
Rhode Island.............................
South Carolina...........................
South Dakota.............................
Tennessee................................
Texas....................................
Utah.....................................
Vermont..................................
Virginia.................................
Washington...............................
West Virginia............................
Wisconsin................................
Wyoming..................................
Total....................................
</TABLE>
S-26
<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 B
notes until the class A-3 notes have been paid in full. In addition, no
principal payments will be made on the class C certificates until all of the
notes have been paid in full. WE REFER YOU TO "PAYMENTS ON THE NOTES AND THE
CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
Because the rate of payment of principal of each class of notes and the
certificates depends primarily on the rate of payment (including prepayments) of
the principal balance of the Receivables, final payment of any class of notes
and the final payment in respect of the certificates could occur significantly
earlier or later than their respective final scheduled Payment Dates set forth
under "Payments on the Notes and the Certificates" (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 securities. No prediction can be
made as to the rate of prepayments on the Receivables in either stable or
changing interest rate environments.
The certificates will provide limited protection against losses on the
Receivables. Accordingly, the return on the certificates will be extremely
sensitive to the loss experience of the Receivables and the timing of any of
those losses. If the actual rate and amount of losses experienced by the
Receivables exceed the rate and amount of those losses assumed by an investor,
the yield to maturity on the certificates may be lower than anticipated.
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 the yield to the Securityholders. 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
S-27
<PAGE>
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 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 OR FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount
Outstanding(2)............. $5,961,674 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Delinquencies(3)
30-59 Days................. $ 46,299 $ 30,781 $ 29,330 $ 37,070 $ 19,222
60-89 Days................. 6,693 4,847 4,400 6,327 2,937
90 Days or More............ 2,463 1,576 1,699 2,911 1,322
Repossessions(4)........... 8,300 7,968 7,438 13,334 5,423
---------- ---------- ---------- ---------- ----------
Total Delinquencies and
Repossessions............ $ 63,755 $ 45,173 $ 42,867 $ 59,642 $ 28,904
Total Delinquencies and
Repossessions as a
Percentage of Principal
Amount Outstanding......... 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 net of 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-28
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
AT OR FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount
Outstanding(2)............. $5,961,674 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Average Principal Amount
Outstanding(3)............. $5,146,609 $3,727,024 $2,675,524 $2,545,288 $1,842,750
Number of Contracts
Outstanding................ 544,143 388,012 278,261 235,521 190,042
Average Number of Contracts
Outstanding(3)............. 478,517 351,693 252,723 228,287 162,955
Number of Repossessions...... 3,092 2,968 3,576 3,166 2,175
Number of Repossessions as a
Percentage of the Average
Number of Contracts
Outstanding................ 0.65% 0.84% 1.42% 1.39% 1.34%
Gross Charge-Offs(4)......... $ 24,626 $ 25,119 $ 32,598 $ 25,857 $ 14,701
Recoveries(5)................ 10,043 10,719 8,245 6,014 3,940
---------- ---------- ---------- ---------- ----------
Net Losses................... $ 14,583 $ 14,399 $ 24,353 $ 19,843 $ 10,761
Net Losses as a Percentage of
Average Principal Amount
Outstanding................ 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.
S-29
<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% 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 Note Principal at Various ABS
Percentages" and "Percentage of Initial Class B Note Principal and Class C
Certificate Balance 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) 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 [ ]. The ABS Tables indicate the projected weighted average
life of each class of notes and the class C certificates and sets forth the
percent of the initial principal amount of each class of notes and the
certificate balance of the class C certificates 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.
S-30
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL
AGGREGATE REMAINING TERM TERM TO
NUMBER OF PRINCIPAL TO MATURITY MATURITY (IN
POOL RECEIVABLES BALANCE APR (IN MONTHS) MONTHS)
---- ----------- --------- --- -------------- ------------
<S> <C> <C> <C> <C> <C>
</TABLE>
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS 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 and the class C certificates.
PERCENTAGE OF INITIAL CLASS A NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
PAYMENT DATE CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Weighted
Average Life
(years)(1).......................................
Weighted
Average Life
(years)(1)(2)....................................
</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.
This Table has been prepared based on the assumptions described on page S-32
(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-31
<PAGE>
PERCENTAGE OF INITIAL CLASS B NOTE PRINCIPAL AND CLASS C CERTIFICATE BALANCE AT
VARIOUS ABS PERCENTAGES
<TABLE>
<CAPTION>
CLASS C
PAYMENT DATE CLASS B NOTES CERTIFICATES
------------ ------------- ------------
<S> <C> <C>
Weighted
Average Life
(years)(1)................................................
Weighted
Average Life
(years)(1)(2).............................................
</TABLE>
------------------------------
(1) The weighed average life of a note or a certificate is determined by
(x) multiplying the amount of each principal payment on a note or a
certificate 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 or a certificate.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
This Table has been prepared based on the assumptions described on page S-32
(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, CERTIFICATE FACTORS AND POOL 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. Each principal amount
will be computed by allocating payments in respect of the Receivables to
principal and interest using the simple interest method. 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.
The "Certificate Pool Factor" with respect to any class of certificates will
be a seven-digit decimal indicating the Certificate Balance of that class of
certificates as of the close of business on the Payment Date in that month as a
fraction of the Initial Certificate Balance of that class. The Servicer will
compute the Certificate Pool Factor each month for each class of certificates.
Each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the Certificate Balance. Each Certificate
Balance will be computed by allocating payments in respect of the Receivables to
principal and interest using the simple interest method. The portion of the
Certificate Balance for any class of certificates for a given month allocable to
a Certificateholder can be determined by multiplying the original denomination
of the holder's certificate by the related Certificate 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, Certificate 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
(approximately $ ) to purchase the Receivables from AHFC pursuant to
the Purchase Agreement and to fund the Reserve Fund.
S-33
<PAGE>
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 [ ].
Interest on the outstanding principal amount of each class of 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 (each, an "Interest Period").
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 notes, the class A-3 notes and the class B 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 and non-recoverable Advances have been paid. WE REFER
YOU TO "SUBORDINATION; RESERVE FUND--RESERVE FUND" AND "PAYMENTS ON THE NOTES
AND THE CERTIFICATES" IN THIS PROSPECTUS SUPPLEMENT.
Interest payments to holders of the class A-1 notes, the class A-2 notes and
the class A-3 notes (collectively, the "Class A 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 Class A 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.
Interest payments to the holders of the class B notes will be subordinated
to the interest payments on the Class A Notes. Interest on the class B notes
will not be paid until all accrued and unpaid interest on the Class A Notes has
been paid in full.
S-34
<PAGE>
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 and the
Certificates--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 and
non-recoverable Advances have been paid and after the Noteholders' Interest
Distributable Amount has been distributed. 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 B notes until Class A 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, the class A-2 notes and the class A-3 notes (the "Class A
Noteholders") on a pro rata basis based on the principal balance of that class
of outstanding notes. Beginning on the Payment Date on which the Class A 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 each of the class B notes (the
"Class B Noteholders" and together with the "Class A Noteholders", the
"Noteholders") until the class B notes 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 AND THE CERTIFICATES--PAYMENT OF
DISTRIBUTABLE AMOUNTS" IN THIS PROSPECTUS SUPPLEMENT.
INDENTURE
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. Subject to the following
paragraph, 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 (to the extent described
in the following paragraph). 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.
Notwithstanding the description of Events of Default and resulting rights of
Noteholders in the accompanying prospectus under the caption "The
Notes--Indenture--Events of Default; Rights Upon Event of Default," until the
Class A Notes have been paid in full, the failure to pay interest due on the
class B notes will not be an Event of Default. Pursuant to the Trust Indenture
Act of 1939, as amended, the Indenture Trustee may be deemed to have a conflict
of interest and be required to resign as trustee for the Class A Notes or the
class B notes if a default occurs under the Indenture. In these
S-35
<PAGE>
circumstances, the Indenture will provide for one or more successor Indenture
Trustees to be appointed for the Class A Notes and the class B notes in order
that there be separate Indenture Trustees for the Class A Note and the Class B
Notes. So long as any amounts remain unpaid with respect to the Class A Notes,
only the Indenture Trustee for the Class A Noteholders will have the right to
exercise remedies under the Indenture (but the Class B Noteholders will be
entitled to their respective shares of any proceeds of enforcement, subject to
the subordination of the class B notes to the Class A Notes as described
herein), and only the Class A Noteholders will have the right to waive the
Events of Default or Servicer Defaults or direct or consent to any action to be
taken, including sale of the Receivables, until the Class A Notes are paid in
full. Upon repayment of the Class A Notes in full, all rights to exercise
remedies under the Indenture will transfer to the Indenture Trustee for the
class B notes. Any resignation of the original Indenture Trustee as described
above with respect to any class of notes will become effective only upon the
appointment of a successor Indenture Trustee for such class of notes and such
successor's acceptance of such appointment.
Each Class B Noteholder, by accepting its interest in a class B note, will
be deemed to have consented to any such delay in payment of interest on such
class of notes and to have waived its right to institute suit for enforcement of
any such payment, in each case in the circumstances and to the extent described
above.
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 New York 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.
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 the per annum pass through rate set forth in "Payments on the Notes and
Certificates" in this prospectus supplement (the "Pass Through Rate") and will
be payable to the holders of record of the certificates (the
"Certificateholders") on the related Payment Date.
S-36
<PAGE>
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 class C 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.
Interest distributions with respect to the class D certificates generally
will be made from Available Amounts after payment of all of the foregoing and
also after (1) distribution of interest and principal due and payable in respect
of the class C certificates and (2) depositing of funds in the Reserve Fund so
that the amount on deposit in that account equals the Specified Reserve Fund
Balance. WE REFER YOU TO "PAYMENTS ON THE NOTES AND THE CERTIFICATES--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 on
that amount at the Pass Through Rate (to the extent lawful).
PAYMENTS OF PRINCIPAL
No principal will be paid on the class C certificates until the Payment Date
on which all of the notes have been paid in full. On that Payment Date and each
Payment Date thereafter, principal payments of the class C certificates will be
payable in an amount equal to the class C Certificateholders' Percentage of the
Principal Distributable Amount. Principal payments on the class C certificates
will be made from Available Amounts after:
1. payment of the Servicing Fee; and
2. distribution of the Noteholders' Distributable Amounts to the
Noteholders.
No principal payments will be made on the class D certificates until the
class C certificates have been paid in full. Principal payments of the class D
certificates will be made from Available Amounts after all payment of the
foregoing and also after (1) distribution of interest and principal due and
payable in respect of the class C certificates and (2) depositing of funds in
the Reserve Fund so that the amount on deposit in that account equals the
Specified Reserve Fund Balance.
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.
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.
S-37
<PAGE>
PAYMENTS ON THE NOTES AND THE CERTIFICATES
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 Deposit, 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 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 proceeds of the liquidation of Defaulted Receivables, net of
expenses incurred by the Servicer in accordance with its customary
servicing procedures in connection with the liquidation, including
amounts received in subsequent Collection Periods ("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;
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 Deposits.
"Available Principal" for a Payment Date will equal the sum of the amounts
described in clauses (1) through (5) above received or allocated by the Servicer
in respect of principal on or in respect of
S-38
<PAGE>
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;
2. Net Liquidation Proceeds with respect to a particular Receivable to the
extent of unreimbursed Advances in respect of that Receivable; and
3. recoveries from collections with respect to Advances that the Servicer
has determined are unlikely to be repaid.
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 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 Noteholders, the Noteholders' Interest Distributable Amount, from
Available Amounts (after giving effect to the reduction in Available
Amounts described in clause (1) above);
3. to the holders of record of the class C certificates (the "Class C
Certificateholders"), the Certificateholders' Interest Distributable
Amount for the class C certificates, from Available Amounts (after giving
effect to the reduction in Available Amounts described in clauses
(1) through (2) above);
4. to the Noteholders, the Noteholders' Principal Distributable Amount,
from Available Amounts (after giving effect to the reduction in Available
Amounts described in clauses (1) through (3) above);
5. to the Class C Certificateholders, the Certificateholders' Principal
Distributable Amount for the class C certificates, from Available Amounts
(after giving effect to the reduction in Available Amounts described in
clauses (1) through (4) above);
6. to the Reserve Fund, from Available Amounts (after giving effect to the
reduction in Available Amounts described in clauses (1) through
(5) above and that amount being the "Excess Amount"), that amount until
the amount on deposit in that account equals the Specified Reserve Fund
Balance;
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7. to the holders of record of the class D certificates (the "Class D
Certificateholders"), the Certificateholders' Interest Distributable
Amount for the class D certificates, from Available Amounts (after giving
effect to the reduction in Available Amounts described in clauses
(1) through (6) above);
8. after the Class C Certificateholders have been paid in full, to the
Class D Certificateholders, the Certificateholders' Principal
Distributable Amount for the class D certificates, from Available Amounts
(after giving effect to the reduction in Available Amounts described in
clauses (1) through (7) above); and
9. any Available Amounts remaining after giving effect to the reduction in
Available Amounts described in clauses (1) through (8) above, to the
Seller.
Noteholders' Principal Distributable Amount 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 the class A-2 notes
have been paid in full; or
3. the class B notes until the class A-1 notes, the class A-2 notes and the
class A-3 notes have been paid in full.
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.
No principal payments on the certificates will be made until all of the
notes have been paid in full. Thereafter, the Certificateholders' Principal
Distributable Amount will be allocated among the certificates so that no
principal payments will be made on the class D certificates until the class C
certificates have been paid in full. Notwithstanding the foregoing, if amounts
actually allocated to the Class C Certificateholders on any Payment Date is less
than the Certificateholders' Distributable Amount, funds will be withdrawn from
the Reserve Fund (after funds have been withdrawn for the benefit of the
Noteholders) so that an amount equal to the Certificateholders' Distributable
Amount for the class C certificates may be allocated to the Class C
Certificateholders.
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 for all classes of certificates plus the Certificateholders' Principal
Distributable Amount for that Payment Date for the class C certificates.
The "Certificateholders' Interest Distributable Amount" will mean, with
respect to any Payment Date and a class of certificates, the sum of the
Certificateholders' Monthly Interest Distributable Amount for that class and the
Certificateholders' Interest Carryover Shortfall for that class for one or more
prior Payment Dates.
The "Certificateholders' Interest Carryover Shortfall" will mean, with
respect to any Payment Date and a class of certificates, 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 for that class 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 related Pass Through Rate for the related Interest Period.
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The "Certificateholders' Monthly Interest Distributable Amount" will mean,
with respect to any Payment Date and a class of certificates, interest accrued
for the related Interest Period at the related Pass Through Rate for that class
of certificates on the Certificate Balance of that class on the immediately
preceding Payment Date, after giving effect to all payments of principal to
Certificateholders of that class on or prior to that Payment Date (or, in the
case of the first Payment Date, on the Initial Certificate Balance of that class
of certificates). The "Initial Certificate Balance" will equal $ for
the class C certificates and $ for the class D certificates, and the
"Certificate Balance," for any Payment Date and a class of certificates, will
equal the Initial Certificate Balance of that class, reduced by all amounts
distributed on or prior to that Payment Date on the certificates of that class
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 all of the notes have been paid in full, 0%;
and
2. thereafter, 100%.
The "Certificateholders' Principal Carryover Shortfall" will mean, with
respect to any Payment Date and a class of certificates, the excess of the
Certificateholders' Monthly Principal Distributable Amount for that class plus
any outstanding Certificateholders' Principal Carryover Shortfall of that class
for the preceding Payment Date, over the amount in respect of principal that is
actually distributed to the Certificateholders of that class on that Payment
Date.
The "Certificateholders' Principal Distributable Amount" will mean, with
respect to any Payment Date and a class of certificates, the sum of:
1. the Certificateholders' Monthly Principal Distributable Amount for that
Payment Date;
2. any outstanding Certificateholders' 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 certificates, the
amount necessary to reduce the outstanding principal amount of that class
of certificates to zero; provided, however, that the Certificateholders'
Principal Distributable Amount with respect to a class of certificates
shall not exceed the Certificate Balance of that class of certificates.
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 for one or more prior Payment Dates.
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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 all of the notes
have been paid in full, 100%; and
2. thereafter, 0%.
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. the principal portion of all payments actually received on the
Receivables during that Collection Period;
2. the principal portion of all prepayments and partial prepayments
received during that Collection Period (to the extent those amounts are
not included in clause (1) above); 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).
The Principal Distributable Amount shall include (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, and (c) the principal portion of all Prepayments on Simple Interest
Receivables and Prepayments on Precomputed Receivables received only the related
Collection Period (to the extent such amounts are not included in (a) and (b)).
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SUBORDINATION; RESERVE FUND
The rights of the Noteholders and the Certificateholders to receive payments
with respect to the Receivables will be subordinated to the rights of the
Servicer to receive the Servicing Fee, any additional servicing compensation
described under "Description of the Transfer and Servicing Agreements--Servicing
Compensation" in this prospectus supplement and the reimbursement of outstanding
Advances.
SUBORDINATION
In addition, the rights of the Noteholders to receive distributions on the
Receivables will be subject to the priorities set forth under "Description of
the Securities--Terms of the Notes" and "Payments on the Notes and the
Certificates--Payment of Distributable Amounts" in this prospectus supplement.
The rights of the Certificateholders to receive payments on the Receivables will
be subordinated to the rights of the Noteholders to the extent described herein.
The rights of the Class D Certificateholders to receive payments on the
Receivables will be further subordinated to the rights of the Class C
Certificateholders and the maintenance of amounts on deposit in the Reserve Fund
at the Specified Reserve Fund Balance, in each case to the extent described
herein.
RESERVE FUND
The protection afforded to the Noteholders through subordination 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 and the establishment of the Reserve Fund. Although the class C
certificates are subordinated to the rights of the Noteholders, the Class C
Certificateholders have a preferential right to receive current distributions on
the Receivables before the Class D Certificateholders to the extent described in
this prospectus supplement and the establishment of the Reserve Fund. The
Reserve Fund will be a segregated account in the name of the Indenture Trustee.
The Reserve Fund will be created with an initial deposit by the Seller on the
Closing Date of an amount equal to $ (the "Reserve Fund Initial
Deposit") which is less than the Specified Reserve Fund Balance. 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 holders of the notes and the Class C Certificateholders 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 Class D Certificateholders
pursuant to clauses (7) and (8) in the first paragraph under "Payments on the
Notes and the Certificates--Payment of Distributable Amounts" in this prospectus
supplement. Upon any distribution to the Class D Certificateholders of amounts
in excess of the Specified Reserve Fund Balance, the Noteholders will not have
any rights in, or claims to, those amounts. Any excess amounts remaining
thereafter will be paid to the Seller.
The "Specified Reserve Fund Balance" will initially be [ ].
However, on any Payment Date, the Specified Reserve Fund Balance will be an
amount equal to [ ].
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
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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 or the class C
certificates, 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 or
Certificateholder, to reflect the new calculation.
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. In that
event, the Class C Certificateholders will first incur the losses, but the
Class B Noteholders will be the second to incur those losses because payments of
principal of and interest on the class B notes are subordinated to payments of
principal of and interest on the Class A Notes.
To a lesser extent, the Reserve Fund and the subordination of the class D
certificates are intended to enhance the likelihood of receipt by the Class C
Certificateholders of the full amount of principal and interest due them and to
decrease the likelihood that the Class C Certificateholders will experience
losses. However, the right of the Class C Certificateholders to the amounts on
deposit in the Reserve Fund is subordinated to the similar right of the
Noteholders and, in any event, 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, the Class C Certificateholders could incur
losses or suffer a temporary shortfall in the amounts distributed to the
Certificateholders.
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 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.
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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 and/or
the Certificateholders.
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 (each, a "Prepayment") and all other
Excess Payments on Precomputed Receivables will be held by the Servicer as a
Payment Ahead (or if the Servicer has not satisfied particular requirements,
deposit in the Payahead Account) and on Simple Interest Receivables will be
applied as a partial prepayment.
On each Deposit Date, the Indenture Trustee will cause (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) the Yield Supplement Withdrawal Amount to be deposited into the Collection
Account.
ADVANCES
On or before the Business Day prior to each 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
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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 Initial Pool Balance (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. 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 and the class C certificates, 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 AND YIELD SUPPLEMENT AGREEMENT
Payments of the Yield Supplement Deposits will be made from funds on deposit
in a segregated trust account to be established by the Seller and pledged to and
maintained with the Indenture Trustee for the benefit of the Noteholders and the
Class C Certificateholders (the "Yield Supplement Account"). The "Yield
Supplement Deposit" for each Collection Period means an aggregate amount (if
positive), calculated by the Servicer, by which:
- one month's interest on the principal balance as of the first day of that
Collection Period of each Yield Supplemented Receivable (other than a
Liquidated Receivable, after the Collection Period in which that
Receivable became a Liquidated Receivable) at a rate equal to the Required
Rate exceeds
- one month's interest on that principal balance at that Yield Supplemented
Receivable's APR.
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"Yield Supplemented Receivables" are Receivables that have APRs which are
less than the Required Rate. The "Required Rate" means, with respect to any
Payment Date, the sum of the weighted average Interest Rate for the notes and
the Pass Through Rate for the class C certificates and 1.00%. The initial amount
of the Yield Supplement Account will be $[ ] (the "Initial Yield Supplement
Amount").
If the Yield Supplement Deposits for any Payment Date exceed the amount
available for withdrawal from the Yield Supplement Account on that Payment Date,
the Seller will not have any further obligation under the Yield Supplement
Agreement to deposit any further amounts into the Yield Supplement Account. The
amount required to be on deposit in the Yield Supplement Account (the "Required
Yield Supplement Amount") will be equal to the lesser of:
- maximum aggregate Yield Supplement Deposits that will become due under the
Yield Supplement Agreement, assuming that payments on the Receivables are
made on their scheduled due dates and that no Receivable becomes a prepaid
Receivable, or
- the Initial Yield Supplement Amount.
The maximum aggregate Yield Supplement Deposits may decline as a result of
prepayments or repayments in full of the Receivables. To the extent that on any
Payment Date the amount on deposit in the Yield Supplement Account exceeds the
Required Yield Supplement Amount on that Payment Date, the excess will be paid
to the Seller. The Yield Supplement Account will not be part of the Trust.
Simultaneously with the sale and assignment of the Receivables by AHFC to
the Seller, the Seller will enter into the Yield Supplement Agreement with the
Indenture Trustee and the Servicer. The Seller will assign the Yield Supplement
Agreement to the Trust.
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 and the certificates 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 Initial Pool Balance, 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 of the class C certificates and class D certificates on the
date of the optional purchase plus accrued and unpaid interest on the
certificates.
REMOVAL OF SERVICER
The Indenture Trustee or Noteholders evidencing not less than 51% of the
voting interests of the most senior class of 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
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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 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 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 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, 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 or certificates evidencing not less than 25% of the voting
interests of the notes or certificates, voting together as a single
class; and
3. the occurrence of an Insolvency Event of 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 and motorcycle 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 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
S-48
<PAGE>
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. No
Certificateholder will have any right under the Trust Agreement to institute any
proceeding with respect to the Trust Agreement, other than with respect to the
failure by the Seller or the Servicer, as applicable, to remit payment, unless
that Certificateholder has previously given to the Owner Trustee written notice
of default and unless the holders of certificates evidencing not less than 25%
of the voting interests of the certificates, voting together as a single class,
have made written request upon the Owner Trustee to institute that proceeding in
its own name as the Owner Trustee under the Trust Agreement and have offered to
the Owner Trustee reasonable indemnity and the Owner Trustee for 30 days has
neglected or refused to institute that proceeding.
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.
S-49
<PAGE>
THE OWNER TRUSTEE AND THE INDENTURE TRUSTEE
[ ] will be the Owner Trustee under the Trust Agreement. As a
matter of [New York] 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. [ ] will be the 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 Trust Agreement will provide that the Servicer will pay the fees of the
Owner Trustee and the Indenture Trustee in connection with their duties under
the Trust Agreement and Indenture, respectively. The Trust Agreement and
Indenture will further provide that 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 Trust Agreement and the Indenture will
further provide that the Seller and the Servicer will indemnify the Owner
Trustee and the Indenture Trustee for specified taxes that may be asserted in
connection with the transaction.
S-50
<PAGE>
MATERIAL INCOME TAX CONSEQUENCES
TAX CHARACTERIZATION OF THE TRUST
In the opinion of O'Melveny & Myers 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 certificates, 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.
WE REFER YOU TO THE DISCUSSION UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX
TREATMENT OF OWNER TRUSTS" IN THE ACCOMPANYING PROSPECTUS.
ERISA CONSIDERATIONS
THE NOTES
The notes may be purchased by an employee benefit plan or an individual
retirement account (a "Plan") subject to ERISA or Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Plan must
determine that the purchase of a note is consistent with its fiduciary duties
under ERISA and does not result in a nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of the Code. For additional information
regarding treatment of the notes under ERISA, see "ERISA Considerations" in the
accompanying prospectus.
The notes may not be purchased with the assets of a Plan if the Seller, the
Servicer, the Indenture Trustee, the Owner Trustee or any of their affiliates:
1. is a "fiduciary" as defined in Section 3(21) of ERISA or
Section 4975(e)(3) of the Code with respect to those Plan assets; or
2. is an employer maintaining or contributing to the Plan;
S-51
<PAGE>
or if a Certificateholder is a fiduciary with respect to those Plan assets and
participates in the decision to acquire the notes.
THE CERTIFICATES
The certificates may not be acquired by a Plan or any entity whose
underlying assets include Plan assets by reason of a Plan's investment in the
entity or which uses Plan assets to acquire certificates (a "Plan Investor"). By
its acceptance of a certificate, each Certificateholder will be deemed to have
represented and warranted that it is not subject to the foregoing limitation. In
addition, a purchaser of certificates other than a Plan Investor should be aware
that a prohibited transaction could occur if a Certificateholder (or any of its
affiliates) is or becomes a party in interest or a disqualified person with
respect to a Plan Investor that purchases and holds any notes unless covered by
one or more applicable exemptions.
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Note Underwriting Agreement"), the Seller has agreed to cause the Trust to
sell to each of the note underwriters named below (collectively, the "Note
Underwriters"), and each of the Note Underwriters has severally but not jointly
agreed to purchase, the principal amount of notes set forth opposite its name
below:
[TABLE]
In the Note Underwriting Agreement, the Note Underwriters have agreed,
subject to the terms and conditions set forth in the Note Underwriting
Agreement, to purchase all of the notes if any of the notes are purchased. This
obligation of the Note Underwriters is subject to specified conditions precedent
set forth in the Note Underwriting Agreement.
The Seller has been advised by the Note 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>
</TABLE>
After the initial public offering of the notes, the Note Underwriters may
change the public offering price and selling and reallowance concessions.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Certificate Underwriting Agreement"), the Seller has agreed to cause the
Trust to sell to each of the certificate underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally but not
jointly agreed to purchase, the principal amount of the class C certificates set
forth opposite its name below:
[TABLE]
In the Certificate Underwriting Agreement, the Certificate Underwriters have
agreed, subject to the terms and conditions set forth in the Certificate
Underwriting Agreement, to purchase all of the
S-52
<PAGE>
class C certificates if any of the class C certificates are purchased. This
obligation of the Certificate Underwriters is subject to specified conditions
precedent set forth in the Certificate Underwriting Agreement. The Seller has
been advised by the Certificate Underwriters that they propose to offer the
class C certificates to the public initially at the price set forth on the cover
of this prospectus supplement, and to some other dealers at these prices less
the concessions and reallowance discounts set forth below.
<TABLE>
<CAPTION>
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
----- ------------------ --------------------
<S> <C> <C>
</TABLE>
After the initial public offering of the class C certificates, the
Certificate Underwriters may change the public offering price and the selling
and reallowance concessions.
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 and the certificates are new issues of securities with no
established trading markets. The Seller has been advised by the Note
Underwriters that they intend to make a market in the notes of each class and
has been advised by the Certificate Underwriters that they intend to make a
market in the certificates, in each case as permitted by applicable laws and
regulations. The Underwriters are not obligated, however, to make a market in
the notes of any class or the certificates, 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 or the certificates.
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
stabilizing or maintaining the market price of the Securities 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 Securities 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 Securities 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 Security to the extent that it discourages resale of
that Security. Neither the Seller nor the Underwriters makes any representation
or prediction
S-53
<PAGE>
as to the direction or magnitude of any of that effect on the prices for the
Securities. 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 [ ] 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 [ ]
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.
S-54
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the notes in Canada is being made only on a private
placement basis exempt from the requirement that the Seller, on behalf of the
Trust, prepare and file a prospectus with the securities regulatory authorities
in each province where trades of notes are effected. Accordingly, any resale of
the notes in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of notes in Canada who receives a purchase confirmation will
be deemed to represent to the Seller, the Servicer, the related trustee, the
Trust and the dealer from whom such purchase confirmation is received that
(i) such purchaser is entitled under applicable provincial securities laws to
purchase such notes without the benefit of a prospectus qualified under such
securities laws, (ii) where required by law, that such purchaser is purchasing
as principal and not as agent, and (iii) such purchaser has reviewed the text
above under "--Resale Restrictions".
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the SECURITIES ACT (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of notes to whom the SECURITIES ACT (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Seller. Only one such report must be
filed in respect of notes acquired on the same date and under the same
prospectus exemption.
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.
S-55
<PAGE>
LEGAL OPINIONS
In addition to the legal opinions described in the accompanying prospectus,
legal matters relating to the notes and the certificates and federal income tax
and California state income tax and other matters will be passed upon for the
Trust by O'Melveny & Myers LLP. Certain legal matters will be passed upon for
the Underwriters by Stroock & Stroock & Lavan LLP.
S-56
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
ABS................................... S-31
ABS Tables............................ S-31
Advance............................... S-49
AHFC.................................. S-23
APR................................... S-24
Available Amounts..................... S-41
Available Interest.................... S-41
Available Principal................... S-41
Certificate Balance................... S-44
Certificate Owners.................... S-54
Certificate Pool Factor............... S-34
Certificate Underwriters.............. S-55
Certificate Underwriting Agreement.... S-55
Certificateholders.................... S-39
Certificateholders' Distributable
Amount.............................. S-43
Certificateholders' Interest Carryover
Shortfall........................... S-43
Certificateholders' Interest
Distributable Amount................ S-43
Certificateholders' Monthly Interest
Distributable Amount................ S-44
Certificateholders' Monthly Principal
Distributable Amount................ S-44
Certificateholders' Percentage........ S-45
Certificateholders' Principal
Carryover Shortfall................. S-45
Certificateholders' Principal
Distributable Amount................ S-45
Class A Noteholders................... S-37
Class A Notes......................... S-37
Class B Noteholders................... S-37
Class C Certificateholders............ S-42
Class D Certificateholders............ S-42
Closing Date.......................... S-24
Code.................................. S-54
Collection Period..................... S-49
Cutoff Date........................... S-24
Dealer Recourse....................... S-23
Dealers............................... S-24
Defaulted Receivable.................. S-42
Determination Date.................... S-41
Eligible Investments.................. S-48
Excess Amount......................... S-42
Excess Payment........................ S-48
Final Scheduled Payment Date.......... S-28
Financed Vehicles..................... S-24
Indenture Trustee..................... S-24
Initial Certificate Balance........... S-44
Initial Yield Supplement Amount....... S-50
Interest Period....................... S-36
Interest Rate......................... S-36
Net Liquidation Proceeds.............. S-41
Note Pool Factor...................... S-34
Note Underwriters..................... S-55
Note Underwriting Agreement........... S-55
Noteholders........................... S-37
Noteholders' Distributable Amount..... S-45
Noteholders' Interest Carryover
Shortfall........................... S-45
Noteholders' Interest Distributable
Amount.............................. S-45
Noteholders' Monthly Interest
Distributable Amount................ S-45
Noteholders' Monthly Principal
Distributable Amount................ S-45
Noteholders' Percentage............... S-45
Noteholders' Principal Carryover
Shortfall........................... S-45
Noteholders' Principal Distributable
Amount.............................. S-45
Obligors.............................. S-24
Owner Trustee......................... S-23
Pass Through Rate..................... S-39
Payment Date.......................... S-36
penalty bid........................... S-56
Plan.................................. S-54
Plan Investor......................... S-55
Prepayment............................ S-48
Principal Distributable Amount........ S-45
Receivables........................... S-24
Redemption Price...................... S-50
Required Rate......................... S-50
Required Yield Supplement Amount...... S-50
Reserve Fund Initial Deposit.......... S-46
Sale and Servicing Agreement.......... S-23
SEC................................... S-36
Seller................................ S-23
Servicer.............................. S-23
Servicer Defaults..................... S-57
Servicing Fee......................... S-49
Servicing Rate........................ S-49
Specified Reserve Fund Balance........ S-46
stabilizing bid....................... S-56
syndicate covering transaction........ S-56
Transfer and Servicing Agreements..... S-47
Trust................................. S-23
Trust Agreement....................... S-23
Underwriters.......................... S-55
Yield Supplement Account.............. S-49
Yield Supplement Deposit.............. S-49
Yield Supplemented Receivables........ S-50
</TABLE>
S-57
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in specified circumstances, the globally offered class A notes and
class B 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-8BEN (Certificate of Foreign
Person's Claim
A-3
<PAGE>
for Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons 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 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 indentification number generally
remains in effect until a change in circumstances causes any of the information
on the form to be incorrect. A Form W-8ECI and a Form W-8BEN on which a U.S.
taxpayer identification is not provided 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>
SUBJECT TO COMPLETION, DATED JUNE 27, 2000.
THE INFORMATION CONTAINED IN THIS SUPPLEMENT IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JUNE , 2000)
AMERICAN HONDA RECEIVABLES [ - ] GRANTOR TRUST
AMERICAN HONDA RECEIVABLES CORP.,
SELLER
AMERICAN HONDA FINANCE CORPORATION,
SERVICER
$ ASSET BACKED CERTIFICATES
YOU SHOULD REVIEW CAREFULLY THE FACTORS SET FORTH UNDER "RISK FACTORS" BEGINNING
ON PAGE S-14 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 12 IN THE ACCOMPANYING
PROSPECTUS.
The prospectus supplement does not contain complete information about the
offering of the certificates. No one may use this prospectus supplement to offer
and sell the certificates unless it is accompanied by the prospectus. If any
statements in this prospectus supplement conflict with statements in the
prospectus, the statement in this prospectus supplement will control.
The certificates are asset backed certificates issued by the trust. The
certificates are not obligations of American Honda Receivables Corp., American
Honda Finance Corporation, American Honda Motor Co. Inc., or any of their
respective affiliates. Neither the certificates nor the receivables are insured
or guaranteed by any governmental agency.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THE CERTIFICATES 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 one or more classes of certificates.
- Only the certificates described in the table below are being offered by this
prospectus supplement and the accompanying prospectus.
- The certificates will accrue interest from , .
- The price to the public and the proceeds to the seller listed below exclude
interest accrued from , the date the certificates will be issued.
- The proceeds from the sale of the certificates exclude expenses, estimated at
$ .
<TABLE>
<CAPTION>
<S> <C> <C>
CLASS A CERTIFICATES CLASS B CERTIFICATES
Principal Amount.............. $ $
Pass Through Rate............. % %
Final Scheduled Payment
Date........................ , ,
Price to Public............... % %
Underwriting Discount......... % %
Proceeds to Seller............ $ $
</TABLE>
CREDIT ENHANCEMENT
- The reserve fund, with an initial deposit of [$ ].
- The class B certificates are subordinated to the class A certificates, and the
class C certificates are subordinated to the class A certificates and the
class B certificates.
[The trust has applied to list the certificates on the Luxembourg Stock Exchange
and for permission to deal in the certificates on the Stock Exchange of Hong
Kong Limited]
[UNDERWRITERS]
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS .
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<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..................................................... S-8
RELEVANT PARTIES............................................ S-8
Issuer.................................................. S-8
Seller.................................................. S-8
Servicer................................................ S-8
Trustee................................................. S-8
RELEVANT AGREEMENTS......................................... S-8
Pooling and Servicing Agreement......................... S-8
Administration Agreement................................ S-8
Receivables 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-8
Record Date............................................. S-8
DESCRIPTION OF THE CERTIFICATES............................. S-9
Offered Certificates.................................... S-9
Receivables............................................. S-9
Interest and Principal Payments......................... S-9
Optional Purchase....................................... S-11
Credit Enhancement...................................... S-11
Reserve Fund............................................ S-12
Yield Supplement Account................................ S-12
Listing................................................. S-12
Minimum Denominations................................... S-12
Tax Status.............................................. S-13
ERISA Considerations.................................... S-13
Rating of the Offered Certificates...................... S-13
RISK FACTORS................................................ S-14
Geographic concentration of the obligors and performance
of the receivables may increase the risk of loss on your
investment.............................................. S-14
Because of the uncertainty of federal income tax
consequences of the yield supplement agreement, you may
experience unexpected tax consequences.................. S-14
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prepayments on receivables may cause prepayments on the
certificates, resulting in reinvestment risk to you..... S-15
Subordination features increase risk of loss or delay in
payment on the class B and class C certificates......... S-15
Because the trust has limited assets, there is only
limited protection against potential losses............. S-16
Withdrawal or downgrading of initial ratings will reduce
the prices for certificates............................. S-16
The certificates are not suitable investments for all
investors............................................... S-16
THE TRUST................................................... S-17
General................................................. S-17
THE TRUSTEE................................................. S-17
THE RECEIVABLES............................................. S-17
MATURITY AND PREPAYMENT CONSIDERATIONS...................... S-22
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES................. S-22
CERTIFICATE AND POOL FACTORS................................ S-25
USE OF PROCEEDS............................................. S-26
THE SELLER AND THE SERVICER................................. S-26
THE CERTIFICATES............................................ S-26
General................................................. S-26
Sale and Assignment of Receivables...................... S-26
Accounts................................................ S-26
Collections............................................. S-27
Advances................................................ S-27
Servicing Compensation.................................. S-28
Yield Supplement Account and Yield Supplement
Agreement............................................... S-28
Net Deposits............................................ S-29
Optional Purchase....................................... S-29
Removal of Servicer..................................... S-29
Duties of the Trustee................................... S-30
The Trustee............................................. S-30
Notices................................................. S-31
Governing Law........................................... S-31
PAYMENTS ON THE CERTIFICATES................................ S-32
General................................................. S-32
Calculation of Available Amounts........................ S-32
Calculation of Distributable Amounts.................... S-33
Payments of Interest.................................... S-34
Payments of Principal................................... S-34
Payment of Distributable Amounts........................ S-35
Payments Under the Yield Supplement Agreement........... S-36
SUBORDINATION; RESERVE FUND................................. S-38
Subordination........................................... S-38
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reserve Fund............................................ S-38
MATERIAL INCOME TAX CONSEQUENCES............................ S-40
Classification of the Trust............................. S-40
Payments Under the Yield Supplement Agreement........... S-40
Original Issue Discount, Imputed Interest and Market
Discount................................................ S-40
Sale or Prepayment...................................... S-42
Foreign Certificateholders.............................. S-43
Material State Tax Consequences......................... S-43
ERISA CONSIDERATIONS........................................ S-44
Class A Certificates.................................... S-44
Class B and Class C Certificates........................ S-45
All Certificates........................................ S-46
UNDERWRITING................................................ S-47
NOTICE TO CANADIAN RESIDENTS................................ S-49
Resale Restrictions..................................... S-49
Representations of Purchasers........................... S-49
Rights of Action (Ontario Purchasers)................... S-49
Enforcement of Legal Rights............................. S-49
Notice to British Columbia Residents.................... S-49
Taxation and Eligibility for Investment................. S-49
LEGAL OPINIONS.............................................. S-50
INDEX OF TERMS.............................................. S-51
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 certificates 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 certificates, including your class; and (2) this prospectus
supplement, which describes the specific terms of your class of certificates.
IF THE DESCRIPTION OF THE TERMS OF YOUR CERTIFICATES 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-51 in this prospectus supplement and under the caption "Index of
Terms" beginning on page 96 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
THE FOLLOWING SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE CERTIFICATES. YOU
WILL FIND A DETAILED DESCRIPTION OF THE TERMS OF THE OFFERING OF THE
CERTIFICATES FOLLOWING THIS SUMMARY. YOU SHOULD READ CAREFULLY THIS ENTIRE
DOCUMENT AND THE ACCOMPANYING PROSPECTUS TO UNDERSTAND ALL OF THE TERMS OF THE
OFFERING OF THE CERTIFICATES. YOU SHOULD CONSIDER BOTH DOCUMENTS WHEN MAKING
YOUR INVESTMENT DECISION.
<TABLE>
<S> <C>
RELEVANT PARTIES
ISSUER............................... Honda Auto Receivables Grantor Trust [ - ]. The
trust will be established by a pooling and servicing
agreement.
SELLER............................... American Honda Receivables Corp.
SERVICER............................. American Honda Finance Corporation.
TRUSTEE.............................. [ ].
RELEVANT AGREEMENTS
POOLING AND SERVICING AGREEMENT...... The pooling and servicing agreement between the servicer and
the seller. The pooling and servicing agreement provides for
the transfer of the receivables to the trust and 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 the administrator and the 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.
RECEIVABLES PURCHASE
AGREEMENT............................ The receivables purchase agreement between American Honda
Finance Corporation and the seller. The receivables purchase
agreement governs the sale of the receivables from American
Honda Finance Corporation to the seller.
RELEVANT DATES
CLOSING DATE......................... Expected to be [ ].
CUTOFF DATE.......................... [ ]
PAYMENT DATES........................ The trust will pay interest and principal on the
certificates on the fifteenth day of each month. If the
fifteenth day of the month is not a business day, payments
on the certificates 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 [ ].
FINAL SCHEDULED PAYMENT
DATES................................ The final principal payment for each class of certificates
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 certificates are in book-entry form, the
trust will make payments on the certificates to the holders
of record on the
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
day immediately preceding the payment date. If the
certificates are issued in definitive form, the record date
will be the last day of the month preceding the payment
date.
DESCRIPTION OF THE CERTIFICATES
OFFERED CERTIFICATES................. The offered certificates consist of the class A certificates
and the class B certificates as described on the cover page.
The trust will also issue [$ ] initial principal
balance of class C certificates, which are not being offered
pursuant to this prospectus supplement.
The class A certificates will evidence in the aggregate an
undivided ownership interest of [ %] of the trust
(initially representing [$ ]) and the class B
certificates will evidence in the aggregate an undivided
ownership interest of [ %] of the trust (initially
representing [$ ]).
RECEIVABLES.......................... The trust's main source of funds for making payments on the
certificates will be collections on its motor vehicle retail
installment sale contracts, otherwise referred to as the
receivables.
The principal balance of the receivables on [ ],
referred to as the "cut-off date," was $[ ]. As of
[ ], the receivables had the following characteristics:
- number of receivables: [ ],
- Average Principal Balance: [$ ],
- Weighted average annual percentage rate: [ %],
- Weighted average remaining term to maturity:
[ months],
- Approximate weighted average original term to maturity:
[ months]
WE REFER YOU TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT FOR MORE DETAILED INFORMATION ABOUT THE
RECEIVABLES.
INTEREST AND PRINCIPAL
PAYMENTS............................. In general, certificateholders 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 will be
divided among the various classes of certificates in
specified proportions.
PER ANNUM PASS THROUGH RATES:
The certificates will have fixed rates of interest as
follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS PASS THROUGH RATE
-------- -------------------------
<S> <C> <C>
A... [ %]
B... [ %]
C... [ %]
</TABLE>
S-9
<PAGE>
<TABLE>
<S> <C>
INTEREST ACCRUAL PERIODS:
Interest on the certificates will accrue in the following
manner:
</TABLE>
<TABLE>
<CAPTION>
SUBSEQUENT
INTEREST
ACCRUAL PERIODS
INITIAL -----------------------------------
ACCRUAL FROM TO
CLASS PERIOD (AND INCLUDING) (BUT EXCLUDING)
----- ------------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
A, B and C [ days] [first day of [first day of
prior collection current
period] collection
period]
<CAPTION>
DAY COUNT
CONVENTION
------------------------
<S> <C>
[30/360]
</TABLE>
<TABLE>
<S> <C>
PRINCIPAL:
- FINAL MATURITY DATE: The trust must pay the outstanding
principal balance of each class of certificates by its final
maturity date as follows:
</TABLE>
<TABLE>
<CAPTION>
CLASS FINAL MATURITY DATE
----- -----------------------
<S> <C> <C>
A [ ]
B [ ]
C [ ]
</TABLE>
<TABLE>
<S> <C>
- AMOUNT OF PRINCIPAL PAYABLE ON EACH PAYMENT DATE: The
trust will make principal payments on each class of
certificates on each payment date in an amount equal to
the applicable class percentage of the following amounts:
1. principal collections on the receivables during the prior
collection period;
2. prepayments on the receivables allocable to principal
received during the prior collection period;
3. the principal balance of each receivable which the seller
or the servicer became obligated to purchase; and
4. the principal balance of liquidated receivables.
The class percentage for each class of certificates is
detailed in "The Certificates--General" in this prospectus
supplement.
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 Pools" in the
accompanying prospectus.
Before each payment date, the servicer will calculate the
amount of principal to be paid to each class of certificates
for that payment date. The amount of principal to be paid to
a class will equal that
</TABLE>
S-10
<PAGE>
<TABLE>
<S> <C>
class' percentage of scheduled payments on precomputed
receivables, principal collections on simple interest
receivables and certain other principal amounts due or
collected on the receivables.
WE REFER YOU TO "PAYMENTS ON THE CERTIFICATES--CALCULATION
OF DISTRIBUTABLE AMOUNTS" AND "--PAYMENTS OF DISTRIBUTABLE
AMOUNTS" IN THIS PROSPECTUS SUPPLEMENT FOR MORE DETAILED
INFORMATION REGARDING PAYMENTS OF PRINCIPAL.
OPTIONAL PURCHASE.................... The servicer may redeem any outstanding certificates when
the outstanding aggregate principal balance of the
receivables declines to 10% or less of the original
aggregate principal balance of the receivables on the
cut-off date. WE REFER YOU TO "THE CERTIFICATES--OPTIONAL
PURCHASE" IN THIS PROSPECTUS SUPPLEMENT.
CREDIT ENHANCEMENT................... The pooling and servicing agreement includes certain
features designed to provide protection against losses and
delays in payments to the class A certificateholders and, to
a lesser extent, the class B certificateholders. These
features are referred to as "credit enhancement." Credit
enhancement is intended to protect you against losses and
delays in payments on your certificates by absorbing losses
on the receivables and other shortfalls in cash flows.
Losses on the receivables or other shortfalls of cash flow
will be covered by allocating available cash flow to the
more senior classes of certificates--that is, class A
certificates and B certificates--before making allocations
to subordinate classes and by withdrawing amounts on deposit
in the reserve fund. The reallocation of funds to the more
senior classes of certificates is referred to as
"subordination."
Credit enhancement of the offered certificates will be the
following:
1. The class B certificates and the class C certificates
will be subordinated to the class A certificates;
2. The class C certificates will be subordinated to the
class A certificates and the class B certificates; and
3. The class A certificates and class B certificates will
have the benefit of a reserve fund.
SUBORDINATION OF INTEREST AND PRINCIPAL:
1. CLASS B CERTIFICATES: Interest and principal payments on
the class B certificates will be subordinated to interest
and principal payments on the class A certificates.
2. CLASS C CERTIFICATES: Interest and principal payments on
the class C certificates will be subordinated to interest
and principal payments on the class A certificates and
the class B certificates.
</TABLE>
S-11
<PAGE>
<TABLE>
<S> <C>
RESERVE FUND......................... On each payment date, the trust will use funds in the
reserve fund to pay the following amounts in the following
order if collections on the receivables are insufficient to
pay those amounts:
1. amounts due to the servicer; and
2. interest and principal due on the certificates in the
order of priority detailed in "Payments on the
Certificates--Payment of Distributable Amounts."
The pooling and servicing agreement specifies the amount
that is required to be on deposit in the reserve fund. On
the closing date, the seller will deposit [$ ] into the
reserve fund, which is [ %] of the initial principal
balance of the offered certificates and which is less than
the amount required to be maintained in the reserve fund
called the "specified reserve fund balance." On each payment
date, after making payments to the servicer and to the
holders of the class A certificates and class B
certificates, the trust will make a deposit into the reserve
fund to fund and maintain the specified reserve fund
balance.
FOR MORE DETAILED INFORMATION REGARDING THE RESERVE FUND, WE
REFER YOU TO "SUBORDINATION; RESERVE FUND" IN THE PROSPECTUS
SUPPLEMENT.
YIELD SUPPLEMENT ACCOUNT............. On each payment date, the trust will withdraw from funds on
deposit in the yield supplement account the aggregate amount
by which (1) one month's interest on the principal balance
of each receivable at a rate equal to the weighted average
interest rate on the class A certificates and the class B
certificates plus 1.00% (servicing rate) exceeds (2) one
month's interest on such principal balance at the annual
percentage rate of that receivable.
On the closing date, the seller will deposit [$ ] 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.
FOR MORE DETAILED INFORMATION ABOUT THE YIELD SUPPLEMENT
ACCOUNT, WE REFER YOU TO "THE CERTIFICATES--YIELD SUPPLEMENT
ACCOUNT AND YIELD SUPPLEMENT AGREEMENT" IN THIS PROSPECTUS
SUPPLEMENT.
LISTING.............................. [The trust has applied to list the class A certificates on
the Luxembourg Stock Exchange and The Stock Exchange of Hong
Kong Limited. The trust has requested that the listings be
made effective on or about .]
MINIMUM DENOMINATIONS................ Certificates will be issued only in denominations of $1,000
or more. Certificates will be issued in multiples of $1 for
amounts in excess of $1,000.
</TABLE>
S-12
<PAGE>
<TABLE>
<S> <C>
TAX STATUS........................... It is a condition to the issuance of the certificates that
O'Melveny & Myers LLP, special counsel to the trust, will
deliver its opinion that:
1. the trust will be treated as a grantor trust for United
States federal income and California franchise and income
tax purposes; and
2. the trust will not be subject to federal income tax.
If you purchase the certificates, you will be required to
report your pro rata share of all income earned on the
receivables (other than amounts, if any, treated as
"stripped coupons"). In addition if you are an individual,
trust or estate, you may deduct your pro rata share of
reasonable servicing and other fees, subject to limitations.
The exact characterization for federal income tax purposes
of the payments received with respect to the yield
supplement agreement is not clear.
WE REFER YOU TO "MATERIAL INCOME TAX CONSEQUENCES--TAX
TREATMENT OF GRANTOR TRUSTS" IN THE ACCOMPANYING PROSPECTUS
AND "MATERIAL INCOME TAX CONSEQUENCES--PAYMENTS UNDER THE
YIELD SUPPLEMENT AGREEMENT" IN THIS PROSPECTUS SUPPLEMENT
FOR ADDITIONAL INFORMATION CONCERNING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS TO THE TRUST AND THE
CERTIFICATES.
ERISA CONSIDERATIONS................. The class A certificates are generally eligible for purchase
by employee benefit plans and individual retirement
accounts, subject to considerations discussed under "ERISA
Considerations" in this prospectus supplement and in the
accompanying prospectus.
The class B certificates, however, may not be acquired by
any employee benefit plan or any individual retirement
account. However, under limited circumstances, class B
certificates may be purchased as limited investments by
persons using insurance company general accounts.
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
CERTIFICATES OF ANY CLASS YOU SHOULD, AMONG OTHER THINGS,
CONSULT WITH YOUR COUNSEL TO DETERMINE WHETHER ALL REQUIRED
CONDITIONS HAVE BEEN SATISFIED.
RATING OF THE OFFERED CERTIFICATES... It is a condition to the issuance of the certificates that
the offered certificates will receive the following ratings
from Standard & Poor's Ratings Group, Moody's Investors
Service, Inc. and Fitch IBCA, Inc.:
</TABLE>
<TABLE>
<CAPTION>
STANDARD &
CLASS POOR'S MOODY'S
----- ----------------------- -----------------------
<S> <C> <C> <C>
A [ ] [ ]
B [ ] [ ]
<CAPTION>
FITCH
-----------------------
<S> <C>
[ ]
[ ]
</TABLE>
S-13
<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 CERTIFICATES OF ANY CLASS.
<TABLE>
<S> <C>
GEOGRAPHIC Economic conditions in the states where obligors reside may
CONCENTRATION OF THE affect delinquencies, losses and prepayments on the
OBLIGORS AND receivables. The following economic conditions may affect
PERFORMANCE OF THE payments on the receivables:
RECEIVABLES MAY
INCREASE THE RISK - unemployment,
OF LOSS ON YOUR - interest rates,
INVESTMENT. - 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 , American Honda Finance Corporation's records
indicate that the billing addresses of the obligors of the
receivables were in the following states:
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
STATE PRINCIPAL BALANCE
----- -------------------
<S> <C> <C>
%
%
%
%
%
</TABLE>
<TABLE>
<S> <C>
FOR A DISCUSSION OF THE BREAKDOWN OF THE RECEIVABLES BY
STATE, WE REFER YOU TO "THE RECEIVABLES" IN THIS PROSPECTUS
SUPPLEMENT.
BECAUSE OF THE Tax counsel is unable to opine as to the federal income tax
UNCERTAINTY OF FEDERAL consequences of the Yield Supplement Agreement. WE REFER YOU
INCOME TAX TO "MATERIAL INCOME TAX CONSEQUENCES--PAYMENTS UNDER THE
CONSEQUENCES OF THE YIELD SUPPLEMENT AGREEMENT" IN THIS PROSPECTUS SUPPLEMENT.
YIELD SUPPLEMENT
AGREEMENT, YOU MAY
EXPERIENCE
UNEXPECTED TAX
CONSEQUENCES.
</TABLE>
S-14
<PAGE>
<TABLE>
<S> <C>
PREPAYMENTS ON You may receive payment of principal on your certificates
RECEIVABLES MAY earlier than you expected. If that happens, you may not be
CAUSE PREPAYMENTS able to reinvest the principal you receive at a rate as high
ON THE CERTIFICATES, as the rate on your certificates. Prepayments on the
RESULTING IN receivables will shorten the life of the certificates to an
REINVESTMENT RISK TO extent that cannot be predicted. Prepayments may occur for a
YOU. 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
- 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 its 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 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. In addition, the seller is not aware of
publicly available industry statistics that detail the
prepayment experience for contracts similar to the
receivables. 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. If this is
the case, the weighted average life of each class of
certificates will be correspondingly shorter.
SUBORDINATION If you buy class B certificates:
FEATURES INCREASE RISK - you will not receive any interest payments on a payment
OF LOSS OR DELAY IN date until all interest owed on the class A certificates
PAYMENT ON THE on that date has been paid; and
CLASS B AND CLASS C - you will not receive any principal payments on a payment
CERTIFICATES. date until all principal and interest owed on the class A
certificates on that date has been paid.
Because the class A certificates and, to a lesser extent,
the class B certificates will receive preferential
allocations of interest and principal, the class C
certificates and, to a lesser extent, the class B
certificates, will be exposed to a greater risk of
nonpayment or
</TABLE>
S-15
<PAGE>
<TABLE>
<S> <C>
delayed payment if collections fall significantly below
expected levels.
As a result of the subordination features described above,
the return on the class B certificates will be sensitive,
and the return on the class C certificates will be extremely
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 return
on your certificates may be lower than anticipated.
FOR ADDITIONAL INFORMATION REGARDING THE SUBORDINATION
FEATURES, WE REFER YOU TO "SUBORDINATION; RESERVE FUND" IN
THIS PROSPECTUS SUPPLEMENT.
BECAUSE THE TRUST The only source of funds for payments on the certificates is
HAS LIMITED ASSETS, the assets of the trust and the reserve fund. The
THERE IS ONLY LIMITED certificates are not obligations of, and will not be insured
PROTECTION AGAINST or guaranteed by, any governmental agency, the seller, the
POTENTIAL LOSSES. servicer, American Honda Motor Co. Inc., 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 certificates. 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 certificates. Any excess amounts released from the
reserve fund to the seller will no longer be available to
certificateholders on any later payment date.
FOR ADDITIONAL INFORMATION REGARDING THE SUBORDINATION
FEATURES, WE REFER YOU TO "SUBORDINATION; RESERVE FUND" IN
THIS PROSPECTUS SUPPLEMENT.
WITHDRAWAL OR A security rating is not a recommendation to buy, sell or
DOWNGRADING OF hold securities. Similar ratings on different types of
INITIAL RATINGS WILL securities do not necessarily mean the same thing. You
REDUCE THE PRICES FOR should analyze the significance of each rating independently
CERTIFICATES. from any other rating. Any rating agency may change its
rating of the certificates after those certificates 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 will be willing
to pay for the certificates.
THE CERTIFICATES ARE The certificates are not a suitable investment for any
NOT SUITABLE investor that requires a regular or predictable schedule of
INVESTMENTS FOR ALL payments or payment on any specific date. The certificates
INVESTORS. are complex investments that should be considered only by
investors who, either alone or with their financial, tax and
legal advisors, have the expertise to analyze the
prepayment, reinvestment, default and market risk, the tax
consequences of an investment, and the interaction of these
factors.
</TABLE>
S-16
<PAGE>
THE TRUST
GENERAL
The Honda Auto Receivables [ ]-[ ] Grantor Trust (the "Trust") will be
formed by American Honda Receivables Corp. (the "Seller") pursuant to the
Pooling and Servicing Agreement (the "Agreement") dated as of [ ],
among the Seller, American Honda Finance Corporation ("AHFC"), as servicer (in
that capacity, the "Servicer") and [ ], as trustee (the "Trustee").
The Seller will establish the Trust by selling and assigning the assets of the
Trust to the Trustee in exchange for the certificates to be issued by the Trust.
The Servicer will service the Receivables pursuant to the Agreement and will be
compensated for acting as the Servicer. WE REFER YOU TO "THE
CERTIFICATES--SERVICING COMPENSATION" IN THIS PROSPECTUS SUPPLEMENT.
Pursuant to agreements between AHFC and the Dealers, each Dealer will
repurchase from AHFC those retail installment sales contracts that do not meet
specified representations and warranties made by that Dealer. These Dealers'
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 Trustee,
any recovery by AHFC pursuant to any Dealer Recourse will be deposited in the
Collection Account to satisfy AHFC's repurchase obligations under the Agreement.
The sales by the Dealers of installment sales 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 and the
Yield Supplement Account will be maintained by the trustee for the benefit of
the Class A Certificateholders and the Class B Certificateholders, but will not
be part of the Trust.
The Trust's principal offices are in [ ], in care of [ ], as
Trustee, at the address set forth below under "The Trustee."
THE TRUSTEE
[ ] is the Trustee under the Agreement. [ ] is a
[ ] and its principal offices are located at [ ]. The
Seller and its affiliates may maintain normal commercial banking relations with
the 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 [ ], 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 [ ] (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 certificates (the "Closing Date"), AHFC will sell
the Receivables to the Seller. The Seller will, in turn,
S-17
<PAGE>
sell the Receivables to the Trust pursuant to the Agreement. AHFC will continue
to service the Receivables. The Receivables to be held by the Trust will be
selected from those motor vehicle and 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 [ ]% to
[ ]%;
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;
4. has a remaining term to maturity of not less than [ ] months and not
more than [ ] months;
5. is not more than [ ] days past due;
6. was originated prior to [ ];
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 Certificateholders
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 [ ]% and [ ]% of the Receivables (based on the Initial Pool
Balance) constitute Precomputed Receivables and Simple Interest Receivables,
respectively. By aggregate principal balance, approximately [ ]% of the
Receivables constitute Precomputed Receivables and approximately [ ]% of the
Receivables constitute Simple Interest Receivables. WE REFER YOU TO "THE
RECEIVABLES POOL" IN THE ACCOMPANYING PROSPECTUS FOR A FURTHER DESCRIPTION OF
THE CHARACTERISTICS OF PRECOMPUTED RECEIVABLES AND SIMPLE INTEREST RECEIVABLES.
S-18
<PAGE>
COMPOSITION OF THE RECEIVABLES
<TABLE>
<S> <C>
Aggregate Principal Balance................................. $
Number of Receivables.......................................
Average Principal Balance................................... $
Average Original Amount Financed............................ $
Range of Original Amount Financed......................... $ to
$
Weighted Average APR(1)..................................... %
Range of APRs............................................. % to
%
Approximate Weighted Average Original to Maturity(1)........ months
Range of Original Maturities.............................. months to
months
Weighted Average Remaining Maturity(1)...................... months
Range of Original Maturities.............................. months to
months
Percentage by Principal Balance of Receivables of New and % (New)
Used Motor Vehicles....................................... % (Used)
Percentage by Principal Balance of Receivables Financed
through % (Honda)
Honda and Acura Dealers................................... % (Acura)
</TABLE>
------------------------
(1) Weighted by Principal Balance as of the Cutoff Date.
S-19
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY APR
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF CUTOFF DATE INITIAL
RANGE OF APRS (%) RECEIVABLES PRINCIPAL BALANCE POOL BALANCE
----------------- ----------- ----------------- -------------
<S> <C> <C> <C>
</TABLE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES BASED ON THE
ADDRESSES OF THE ORIGINATING DEALERS
(PERCENTAGES MAY NOT ADD TO 100.00% DUE TO ROUNDING)
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUTOFF DATE PERCENTAGE OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL
STATE RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
----- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alabama........................................
Alaska.........................................
Arizona........................................
Arkansas.......................................
California.....................................
Colorado.......................................
Connecticut....................................
Delaware.......................................
Florida........................................
Georgia........................................
Idaho..........................................
Illinois.......................................
Indiana........................................
Iowa...........................................
Kansas.........................................
Kentucky.......................................
Louisiana......................................
Maine..........................................
Maryland.......................................
Massachusetts..................................
Michigan.......................................
Minnesota......................................
Mississippi....................................
Missouri.......................................
Montana........................................
Nebraska.......................................
Nevada.........................................
</TABLE>
S-20
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE CUTOFF DATE PERCENTAGE OF
NUMBER OF NUMBER OF PRINCIPAL INITIAL
STATE RECEIVABLES RECEIVABLES BALANCE POOL BALANCE
----- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
New Hampshire..................................
New Jersey.....................................
New Mexico.....................................
New York.......................................
North Carolina.................................
North Dakota...................................
Ohio...........................................
Oklahoma.......................................
Oregon.........................................
Pennsylvania...................................
Rhode Island...................................
South Carolina.................................
South Dakota...................................
Tennessee......................................
Texas..........................................
Utah...........................................
Vermont........................................
Virginia.......................................
Washington.....................................
West Virginia..................................
Wisconsin......................................
Wyoming........................................
Total..........................................
</TABLE>
S-21
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding maturity and prepayment considerations with respect to
the Offered Certificates 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. Because the rate
of payment of principal of each class of certificates depends on the rate of
payment (including prepayments and liquidations due to default) of the principal
balance of the Receivables, the final payment in respect of the certificates
could occur significantly earlier than their respective final scheduled payment
date ("Final Scheduled Payment Date") set forth in "Payments on the
Certificates" in this prospectus supplement. Certificateholders will bear the
risk of being able to reinvest principal payments on the certificates at yields
at least equal to the yield on their respective certificates. 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 the yield to the Certificateholders. 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 NET LOSSES
Set forth below is information concerning AHFC's experience with respect to
its entire portfolio of new or 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 an installment sale contract is charged against the allowance
for credit losses when the contract has been delinquent for 120 days, unless
AHFC has repossessed the collateral associated with the contract. In these
cases, the account balances are not charged against the allowance for credit
losses until AHFC has either sold the repossessed related leased vehicle or held
it in repossession inventory for more than 90 days. AHFC credits any recoveries
from charge-offs related to an 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 installment sales 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 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
S-22
<PAGE>
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 OR FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding(2)....... $5,961,874 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Delinquencies(3)
30-59 Days.......................... $ 46,299 $ 30,781 $ 29,330 $ 37,070 $ 19,222
60-89 Days.......................... 6,693 4,847 4,400 6,327 2,937
90 Days or More..................... 2,463 1,576 1,699 2,911 1,322
Repossessions(4).................... 8,300 7,968 7,438 13,334 5,423
---------- ---------- ---------- ---------- ----------
Total Delinquencies and
Repossessions....................... $ 63,755 $ 45,173 $ 42,867 $ 59,642 $ 28,904
Total Delinquencies and Repossessions
as a Percentage of Principal Amount
Outstanding......................... 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 net of 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-23
<PAGE>
<TABLE>
<CAPTION>
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------
AT OR FOR THE YEAR ENDED MARCH 31,
--------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Principal Amount Outstanding(2).... $5,961,674 $4,011,174 $2,929,360 $2,486,957 $2,149,145
Average Principal Amount
Outstanding(3)................... $5,146,609 $3,727,024 $2,675,524 $2,545,288 $1,842,750
Number of Contracts Outstanding.... 544,143 388,012 278,261 235,521 190,042
Average Number of Contracts
Outstanding(3)................... 478,517 351,693 252,723 228,287 162,955
Number of Repossessions............ 3,092 2,968 3,576 3,166 2,175
Number of Repossessions as a
Percentage of the Average Number
of Contracts Outstanding......... 0.65% 0.84% 1.42% 1.39% 1.34%
Gross Charge-Offs(4)............... $ 24,626 $ 25,119 $ 32,598 $ 25,857 $ 14,701
Recoveries (5)..................... 10,043 10,719 8,245 6,014 3,940
---------- ---------- ---------- ---------- ----------
Net Losses......................... $ 14,583 $ 14,399 $ 24,353 $ 19,843 $ 10,761
Net Losses as a Percentage of
Average Principal Amount
Outstanding...................... 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.
S-24
<PAGE>
CERTIFICATE AND POOL FACTORS
The "Class A Certificate Factor" will be a seven-digit decimal which the
Servicer will compute each month indicating the Class A Certificate Balance as
of the close of business on the Payment Date in that month as a fraction of the
Original Class A Certificate Balance. The Class A Certificate Factor will be
1.0000000 as of the Cutoff Date. The Class A Certificate Factor will decline
thereafter to reflect reductions in the Class A Certificate Balance. The
Class A Certificate Balance will be computed by allocating payments in respect
of the Receivables to principal and interest using the simple interest method.
The amount of a Class A Certificateholder's pro rata share of the Class A
Certificate Balance can be determined by multiplying the original denomination
of the holder's certificate by the Class A Certificate Factor as of the close of
business on the most recent Payment Date. The Class A Certificate Factor will be
made available through the Trustee.
The "Class B Certificate Factor" will be a seven-digit decimal which the
Servicer will compute each month indicating the Class B Certificate Balance as
of the close of business on the Payment Date in that month as a fraction of the
Original Class B Certificate Balance. The Class B Certificate Factor will be
1.0000000 as of the Cutoff Date. The Class B Certificate Factor will decline
thereafter to reflect reductions in the Class B Certificate Balance. The amount
of a Class B Certificateholder's pro rata share of the Class B Certificate
Balance can be determined by multiplying the original denomination of the
holder's Certificate by the Class B Certificate Factor as of the close of
business on the most recent Payment Date. The Class B Certificate Factor will be
made available through the Trustee.
The Class A Certificate Balance and the Class B Certificate Balance will be
computed by allocating payments in respect of the Receivables to principal and
interest using the actuarial method for the Precomputed Receivables and using
the simple interest method for the Simple Interest Receivables.
The "Class A Pool Factor" is a seven-digit decimal figure which the Servicer
will compute each month and will be calculated by dividing the Class A
Certificate Balance as of the close of business on the last day of the related
Collection Period by the Pool Balance as of the Cutoff Date.
The "Class B Pool Factor" is a seven-digit decimal figure which the Servicer
will compute each month and will be calculated by dividing the Class B
Certificate Balance as of the close of business on the last day of the related
Collection Period by the Pool Balance as of the Cutoff Date.
Pursuant to the Agreement, the Servicer provides the Trustee with monthly
reports concerning the payments received on the Receivables, the Class A
Certificate Balance, the Class A Certificate Factor, the Class A Pool Factor,
the Class B Certificate Balance, the Class B Certificate Factor, the Class B
Pool Factor and various other items of information. Class A Certificateowners
and Class B Certificateowners may obtain copies of these monthly reports from
the Trustee upon delivery of a written request to the Trustee. Class A
Certificateowners and Class B Certificateowners during any calendar year will be
furnished information by the Trustee 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.
S-25
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the class A
certificates and the class B certificates (together, the "Offered Certificates")
and the class C certificates will be applied to purchase the Receivables from
AHFC and to make the initial deposit into 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 CERTIFICATES
The following summary describes specified terms of the certificates and the
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 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 Agreement set
forth in the accompanying prospectus, to which description reference is hereby
made.
GENERAL
The certificates will be issued pursuant to the terms of the Agreement, a
form of which has been filed as an exhibit to the registration statement. A copy
of the final signed Agreement will be filed with the SEC following the issuance
of the certificates. The certificates will evidence undivided ownership
interests in the Trust created pursuant to the Agreement. In general, and
subject to the prior rights of any senior classes of certificates, holders of
record of the class A certificates (the "Class A Certificateholders") and the
class B certificates (the "Class B Certificateholders," and together with the
Class A Certificateholders, the "Certificateholders") will receive, on each
Payment Date, the related class Principal Distributable Amount and interest at
the related pass through rate set forth herein in "Payments on the Certificates"
(each, a "Pass Through Rate") on the Certificate Balance of that class as of the
close of business on the last day of the related Collection Period. The
"Certificate Balance" for any class of certificates as of any day or Payment
Date will equal the original certificate balance of that class, reduced by all
amounts distributed on or prior to that day or Payment Date on that class of
certificates and allocable to principal. The "Original Class A Certificate
Balance" means [$ ], the "Original Class B Certificate Balance" means
[$ ], and the "Original Class C Certificate Balance" means
[$ ].
The Class A Certificates will evidence in the aggregate an undivided
ownership interest of [ %] (the "Class A Percentage") of the Trust (initially
representing [$ ]), the Class B Certificates will evidence in the
aggregate an undivided ownership interest of [ %] (the "Class B Percentage") of
the Trust (initially representing [$ ]), and the Class C Certificates
will evidence in the aggregate an undivided ownership interest of [ %] (the
"Class C Percentage" and each class percentage being "Class Percentage") of the
Trust (initially representing [$ ]).
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 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 Seller
will establish and will maintain
S-26
<PAGE>
with the Trustee a Yield Supplement Account in the name of the Trustee on behalf
of the Certificateholders that will not be part of the Trust.
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" will be specified in the 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 each class of the
certificates.
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 on 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 (each, a "Prepayment") and all other
Excess Payments on Precomputed Receivables will be held by the Servicer as a
Payment Ahead (or if the Servicer has not satisfied particular requirements,
deposit in the Payahead Account) and on Simple Interest Receivables will be
applied as a partial prepayment.
On each Deposit Date, the 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) the Yield Supplement Withdrawal Amount to be deposited into the Collection
Account.
ADVANCES
On or before the Business Day prior to each Payment 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 actually received on the Receivable during the Collection Period (an
"Advance"). If the calculation results in a negative number, an amount equal to
that 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
S-27
<PAGE>
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 Advance (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 Initial Pool Balance (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. WE REFER YOU TO "DESCRIPTION OF THE TRANSFER
AND SERVICING AGREEMENTS--COLLECTIONS" 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 the
class A certificates and the class B certificates, 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 Certificateholders' Distributable Amounts.
YIELD SUPPLEMENT ACCOUNT AND YIELD SUPPLEMENT AGREEMENT
Payments of the Yield Supplement Deposits will be made from funds on deposit
in a segregated trust account to be established by the Seller and pledged to and
maintained with the Trustee for the benefit of the holders of the Offered
Certificates (the "Yield Supplement Account"). The "Yield Supplement Deposit"
for each Collection Period means an aggregate amount (if positive), calculated
by the Servicer, by which
- one month's interest on the principal balance as of the first day of that
Collection Period of each Yield Supplemented Receivable (other than a
Liquidated Receivable, after the Collection Period in which that
Receivable became a Liquidated Receivable) at a rate equal to the Required
Rate exceeds
- one month's interest on that principal balance at that Yield Supplemented
Receivable's APR.
"Yield Supplemented Receivables" are Receivables that have APRs which are
less than the Required Rate. The "Required Rate" means, with respect to any
Payment Date, the sum of the weighted average Pass Through Rate for the Offered
Certificates and 1.00%. The initial amount of the Yield Supplement Account will
be $[ ] (the "Initial Yield Supplement Amount").
If the Yield Supplement Deposits for any Payment Date exceed the amount
available for withdrawal from the Yield Supplement Account on that Payment Date,
the Seller will not have any further obligation under the Yield Supplement
Agreement to deposit any further amounts into the Yield Supplement Account. The
amount required to be on deposit in the Yield Supplement Account (the "Required
Yield Supplement Amount") will be equal to the lesser of
S-28
<PAGE>
- maximum aggregate Yield Supplement Deposits that will become due under the
Yield Supplement Agreement, assuming that payments on the Receivables are
made on their scheduled due dates and that no Receivable becomes a prepaid
Receivable, or
- the Initial Yield Supplement Amount.
The maximum aggregate Yield Supplement Deposits may decline as a result of
prepayments or repayments in full of the Receivables. To the extent that on any
Payment Date the amount on deposit in the Yield Supplement Account exceeds the
Required Yield Supplement Amount on that Payment Date, the excess will be paid
to the Seller.
Simultaneously with the sale and assignment of the Receivables by AHFC to
the Seller, the Seller will enter into the Yield Supplement Agreement with the
Trustee and the Servicer. The Seller will assign the Yield Supplement Agreement
to the Trust.
NET DEPOSITS
As an administrative convenience and as long as specified conditions are
satisfied, so long as AHFC is the Servicer, the Servicer 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 Trustee and to the Certificateholders 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 certificates 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 Initial Pool Balance, as described in the
accompanying prospectus under "Description of the Transfer and Servicing
Agreements--Termination." The "Redemption Price" for the outstanding
certificates will equal the Certificate Balance on the date of the optional
purchase plus accrued and unpaid interest on the certificates.
REMOVAL OF SERVICER
The Trustee or Holders of certificates evidencing a majority of the voting
interests of the certificates (or relevant classes of certificates), may
terminate the rights and obligations of the Servicer under the Agreement upon:
1. any failure by the Servicer 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 such failure to
(a) the Servicer by the Trustee, or (b) the Servicer and the Trustee by
holders of certificates evidencing not less than 25% of the voting
interests of the outstanding certificates, voting together as the single
class;
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 Agreement, which failure materially and
adversely affects the rights of the Certificateholders, 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, or
(b) the Servicer or the Seller, as the case may be, and the Trustee by
the holders of certificates evidencing not less than 25% of the voting
interests of the outstanding certificates, voting together as a single
class; and
3. the occurrence of an Insolvency Event of the Servicer.
S-29
<PAGE>
Under those circumstances, authority and power shall, without further
action, pass to and be vested in the Trustee or a successor Servicer appointed
under the Agreement. The Trustee or successor Servicer will succeed to all the
responsibilities, duties and liabilities of the Servicer in its capacity under
the Agreement and will be entitled to similar compensation arrangements. If,
however, a bankruptcy trustee or similar official has been appointed for the
Servicer, and no 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 Trustee or the Certificateholders from effecting a transfer
of servicing. In the event that the 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 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 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 receipt of notice of the occurrence of a Servicer Default, the
Trustee shall give notice thereof to the rating agencies.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the certificates (other than the authentication of the
certificates), or 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 certificates or the Receivables, or
the investment of any monies by the Servicer before those monies are deposited
into the Collection Account. The Trustee will not independently verify the
Receivables. If no Servicer Default has occurred, the Trustee is required to
perform only those duties specifically required of it under the 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 Trustee under the Agreement,
in which case it will only be required to examine them to determine whether they
conform to the requirements of the Agreement. The Trustee shall not be charged
with knowledge of a failure by the Servicer to perform its duties under the
Agreement which failure constitutes a Servicer Default unless the Trustee
obtains actual knowledge of that failure as specified in the Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by the Agreement or to make any investigation of matters
arising under the Agreement or to institute, conduct or defend any litigation
under the Agreement or in relation thereto at the request, order or direction of
any of the Certificateholders, unless those Certificateholders have offered to
the Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred by the Trustee in connection with the exercise
of those rights. No Certificateholder will have any right under the Agreement to
institute any proceeding with respect to the Agreement, other than with respect
to the failure by the Seller or Servicer, as applicable, to remit payments,
unless that Certificateholder has previously given to the Trustee written notice
of default and unless the holders of certificates evidencing not less than 25%
of the voting interests of the certificates have made written request upon the
Trustee to institute that proceeding in its own name as Trustee under the
Agreement and have offered to the Trustee reasonable indemnity and the Trustee
for 60 days has neglected or refused to institute that proceeding.
THE TRUSTEE
[ ] is the Trustee under the Agreement. The Trustee, in its
individual capacity or otherwise, may hold certificates in its own name or as
pledgee. For the purpose of meeting the legal requirements of some
jurisdictions, the Servicer and the Trustee acting jointly (or in some
instances, the Trustee acting alone) shall have the power to appoint co-trustees
or separate trustees of all or any part of the Trust. In the event of
appointment of co-trustees or separate trustees, all rights, powers, duties and
obligations conferred or imposed upon the Trustee by the Agreement shall be
conferred or
S-30
<PAGE>
imposed upon the Trustee and each separate trustee or co-trustee jointly, or, in
any jurisdiction in which the Trustee shall be incompetent or unqualified to
perform specified acts, singly upon that separate trustee or co-trustee who
shall exercise and perform those rights, powers, duties and obligations solely
at the direction of the Trustee.
The Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee. The Servicer may also remove the
Trustee if the Trustee ceases to be eligible to continue as trustee under the
Agreement, becomes legally unable to act, or becomes insolvent. Under these
circumstances, the Servicer will be obligated to appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor trustee
does not become effective until acceptance of the appointment by the successor
trustee.
The Agreement will provide that the Servicer will pay the Trustee's fees.
The Agreement will further provide that the Trustee will be entitled to
indemnification by the Seller and the Servicer for, and will be held harmless
against, any loss, liability, fee, disbursement or expense incurred by the
Trustee not resulting from the Trustee's 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 Agreement). The Agreement will further provide that
the Seller and the Servicer will indemnify the Trustee for specified taxes that
may be asserted in connection with the transaction.
NOTICES
Certificateholders will be notified in writing by the Trustee of any
Servicer Default or termination of, or appointment of a successor to, the
Servicer promptly upon a Responsible Officer (as defined in the Agreement)
obtaining actual knowledge of these events. Except with respect to the monthly
and annual reports to Certificateholders described in this prospectus
supplement, the Trustee is not obligated under the Agreement to forward any
other notices to the Certificateholders. There are no provisions in the
Agreement for the regular or special meetings of Certificateholders.
GOVERNING LAW
The Agreement and the certificates are governed by and shall be construed in
accordance with the laws of the State of New York applicable to agreements made
in and to be performed wholly within that jurisdiction.
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<PAGE>
PAYMENTS ON THE CERTIFICATES
GENERAL
The Trust will pay interest and principal on the certificates on the
fifteenth day of each month. If the fifteenth day of the month is not a Business
Day, payments on the certificates will be made on the next Business Day. The
date that any payment is made is called a "Payment Date." The first payment date
will be [ ].
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 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 aggregate Warranty Purchase
Payments and Administrative Purchase Payments of Receivables to be purchased by
the Seller or the Servicer, all with respect to the related Collection Period.
On or prior to each Payment Date, the Servicer will also determine the Total
Available Amount, Available Interest, Available Principal, the Class A
Distributable Amount, the Class B Distributable Amount, the Class C
Distributable Amount and other distributions to be made on that Payment Date,
and as described below, the amount to be paid to Certificateholders of each
class.
The Trustee will make payments to the Certificateholders out of the amounts
on deposit in the Collection Account. The amount to be paid to the
Certificateholders will be determined in the manner described below.
CALCULATION OF AVAILABLE AMOUNTS
"Total Available Amount" for a Payment Date (being the funds available for
distribution to Certificateholders of each class with respect to that Payment
Date in accordance with the priorities described below) shall be the sum of
Available Interest and Available Principal.
"Available Interest" for a Payment Date shall be the sum of the following
amounts allocable to interest received or allocated by the Servicer on or in
respect of the Receivables during the related Collection Period (which in the
case 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 (including Payments Ahead being applied in such Collection
Period but excluding Payments Ahead to be applied in one or more
Collection Periods);
2. all proceeds of the liquidation of Defaulted Receivables, net of
expenses incurred by the Servicer in accordance with its customary
servicing procedures in connection with the liquidation, including
amounts received in subsequent Collection Periods ("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;
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 Deposits.
"Available Principal" for a Payment Date shall be the sum of the amounts
described in clauses (1) through (5) above received or allocated by the Servicer
in respect of principal on or in respect of
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the Receivables during the related Collection Period (which in the case of the
Precomputed Receivables shall be computed in accordance with the actuarial
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;
2. Net Liquidation Proceeds with respect to a particular Receivable to the
extent of unreimbursed Advances in respect of that Receivable; and
3. recoveries from collections with respect to Advances that the Servicer
has determined are unlikely to be repaid.
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 in its repossession
inventory for 90 days, whichever occurs first.
CALCULATION OF DISTRIBUTABLE AMOUNTS
The "Class Distributable Amount" for each class of certificates with respect
to a Payment Date will equal the sum of (1) the Principal Distributable Amount
for that class (each amount, the "Class A Principal Distributable Amount",
"Class B Principal Distributable Amount" and "Class C Principal Distributable
Amount"), and (2) the Interest Distributable Amount for that class (each amount
the "Class A Interest Distributable Amount", the "Class B Interest Distributable
Amount" and "Class C Interest Distributable Amount").
The "Principal Distributable Amount" for a particular class consists of the
related Class Percentage of the following items:
1. the principal portion of all payments actually received on the
Receivables during that Collection Period;
2. the principal portion of all prepayments and partial prepayments,
received during that Collection Period (to the extent those amounts are
not included in clause (1) above); 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).
The Principal Distributable Amount shall include (a) in the case of
Precomputed Receivables, the principal portion of all scheduled payments due
during the relating Collection Period, computed in accordance the acturial
method and (b) in the case of Simple Interest Receivables, the principal
portion of all scheduled payments actually received during the related
Collection Period, and (c) the principal portion of all Prepayments on
Simple Interest Receivables and Prepayments on Precomputed Receivables
received only the related Collection Period (to the extent such amounts are
not included in (a) and (b)).
The "Interest Distributable Amount" for a particular class consists of
30 days' interest at the related Pass Through Rate on the related Certificate
Balance as of close of business on the last day of the related Collection Period
or, in the case of the first Payment Date, the related Original Class
Certificate Balance (these amounts being the "Class A Interest Distributable
Amount," the "Class B Interest Distributable Amount" and the "Class C Interest
Distributable Amount").
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The "Class A Certificate Balance" will initially equal the Original Class A
Certificate Balance and, on any Payment Date, will equal the Original Class A
Certificate Balance reduced by all amounts allocable to principal paid on or
prior to that Payment Date on the class A certificates. In addition, on each
Payment Date from and including the Payment Date on which the Class B
Certificate Balance and the Class C Certificate Balance have been reduced to
zero, the Class A Certificate Balance will be reduced by the amount, if any,
necessary to cause it to equal the Pool Balance as of the last day of the
related Collection Period after taking into account all payments, deposits and
withdrawals to be made on that Payment Date.
The "Class B Certificate Balance" will initially equal the Original Class B
Certificate Balance and, on any Payment Date, will equal the Original Class B
Certificate Balance reduced by all amounts allocable to principal paid on or
prior to that Payment Date on the class B certificates. In addition, on each
Distribution Date from and including the Payment Date on which the Class C
Certificate Balance has been reduced to zero, the Class B Certificate Balance
will be reduced by the amount, if any, necessary to cause it to equal to the
excess, if any, of the Pool Balance as of the last day of the related Collection
Period over the Class A Certificate Balance as of such date, after taking into
account all payments, deposits and withdrawals to be made on that Payment Date.
The "Class C Certificate Balance" will initially equal the Original Class C
Certificate Balance and, on any Payment Date, will equal the amount by which the
Pool Balance on the last day of the related Collection Period exceeds the sum of
the Class A Certificate Balance and the Class B Certificate Balance on that date
after taking into account all payments, deposits and withdrawals to be made on
that Payment Date.
PAYMENTS OF INTEREST
On each Payment Date, commencing [ ], the Certificateholders will
be entitled to interest payments in an amount up to the amount of interest that
accrued on the related Certificate Balance for the related Interest Period at
the related Pass Through Rate. 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 on
any class of certificates in respect of 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 payments due on any class of
certificates 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 on that amount
at the related Pass Through Rate (to the extent lawful). Under some
circumstances, amounts otherwise allocable to pay interest on a class of
certificates will be applied to cover shortfalls in amounts available to make
payments of principal or interest on a more senior class of certificates. In
addition, interest amounts otherwise distributable to the Class C
Certificateholders will be deposited by the Trustee in the Reserve Fund to cover
any deficiency in that account before application of any Excess Amounts are
deposited in that account.
PAYMENTS OF PRINCIPAL
On each Payment Date, commencing [ ], each class of certificates
will be entitled to principal payments in an amount generally equal to the
related Principal Distributable Amount for that class. Under some circumstances,
amounts otherwise allocable to pay principal on a class of certificates will be
applied to cover shortfalls in amounts available to make payments of interest on
a more senior class of certificates.
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PAYMENT OF DISTRIBUTABLE AMOUNTS
Prior to each Payment Date, the Servicer will calculate the amount to be
paid to the Certificateholders. On each Payment Date, the Trustee will pay the
following amounts in the following order of priority, to the extent of funds
available for payment on that Payment Date:
1. to the Servicer, the Servicing Fee, including any unpaid Servicing Fees
with respect to one or more prior Collection Periods, and reimbursement
for outstanding Advances, those amounts to be paid from Available
Interest;
2. to the Class A Certificateholders, an amount equal to the Class A
Interest Distributable Amount and any unpaid Class A Interest Carryover
Shortfall, that amount to be paid from Available Interest (after giving
effect to any reduction in Available Interest described in clause (1)
above); and if that Available Interest is insufficient, the Class A
Certificateholders will be entitled to receive that amount first, from
funds on deposit in the Reserve Fund, second, if those amounts are
insufficient, from the Class C Percentage of Available Principal, and
third, if those amounts are insufficient, from the Class B Percentage of
Available Principal;
3. to the Class A Certificateholders, an amount equal to the Class A
Principal Distributable Amount and any unpaid Class A Principal Carryover
Shortfall, that amount to be paid from Available Principal (after giving
effect to any reduction in Available Principal described in clause (2)
above); and if that Available Principal is insufficient, the Class A
Certificateholders will be entitled to receive that amount first, from
funds on deposit in the Reserve Fund and second, if those amounts are
insufficient, from Available Interest (after giving effect to any
reduction in Available Interest described in clauses (1) through
(2) above);
4. to the Class B Certificateholders, an amount equal to the Class B
Interest Distributable Amount and any unpaid Class B Interest Carryover
Shortfall, that amount to be paid from Available Interest (after giving
effect to any reduction in Available Interest described in clauses
(1) through (3) above); and if that Available Interest is insufficient,
the Class B Certificateholders will be entitled to receive that amount
first, from funds on deposit in the Reserve Fund, and second, if those
amounts are insufficient, from the Class C Percentage of Available
Principal;
5. to the Class B Certificateholders, an amount equal to the Class B
Principal Distributable Amount and any unpaid Class B Principal Carryover
Shortfall, that amount to be paid from Available Principal (after giving
effect to any reduction in Available Principal described in clauses
(2) through (4) above); and if that Available Principal is insufficient,
the Class B Certificateholders will be entitled to receive that amount
first, from funds on deposit in the Reserve Fund and second, if those
amounts are insufficient, from Available Interest (after giving effect to
any reduction in Available Interest described in clauses (1) through
(4) above);
6. to the Class C Certificateholders, an amount equal to the Class C
Interest Distributable Amount and any unpaid Class C Interest Carryover
Shortfall, that amount to be paid from Available Interest (after giving
effect to any reduction in Available Interest described in clauses
(1) through (5) above);
7. to the Class C Certificateholders, an amount equal to the Class C
Principal Distributable Amount and any unpaid Class C Principal Carryover
Shortfall, that amount to be paid from Available Principal (after giving
effect to any reduction in Available Principal described in clauses
(2) through (5) above); and if that Available Principal is insufficient,
the Class C Certificateholders will be entitled to receive that amount
from Available Interest (after giving effect to any reduction in
Available Interest described in clauses (1) through (6) above); and
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8. if necessary, to the Reserve Fund so that the funds on deposit in that
account will be equal to the Specified Reserve Fund Balance; provided
that if there is a deficiency in the Reserve Fund, amounts otherwise
distributable to the Class C Certificateholders will first be deposited
by the Trustee in the Reserve Fund to cover the deficiency.
Notwithstanding the foregoing, no amount will be paid to the Class A
Certificateholders or the Class B Certificateholders in respect of any Yield
Supplement Deposit with respect to a Receivable, except to the extent of amounts
withdrawn from the Yield Supplement Account, except that if the Yield Supplement
Deposits exceed funds available in the Yield Supplement Account, the excess
shall be withdrawn from the Reserve Fund.
An "Interest Carryover Shortfall" with respect to any class of certificates
on any Payment Date will equal the excess, if any, of
- the related Interest Distributable Amount for that class on that Payment
Date and any outstanding related Interest Carryover Shortfall for that
class from the immediately preceding Payment Date plus interest on the
outstanding Interest Carryover Shortfall, to the extent permitted by law,
at the related Pass Through Rate from that immediately preceding Payment
Date through the current Payment Date, over
- the amount of interest paid to the related Certificateholders on that
Payment Date (each shortfall, the "Class A Interest Carryover Shortfall,"
"Class B Interest Carryover Shortfall" and "Class C Interest Carryover
Shortfall", as applicable).
A "Principal Carryover Shortfall" with respect to any class of Certificates
on any Payment Date will equal the excess, if any, of
- the related Principal Distributable Amount for that class on that Payment
Date and any outstanding Principal Carryover Shortfall for that class from
the immediately preceding Payment Date over
- the amount of principal actually paid to the related Certificateholders on
that Payment Date (each shortfall, the "Class A Principal Carryover
Shortfall," "Class B Principal Carryover Shortfall" and "Class C Principal
Carryover Shortfall", as applicable).
Any amounts remaining after giving effect to the distributions described in
clauses (1) through (8) of the fourth preceding paragraph on any Payment Date
("Excess Amounts") will be distributed to the Seller.
Notwithstanding the foregoing distribution priorities, if the Servicer fails
to make an Advance, the portion of any shortfall attributable thereto shall be
paid only from amounts available in the Reserve Fund.
Even if the Certificate Balance of any class of certificates is reduced to
zero prior to the termination of the Trust and prior to the final payment in
respect of amounts payable on the certificates of all classes, any Interest or
Principal Carryover Shortfalls with respect to that class will continue as
obligations of the Trust payable from amounts on deposit in the Collection
Account or Reserve Fund, including Excess Amounts, before any further deposit of
Excess Amounts into the Reserve Fund or release of amounts in the Reserve Fund
to the Seller.
PAYMENTS UNDER THE YIELD SUPPLEMENT AGREEMENT
Each Certificateholder of the Offered Certificates should allocate a portion
of its purchase price or other tax basis in the related Offered Certificates, as
the case may be, to its right to receive Yield Supplement Deposits. WE REFER YOU
TO "MATERIAL INCOME TAX CONSEQUENCES--ORIGINAL ISSUE DISCOUNT, IMPUTED INTEREST
AND MARKET DISCOUNT" IN THIS PROSPECTUS SUPPLEMENT.
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Tax counsel is unable to opine as to the federal income tax characterization
of the right to receive Yield Supplement Deposits. Arguably, the arrangement is
economically analogous to a loan made by the Certificateholder of the Offered
Certificates to the Seller in an amount equal to the discounted present value of
the Yield Supplement Deposits, if any, which are expected to be received,
resulting in OID to that Certificateholder for the amount of the discount. In
that case, each Certificateholder of the Offered Certificates will accrue income
in respect of its interest in that discounted present value under the rules
relating to OID under a method that takes account of the compounding of interest
and the holder's expected yield to maturity. Alternatively, it is possible that
the entire amount of Yield Supplement Deposits should be included in income as
accrued or received and not treated as interest and that any Certificateholder
of the Offered Certificates should also be entitled to amortize the portion of
its purchase price allocable to its right to receive Yield Supplement Deposits,
possibly on a straight-line basis over the term of the related Offered
Certificates. In that case, the Yield Supplement Deposits also might be
unrelated taxable income for a tax-exempt investor. Although the Seller believes
that these two characterizations of the Yield Supplement Agreement are the most
likely characterizations, no assurance can be given, however, that either of
these two characterizations will be accepted by the IRS.
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SUBORDINATION; RESERVE FUND
SUBORDINATION
The rights of the Certificateholders to receive payments with respect to the
Receivables will be subordinated to the rights of the Servicer to receive the
Servicing Fee, any additional servicing compensation described under "The
Certificates--Servicing Compensation" in this prospectus supplement and the
reimbursement of unreimbursed Advances.
In addition, the rights of the Class B Certificateholders and the Class C
Certificateholders to receive payments with respect to collections on the
Receivables will be subordinated to the rights of the Class A Certificateholders
to the extent described in this prospectus supplement. This subordination is
intended to enhance the likelihood of timely receipt by the Class A
Certificateholders, and, to a lesser extent, the Class B Certificateholders, of
the full amount of interest and principal required to be paid to them, and to
afford those Certificateholders limited protection against losses in respect of
the Receivables.
The Class B Certificateholders and the Class C Certificateholders will not
receive any distributions of interest or principal with respect to a Payment
Date until the full amount of interest and principal relating to that Payment
Date has been distributed to the Class A Certificateholders.
The Class C Certificateholders will not receive any distributions of
interest or principal with respect to a Payment Date until the full amount of
interest and principal relating to that Payment Date has been distributed to the
Class A Certificateholders and the Class B Certificateholders.
If on any Payment Date the Class A Certificateholders do not receive the sum
of the Class A Distributable Amount, the Class A Interest Carryover Shortfall
and the Class A Principal Carryover Shortfall for that Payment Date (after
giving effect to any amounts withdrawn from the Reserve Fund, the Class B
Distributable Amount and the Class C Distributable Amount and applied to that
deficiency, as described above), the holders of the Class B Certificateholders
and the Class C Certificateholders will not receive any portion of the Total
Available Amount.
If on any Payment Date the Class B Certificateholders do not receive the sum
of the Class B Distributable Amount, the Class B Interest Carryover Shortfall
and the Class B Principal Carryover Shortfall for that Payment Date (after
giving effect to any amounts withdrawn from the Reserve Fund and the Class C
Distributable Amount and applied to that deficiency, as described above), the
Class C Certificateholders will not receive any portion of the Total Available
Amount.
RESERVE FUND
The Class A Certificateholders and the Class B Certificateholders will also
have the benefit of the Reserve Fund. The Reserve Fund will be a segregated
trust account held by the Trustee and will not be an asset of the Trust. Any
amounts held on deposit in the Reserve Fund are owned by the Seller and any
investment earnings on the Reserve Fund will be taxable to the Seller for
federal income tax purposes. The Reserve Fund will be created with an initial
deposit by the Seller of an amount equal to [$ ] (the "Reserve Fund
Initial Deposit"). If on any subsequent Payment Date the amount on deposit in
the Reserve Fund is less than the Specified Reserve Fund Balance, first, the
Class C Distributable Amount, and if that amount is not sufficient, Excess
Amounts will be deposited in the Reserve Fund until the monies in the Reserve
Fund reach an amount equal to the Specified Reserve Fund Balance.
The time necessary for the Reserve Fund to reach and maintain the Specified
Reserve Fund Balance at any time after the date of issuance of the certificates
will be affected by the delinquency, credit loss and repossession and prepayment
experience of the Receivables and, therefore, cannot be
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accurately predicted. The "Specified Reserve Fund Balance" with respect to any
Payment Date will be equal to [$ ], except that in the event that on
any Payment Date:
1. the annualized average for the preceding three Collection Periods of the
percentage equivalents of the ratios of net losses (i.e., the net
balances of all Receivables which are determined to be uncollectible in
the Collection Period, less any Net Liquidation Proceeds with respect to
those net balances from that or prior Collection Periods) to the Pool
Balance as of the first day of each that Collection Period exceeds [ %],
or
2. the average for the preceding three Collection Periods of the percentage
equivalents of the ratios of the number of Receivables that are
delinquent 60 days or more to the outstanding number of Receivables
exceeds [ %],
then the Specified Reserve Fund Balance for that Payment Date (and for each
succeeding Payment Date until the relevant averages have not exceeded the
specified percentages in clauses (1) and (2) above for three successive Payment
Dates) shall be a dollar amount equal to (x) [ %] of the Pool Balance as of the
first day of the related Collection Period minus (y) the excess of the Pool
Balance over the sum of the Class A Certificate Balance and the Class B
Certificate Balance as of the first day of that Collection Period, but in no
event shall the Specified Reserve Fund Balance be more than [$ ], or
less than [$ ].
On any Payment Date on which the aggregate balance of the Offered
Certificates is [$ ] or less, after giving effect to the
distributions on that Payment Date, the Specified Reserve Fund Balance shall be
the greater of the balance described above or [$ ].
The Servicer may, from time to time after the date of this prospectus
supplement, request each rating agency then rating the Offered Certificates to
approve a different formula for determining the Specified Reserve Fund Balance
or a change in the manner by which the Reserve Fund is funded, if the new
formula or manner would not affect the then-current rating of the Offered
Certificates.
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of the holders of the Offered Certificates. Funds on deposit in
the Reserve Fund may be invested in Eligible Investments. Investment income on
monies on deposit in the Reserve Fund will not be available for payment to
Certificateholders or otherwise subject to any claims or rights of the
Certificateholders and will be paid to the Seller. Any loss on those investments
will be charged to the Reserve Fund.
If on any Payment Date the Class C Certificate Balance equals zero and
amounts on deposit in the Reserve Fund have been depleted as a result of losses
in respect of the Receivables, the protection afforded to the Class A
Certificateholders and the Class B Certificateholders by the subordination of
the class C certificates and by the Reserve Fund will be exhausted and the
Class B Certificateholders will bear directly the risks associated with
ownership of the Receivables. From and after that date, all those losses
realized during a Collection Period will be allocated first to the Class B
Certificates, resulting in the reduction of the Class B Certificate Balance on
the related Payment Date and second, if the Class B Certificate Balance is
reduced to zero, to the class A certificates.
If on any Payment Date the Class B Certificate Balance equals zero and
amounts on deposit in the Reserve Fund have been depleted as a result of losses
in respect of the Receivables, the protection afforded to the Class A
Certificateholders by the subordination of the class B certificates, the
class C certificates and by the Reserve Fund will be exhausted and the Class A
Certificateholders will bear directly the risks associated with ownership of the
Receivables. From and after that date, all those losses realized during a
Collection Period will be allocated first to the class A certificates, resulting
in the reduction of the Class A Certificate Balance on the related Payment Date.
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MATERIAL INCOME TAX CONSEQUENCES
CLASSIFICATION OF THE TRUST
Under current law and assuming execution of, and compliance with, the
Agreement, the Custody and Pledge Agreement and the Yield Supplement Agreement,
the Trust will be classified for federal income tax purposes and California
franchise and income tax purposes as a grantor trust and not as an association
taxable as a corporation.
For federal income tax purposes, each beneficial owner of the Offered
Certificates ("Grantor Trust Certificateholder") will be considered to own an
undivided interest in the Trust's assets, be required to include in its gross
income, for federal income tax purposes, its share of the gross income of the
Trust and be entitled to deduct (subject both to possible recharacterization of
specified fees paid by the Trust to the Servicer and to any limitations
generally applicable to that holder) its share of the expenses of the Trust
allocable to it.
Although each Grantor Trust Certificateholder will be considered, for
federal income tax purposes, to own its pro rata share of the principal of the
Receivables in the Trust and of the Yield Supplement Deposits, each Grantor
Trust Certificateholder's share of the right to interest on the Receivables,
however, is not entirely certain. Each Grantor Trust Certificateholder's right
to interest with respect to a particular Receivable should be limited to its pro
rata share of the lesser of (1) the interest that accrues on the principal of
that Receivable at the Pass Through Rate plus its pro rata share of the Servicer
and Trustee fees allocable to it (which fees will be deemed to be paid over, on
behalf of the holder, to the Servicer and the Trustee, respectively) and
(2) the total interest payable on that Receivable.
For administrative convenience, however, the Trustee may report information
with respect to a Grantor Trust Certificateholder's investment in an Offered
Certificate on an aggregate basis as though that Grantor Trust
Certificateholder's investment in the Receivables and other assets were equal to
that Grantor Trust Certificateholder's share of the initial Class Principal
Balance and on which interest and Yield Supplement Deposits are payable at a
combined rate equal to the sum of the Pass Through Rate and the Servicing Fee.
If the IRS were to require reporting on an asset-by-asset basis, the amount of
income reportable for a period could differ from the amount reportable on an
aggregate basis. In particular, as described more fully below, High Yield
Receivables (as defined in the accompanying prospectus) are subject to the
"stripped bond" rules of the Code, which could result in those Receivables
having original issue discount ("OID"), and Low Yield Receivables (as defined in
the accompanying prospectus) may be subject to the market discount or imputed
interest rules.
PAYMENTS UNDER THE YIELD SUPPLEMENT AGREEMENT
A Grantor Trust Certificateholder should allocate a portion of its purchase
price or other tax basis in that certificate to its right to receive Yield
Supplement Deposits. WE REFER YOU TO "--ORIGINAL ISSUE DISCOUNT, IMPUTED
INTEREST" AND "MARKET DISCOUNT--ORIGINAL ISSUE DISCOUNT; GENERAL."
Tax counsel is unable to opine as to the federal income tax characterization
of the right to receive Yield Supplement Deposits. The potential
characterizations of the right to receive Yield Supplement Deposits are
described in the accompanying prospectus under "Material Income Tax
Consequences--Tax Treatment of Grantor Trusts--Yield Supplement Deposits."
ORIGINAL ISSUE DISCOUNT, IMPUTED INTEREST AND MARKET DISCOUNT
ORIGINAL ISSUE DISCOUNT; GENERAL. The Receivables bear interest at varying
rates. Because a Grantor Trust Certificateholder will be viewed as owning an
interest in each of the Trust's assets and the right to receive Yield Supplement
Deposits, a portion of the Grantor Trust Certificateholder's purchase price of
an Offered Certificate (whether on initial sale or in a subsequent transaction)
may be
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required to be allocated among each of the Trust's assets and the right to
receive Yield Supplement Deposits, based on their respective fair market values.
WE REFER YOU TO THE DISCUSSION UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX
TREATMENT OF GRANTOR TRUSTS--DISCOUNT AND PREMIUM" IN THE ACCOMPANYING
PROSPECTUS.
Because the Seller will retain the right to receive interest at a rate equal
to the excess of the APR of each Receivable over the sum of the Pass Through
Rate and the Servicing Fee, the issuance of an Offered Certificate will result
in the separation of ownership ("stripping") of a portion of the rights to
interest payments on High Yield Receivables. See discussion under "Material
Income Tax Consequences--Tax Treatment of Grantor Trusts--Characterization" in
the accompanying prospectus.
PREMIUM. A Grantor Trust Certificateholder that purchases an Offered
Certificate for an amount greater than its outstanding principal balance may
elect under Section 171 of the Code to amortize premium in respect of the
Receivables in order to accrue income based on the Grantor Trust
Certificateholder's yield rather than at the Pass Through Rate. That election
would apply to all of the taxable debt instruments held or acquired after the
first day of the holder's first taxable year to which that election applies, and
may be revoked only with the consent of the IRS. WE REFER YOU TO THE DISCUSSION
UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX TREATMENT OF GRANTOR
TRUSTS--PREMIUM" IN THE ACCOMPANYING PROSPECTUS.
IMPUTED INTEREST AND MARKET DISCOUNT. Some or all of the Low Yield
Receivables may have imputed interest and/or market discount. If a Low Yield
Receivable did not have "adequate stated interest" (as the term is defined in
Section 483 of the Code) when originated, then that Receivable would be treated
as having "imputed interest." Under the imputed interest rules of the Code, a
portion of the Receivable's stated principal amount equal to that total unstated
interest would be recharacterized as interest and the Receivable's principal
amount would be correspondingly reduced. If the imputed interest rules applied,
the total unstated interest would be included in the Grantor Trust
Certificateholder's gross income over the term of the Receivable using a
constant yield-to-maturity method. It is uncertain whether the imputed interest
rules would apply to a Grantor Trust Certificateholder. If these rules do not
apply, or with respect to Low Yield Receivables which had adequate stated
interest when issued, the market discount rules instead may be applicable.
In general, under the market discount provisions of the Code, principal
payments received by the Trust, and all or a portion of the gain recognized upon
a sale or other disposition of a Receivable or upon the sale or other
disposition of an Offered Certificate by a Grantor Trust Certificateholder, will
be treated as ordinary income to the extent of accrued market discount. Any gain
recognized by a Grantor Trust Certificateholder upon a sale or other disposition
of an Offered Certificate will be treated as capital gain to the extent the gain
exceeds accrued market discount. The character of any gain from the sale of an
Offered Certificate allocable to rights pursuant to the Yield Supplement
Agreement as ordinary or capital gain, however, is uncertain. In addition, a
portion of the interest deductions on an Offered Certificate attributable to any
indebtedness treated as incurred or continued to purchase or carry a Receivable
may have to be deferred, unless a Grantor Trust Certificateholder makes an
election to include market discount in income currently as it accrues (in lieu
of including accrued market discount in income at the time principal payments
are received or at the time of disposition). That election would apply to all
debt instruments acquired by the taxpayer on or after the first day of the first
taxable year to which that election applies, and may be revoked only with
consent of the IRS. Taxpayers may, in general, elect to accrue market discount
either (1) under a constant yield-to-maturity method or (2) in the proportion
that the stated interest paid on the obligation for the current period bears to
the total remaining interest on the obligation. WE REFER YOU TO THE DISCUSSION
UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX TREATMENT OF GRANTOR TRUSTS--MARKET
DISCOUNT" IN THE ACCOMPANYING PROSPECTUS.
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ACCRUING INCOME ON A SEPARATE ASSET BASIS. Although the matter is not
entirely certain, it appears that, as a technical matter, each Grantor Trust
Certificateholder should calculate income separately for its interest in each
Receivable (by first allocating to each Receivable and to each other asset in
the Trust a portion of the Grantor Trust Certificateholder's basis in the
Offered Certificate). Further, in the case of any "affected investor" (as
defined below), in computing yield to maturity, all interest on the Receivables
allocable to the Offered Certificates, including interest effectively paid over
to the Servicer and the Trustee, is taken into account. For this purpose,
"affected investors" are individuals, persons, including estates and trusts,
that compute taxable income in the same manner as an individual and some "pass
through entities." If required to report income in respect of the Offered
Certificates to the IRS and/or Grantor Trust Certificateholders holding the
Offered Certificates, however, the Servicer and Trustee currently intend to
accrue income on an aggregate basis, based on an assumed initial offering price
of the Offered Certificates and based on the net amounts distributable on the
Offered Certificates. This method of reporting on a net basis may not be
permitted. Furthermore, subsequent purchasers of the Offered Certificates will
have to adjust the amounts reported to them based upon their basis in the
Offered Certificates.
POSSIBLE ALTERNATIVE CHARACTERIZATION. Prospective investors should be
aware that the IRS could take the position that, in accruing OID, and possibly
market discount, a Receivable-by-Receivable or pool-wide prepayment assumption
should be used to determine yield and time to maturity. If the holder purchased
its Offered Certificate at a yield higher than the Pass Through Rate on the
Offered Certificates (that is, for an amount less than the principal amount of
Receivables allocable to the Offered Certificate), that assumption could
accelerate income on the Offered Certificate.
Prospective investors should also be aware that, although the Seller
believes that none of:
1. the Class A Grantor Trust Certificateholders' right to be paid prior to
payment being made on the class B certificates and the class C
certificates;
2. the Class B Grantor Trust Certificateholders' right to be paid prior to
payment being made on the class C certificates; or
3. the Class A and Class B Grantor Trust Certificateholders' right to be
paid out of the Reserve Fund;
should be treated as an asset separate from the Class A and Class B Grantor
Trust Certificateholders' rights in the Receivables, the IRS could take a
contrary view. If any of those rights were characterized as a separate asset, a
portion of that Grantor Trust Certificateholder's basis in its certificate could
be required to be allocated to those rights or a Grantor Trust Certificateholder
might be considered to own a greater percentage of the right to interest on the
Receivables (and be deemed to pay over that additional interest as a guarantee
or other fee as it is paid or accrued).
SALE OR PREPAYMENT
Upon the sale, exchange or retirement of an Offered Certificate, a Grantor
Trust Certificateholder will recognize taxable gain or loss in respect of its
undivided interest in each asset held by the Trust. Gain or loss with respect to
each undivided interest in a Trust asset is equal to the difference between the
allocable portion of the amount realized and the Grantor Trust
Certificateholder's adjusted basis in that asset. WE REFER YOU TO THE DISCUSSION
UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX TREATMENT OF GRANTOR TRUSTS--SALE
OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE" IN THE ACCOMPANYING PROSPECTUS.
A disposition or retirement of an Offered Certificate for no net gain or
loss may for tax purposes consist of a sale of one asset (e.g., an interest in
some Receivables) for a gain and the disposition of another asset at a loss
(e.g., an interest in other Receivables). Although those gains or losses
generally should be treated as offsetting capital gains and losses (unless
earned by a dealer), absent the making of an election to include market discount
currently in income (as discussed above), gain realized on an
S-42
<PAGE>
interest in Receivables acquired with market discount may yield ordinary gain to
the extent of accrued market discount, which (1) for a corporate taxpayer could
not be offset by, and (2) for an individual taxpayer could only be offset by up
to $3,000 of, any capital loss attributable to an interest in any other
Receivables or Trust assets. WE REFER TO "--ORIGINAL ISSUE DISCOUNT, IMPUTED
INTEREST AND MARKET DISCOUNT--ACCRUING INCOME ON A SEPARATE ASSET BASIS" ABOVE.
The character of any gain realized allocable to the Grantor Trust
Certificateholder's rights under the Yield Supplement Agreement as ordinary or
capital also is uncertain. Any loss realized would be treated as a capital loss.
In general, gain or loss on any sale, exchange or retirement of an Offered
Certificate would be capital gain or loss. However, it is possible that the
Servicer will take the position that, under the rules for accruing OID, gain on
any prepayment of the Receivables will be ordinary income.
FOREIGN CERTIFICATEHOLDERS
Interest attributable to Receivables which is received by a Grantor Trust
Certificateholder that is not a "U.S. person" (as defined in the accompanying
prospectus under "Material Income Tax Consequences--Tax Treatment of Owner
Trusts--Tax Consequences to Owner of the Notes--Foreign Owners") and has no
connection with the United States other than owning the Offered Certificate
would generally constitute "portfolio interest" and, accordingly, not be subject
to the normal 30% withholding tax imposed with respect to those payments,
provided that that Grantor Trust Certificateholder fulfills specified
certification requirements.
Although it is not entirely clear, it is likely that payments received out
of the Yield Supplement Account or in respect of the Yield Supplement Agreement
generally would not be subject to withholding tax. WE REFER YOU TO THE
DISCUSSION UNDER "MATERIAL INCOME TAX CONSEQUENCES--TAX TREATMENT OF GRANTOR
TRUSTS--FOREIGN PERSONS" IN THE ACCOMPANYING PROSPECTUS.
MATERIAL STATE TAX CONSEQUENCES
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.
S-43
<PAGE>
ERISA CONSIDERATIONS
CLASS A CERTIFICATES
Subject to the considerations set forth below and under "ERISA
Considerations" in the accompanying prospectus, the class A certificates may be
purchased by an employee benefit plan or an individual retirement account (a
"Benefit Plan") subject to ERISA or Section 4975 of the United States Internal
Revenue Code of 1986, as amended (the "Code"). A fiduciary of a Benefit Plan
must determine that the purchase of an class A certificate is consistent with
its fiduciary duties under ERISA and does not result in a nonexempt prohibited
transaction as defined in Section 406 of ERISA or Section 4975 of the Code.
The United States Department of Labor (the "DOL") has granted to
[ ] and [ ] administrative exemptions (Prohibited
Transaction Exemptions [ ] and [ ], as amended by Prohibited
Transaction Exemption 97-34 (the "Exemptions")) from some of the prohibited
transaction rules of ERISA with respect to the initial purchase, the holding and
the subsequent resale by Benefit Plans of certificates representing interests in
asset backed pass through trusts that consist of receivables, loans and other
obligations that meet the conditions and requirements of the Exemptions. The
receivables covered by the Exemptions include motor vehicle installment
obligations such as the Receivables. The Exemptions also apply to transactions
in connection with the servicing, management and operation of the Trust which
might otherwise constitute prohibited transactions.
Among the conditions that must be satisfied for either of the Exemptions to
apply to the acquisition by a Benefit Plan of the class A certificates are the
following:
1. The acquisition of the class A certificates by a Benefit Plan is on
terms (including the price for that class A certificates) that are at
least as favorable to the Benefit Plan as they would be in an
arm's-length transaction with an unrelated party.
2. The rights and interests evidenced by the class A certificates acquired
by the Benefit Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust.
3. The class A certificates acquired by the Benefit Plan have received a
rating at the time of the acquisition that is in one of the three highest
generic rating categories from Standard & Poor's Structured Rating Group
("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co. or Fitch IBCA, Inc. (together with S&P and Moody's, the
"Rating Agencies").
4. The Trustee is not an affiliate of any member of the Restricted Group
(as defined below).
5. The sum of all payments made to and retained by the Underwriters in
connection with the purchase of the class A certificates represents not
more than reasonable compensation for underwriting the class A
certificates. The sum of all payments made to and retained by the Seller
pursuant to the sale of the Receivables to the Trust represents not more
than the fair market value of those Receivables. The sum of all payments
made to and retained by the Servicer represents not more than reasonable
compensation for the Servicer's services under the Agreement and
reimbursement of the Servicer's reasonable expenses in connection
therewith.
6. The Benefit Plan investing in the class A certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Commission
under the Securities Act.
The Trust must also meet the following requirements:
1. The corpus of the Trust must consist solely of assets of the type that
have been included in other investment pools.
S-44
<PAGE>
2. Certificates in other investment pools must have been rated in one of
the three highest generic rating categories of any of the Rating Agencies
for at least one year prior to the Benefit Plan's acquisition of
certificates.
3. Certificates evidencing interests in other investment pools must have
been purchased by investors other than Benefit Plans for at least one
year prior to any Benefit Plan's acquisition of class A certificates.
The Exemptions do not apply in all respects to Benefit Plans sponsored by
the Seller, the Underwriters, the Trustee, the Servicer, any Obligor with
respect to the Receivables included in the Trust constituting more than 5% of
the aggregate unamortized principal balance of the assets in the Trust or any
affiliate of those parties (the "Restricted Group"). As of the date hereof, no
Obligor with respect to the Receivables included in the Trust constitutes more
than 5% of the aggregate unamortized principal balance of the Trust (i.e., the
initial principal amount of the certificates). Moreover, each Exemption provides
relief from specified self-dealing/conflict of interest prohibited transactions
only if, among other requirements,
1. in the case of the acquisition of class A certificates in connection
with the initial issuance, at least 50% of each class of certificates in
which Benefit Plans have invested is acquired by persons independent of
the Restricted Group and at least 50% of the aggregate interest in the
trust is acquired by persons independent of the Restricted Group;
2. a Benefit Plan's investment in the class A certificates does not exceed
25% of all of the class A certificates outstanding at the time of the
acquisition; and
3. immediately after the acquisition, no more than 25% of the assets of a
Benefit Plan with respect to which a person has discretionary authority
or renders investment advice are invested in certificates representing
interests in trusts containing assets sold or serviced by the same
entity.
The Seller believes that the Exemptions will apply to the acquisition,
holding and resale of the class A certificates by a Benefit Plan and that all
conditions of the Exemptions other than those within the control of investors
will be met. However, there can be no assurance that the DOL or the IRS will not
take a contrary position, nor that that position will be sustained. One or more
alternative exemptions may be available with respect to specified prohibited
transactions to which the Exemptions are not applicable, depending in part upon
the type of a Benefit Plan's fiduciary making the decision to acquire the
class A certificates and the circumstances under which that decision is made.
See "ERISA Considerations" in the accompanying prospectus. Any Benefit Plan
which acquires a beneficial ownership interest in a class A certificates will be
deemed, by virtue of the acceptance and acquisition of that ownership interest,
to have represented to the Seller and the Trustee that that Benefit Plan is an
"accredited investor" for purposes of Rule 501(a)(1) of Regulation D under the
Securities Act.
CLASS B AND CLASS C CERTIFICATES
Class B certificates and class C certificates may not be acquired by an
employee benefit plan (as defined in Section 3(3) of ERISA) that is subject to
the provisions of Title I of ERISA or Section 4975(e)(1) of the Code or any
person acting on behalf of such a plan or using the assets of such a plan to
acquire the class B certificates or class C certificates or any entity whose
underlying assets include plan assets by reason of a plan's investment in the
entity, except as provided below with respect to insurance company general
accounts. By its acceptance of a class B certificate or class C certificate,
each holder thereof will be deemed to have represented and warranted that it is
not subject to the foregoing limitation.
In 1995, the DOL issued PTCE 95-60. Section III of PTCE 95-60 exempts from
the application of the prohibited transaction provisions of Sections 406(a),
406(b) and 407(a) of ERISA and Section 4975
S-45
<PAGE>
of the Code transactions in connection with the servicing, management and
operation of a trust (such as the Trust) in which an insurance company general
account has an interest as a result of its acquisition of certificates issued by
the trust, provided that certain conditions are satisfied. If these conditions
are met, insurance company general accounts would be allowed to purchase classes
of certificates (such as the class B certificates or class C certificates) which
do not meet the requirements of the Exemptions solely because they (i) are
subordinated to other classes of certificates in the Trust and/or (ii) have not
received a rating at the time of the acquisition in one of the three generic
highest rating categories from any of the Rating Services. All other conditions
of the Exemptions would have to be satisfied in order for PTCE 95-60 to be
available. Before purchasing class B certificates or class C certificates, an
insurance company general account seeking to rely on Section III of PTCE 95-60
should itself confirm that all applicable conditions and other requirements have
been satisfied.
ALL CERTIFICATES
A purchaser of the certificates 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.
Prospective Benefit Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemptions
or any other exemptions, and the potential consequences of any purchase in their
specific circumstances, prior to making an investment in a certificate.
A governmental plan as defined in Section 3(32) of ERISA is not subject to
ERISA or Code Section 4975. However, that governmental plan may be subject to
federal, state or local law which is to a material extent similar to the
provisions of ERISA or Code Section 4975 ("Similar Law"). A fiduciary of a
governmental plan should make its own determination as to the need for and
availability of any exemptive relief under Similar Law.
S-46
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement relating
to the certificates (the "Underwriting Agreement"), the Seller has agreed to
sell to each of the underwriters named below (collectively, the "Underwriters"),
and each of the Underwriters has severally agreed but not jointly to purchase,
the principal amount of the Offered Certificates set forth opposite its name
below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OF
UNDERWRITER CLASS A CERTIFICATES CLASS B CERTIFICATES
----------- -------------------- --------------------
<S> <C> <C>
Total.....................................................
---------- ----------
========== ==========
</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 Offered Certificates if any of the Offered Certificates is purchased. That
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 Offered Certificates to the public at varying prices to be determined at the
time of sale and to specified dealers at that price less the concessions.
<TABLE>
<CAPTION>
CLASS SELLING CONCESSION REALLOWANCE DISCOUNT
----- ------------------ --------------------
<S> <C> <C>
</TABLE>
After the initial public offering, the Underwriters may change the public
offering prices and those concessions and discounts.
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 Commission, 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 certificates are new issues of securities with no established trading
markets. The Seller has been advised by the Underwriters that the Underwriters
intend to make a market in the Offered Certificates, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Offered Certificates and that market-making may be discontinued at
any time at the sole discretion of the Underwriters without notice. Accordingly,
no assurance can be given as to the liquidity of, or trading markets for, the
Offered Certificates.
The Trust may, from time to time, invest funds in the Accounts in Eligible
Investments acquired from the Underwriters.
S-47
<PAGE>
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
stabilizing or maintaining the market price of the Offered Certificates at
levels above those that might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the Offered Certificates on
behalf of the Underwriters for the purpose of fixing or maintaining the price of
those Offered Certificates. A "syndicate covering transaction" is the bid for or
the purchase of those Offered Certificates 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 Offered Certificates
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 Offered Certificates 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 Offered Certificate to the extent that it discourages
resale of that Offered Certificate. Neither the Seller nor the Underwriters
makes any representation or prediction as to the direction or magnitude of any
of that type of effect on the prices for the Offered Certificates. 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 Offered Certificates will be made
against payment therefor on or about the Closing Date, which is the [ ]
business day following the date hereof. Rule 15c6-1 of the Commission under the
Exchange Act 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 the Offered Certificates on
the date hereof will be required, by virtue of the fact that the Offered
Certificates initially will settle [ ] 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 certificates 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 certificates 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 certificates 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.
S-48
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Offered Certificates 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 the Offered Certificates are
effected. Accordingly, any resale of the notes in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Offered Certificates 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 Offered Certificates 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 Offered Certificates acquired on the same
date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Offered Certificates should consult their own legal
and tax advisors with respect to the tax consequences of an investment in the
Offered Certificates in their particular circumstances and with respect to the
eligibility of the Offered Certificates for investment by the purchaser under
relevant Canadian legislation.
S-49
<PAGE>
LEGAL OPINIONS
In addition to the legal opinions described in the accompanying prospectus,
legal matters relating to the certificates and federal income tax and other
matters will be passed upon for the Trust by O'Melveny & Myers LLP. Certain
legal matters will passed upon for the Underwriters by Stroock & Stroock & Lavan
LLP.
S-50
<PAGE>
INDEX OF TERMS
<TABLE>
<S> <C>
accredited investor................... S-47
adequate stated interest.............. S-44
Advance............................... S-31
affected investors.................... S-45
Agreement............................. S-19
AHFC.................................. S-19
APR................................... S-20
Available Interest.................... S-35
Available Principal................... S-36
Benefit Plan.......................... S-47
Business Day.......................... S-35
Certificate Balance................... S-29
Certificateholders.................... S-29
Class A Certificate Balance........... S-37
Class A Certificate Factor............ S-27
Class A Certificateholders............ S-29
Class A Interest Carryover
Shortfall........................... S-39
Class A Interest Distributable
Amount.............................. S-36
Class A Percentage.................... S-29
Class A Pool Factor................... S-27
Class A Principal Carryover
Shortfall........................... S-39
Class A Principal Distributable
Amount.............................. S-36
Class B Certificate Balance........... S-37
Class B Certificate Factor............ S-27
Class B Certificateholders............ S-29
Class B Interest Carryover
Shortfall........................... S-39
Class B Interest Distributable
Amount.............................. S-36
Class B Percentage.................... S-29
Class B Pool Factor................... S-27
Class B Principal Carryover
Shortfall........................... S-39
Class B Principal Distributable
Amount.............................. S-37
Class C Certificate Balance........... S-37
Class C Interest Carryover
Shortfall........................... S-39
Class C Interest Distributable
Amount.............................. S-36
Class C Percentage.................... S-30
Class C Principal Carryover
Shortfall........................... S-39
Class C Principal Distributable
Amount.............................. S-36
Class Distributable Amount............ S-36
Class Percentage...................... S-30
Closing Date.......................... S-19
Code.................................. S-47
Collection Period..................... S-31
Cutoff Date........................... S-19
Dealer Recourse....................... S-19
Dealers............................... S-19
Defaulted Receivable.................. S-36
Determination Date.................... S-35
DOL................................... S-47
Eligible Investments.................. S-30
Excess Amounts........................ S-39
Excess Payment........................ S-30
Exemptions............................ S-47
Final Scheduled Payment Date.......... S-24
Financed Vehicles..................... S-19
forward looking statements............ S-29
Global Securities..................... S-55
Grantor Trust Certificateholder....... S-43
imputed interest...................... S-44
Initial Yield Supplement Amount....... S-32
Interest Carryover Shortfall.......... S-39
Interest Distributable Amount......... S-36
Moody's............................... S-47
Net Liquidation Proceeds.............. S-35
Non-U.S. Person....................... S-58
Obligors.............................. S-19
Offered Certificates.................. S-28
OID................................... S-43
Original Class A Certificate
Balance............................. S-29
Original Class B Certificate
Balance............................. S-29
Original Class C Certificate
Balance............................. S-29
Pass Through Rate..................... S-29
Payment Date.......................... S-35
penalty bid........................... S-51
portfolio interest.................... S-46
Prepayment............................ S-30
Principal Carryover Shortfall......... S-39
Principal Distributable Amount........ S-36
Rating Services....................... S-47
Receivables........................... S-19
Redemption Price...................... S-32
Required Rate......................... S-32
Required Yield Supplement Amount...... S-32
Reserve Fund.......................... S-41
Reserve Fund Initial Deposit.......... S-41
Restricted Group...................... S-48
S&P................................... S-47
Seller................................ S-19
Servicer.............................. S-19
Servicing Fee......................... S-31
Servicing Rate........................ S-31
Similar Law........................... S-49
Specified Reserve Fund Balance........ S-42
stabilizing bid....................... S-51
stripping............................. S-44
syndicate covering transaction........ S-51
Total Available Amount................ S-35
Trust................................. S-19
Trustee............................... S-19
U.S. person........................... S-46
Underwriters.......................... S-50
Underwriting Agreement................ S-50
Yield Supplement Account.............. S-31
Yield Supplement Deposit.............. S-31
Yield Supplemented Receivables........ S-32
</TABLE>
S-51
<PAGE>
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in limited circumstances, the globally offered Class A Certificates
(the "Global Securities") will be available only in book-entry form. Investors
in the Global Securities may hold those Global Securities through DTC,
Clearstream Banking, societe anonyme ("Clearstream Luxembourg") or 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 the 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.
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.
A-1
<PAGE>
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
debit will be back-valued to, and the interest on the Global Securities will
accrue from, the value date (which would be the preceding day when settlement
occurred in New York). If settlement is not completed on the intended value date
(i.e., the trade fails), the 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,
Luxembourg 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 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
A-2
<PAGE>
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, 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-8ECI (Certificate of Foreign
Person's Claim for Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States).
A-3
<PAGE>
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). 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 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 Form W-8ECI and a Form W-8BEN on which a U.S.
taxpayer identification is not provided 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>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee............................................ $1,584,000
Blue Sky Fees and Expenses.................................. 15,000
Printing Expenses........................................... 300,000
Trustee Fees and Expenses................................... 60,000
Legal Fees and Expenses..................................... 350,000
Accounting Fees and Expenses................................ 200,000
Rating Agencies' Fees....................................... 600,000
**Miscellaneous............................................. 30,000
----------
Total..................................................... $3,139,000
==========
</TABLE>
------------------------
* All amounts except the registration fee are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any "proceeding" (as defined in Section 317(a)
of the Corporations Code), other than an action by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director, officer, employee or other agent of the corporation
(collectively, an "Agent"), against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if the Agent acted in good faith and in a manner the Agent reasonably
believed to be in the best interest of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses, (ii) amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions (b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
authorized in the specific case, upon a determination that indemnification is
proper in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
II-1
<PAGE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS (CONTINUED)
directors who are not parties to the proceeding, (ii) if such a quorum of
directors is not obtainable, by independent legal counsel in a written opinion,
(iii) approval of the shareholders, provided that any shares owned by the Agent
may not vote thereon, or (iv) the court in which such proceeding is or was
pending.
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agent's status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Reference is also made to Section of the Underwriting Agreement among the
underwriters named therein, the Registrant and American Honda Finance
Corporation (see Exhibit 1.1), which provides for indemnification of the
Registrant under certain circumstances.
Article IX of the Articles of Incorporation of the Registrant provides for
the indemnification of the directors of the Registrant to the fullest extent
permissible under California law.
Article IV, Section 4.01 of the Bylaws of the Registrant (see Exhibit 3.2)
requires that the Registrant indemnify, and, in certain instances, advance
expenses to, its agents, with respect to certain costs, expenses, judgments,
fines, settlements and other amounts incurred in connection with any proceeding,
to the full extent permitted by applicable law.
In addition, Article IV, Section 4.03 of the Bylaws of the Registrant
authorizes the Registrant to purchase and maintain insurance to the extent
provided by Section 3.17(i) of the Corporations Code.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS
<TABLE>
<S> <C>
a. Exhibits:
4.1 Form of Trust Agreement among the Registrant, the Servicer
and the Owner Trustee
4.2 Form of Indenture between the Trust and the Indenture
Trustee
4.3 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Owner Trustee
4.4 Form of Pooling and Servicing Agreement among the
Registrant, the Servicer and the Trustee
4.5 Form of Purchase Agreement between AHFC and the Registrant
4.6 Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee
4.7 Form of Yield Supplement Agreement among the Seller, the
Servicer and the Indenture Trustee
4.8 Form of ISDA Master Agreement between the swap counterparty
and the Trust
</TABLE>
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<S> <C>
5.1(a) Opinion of O'Melveny & Myers LLP regarding legality of
Certificates
5.1(b) Opinion of O'Melveny & Myers LLP regarding legality of Notes
8.1 Opinion of O'Melveny & Myers LLP with respect to tax matters
23.1 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1
and 8.1)
24.1 Power of Attorney*
25.1 Statement of Eligibility on Form T-1 of Trustee**
</TABLE>
------------------------
* Previously filed with the initial Registration Statement on December 15,
1999, except for power of attorney for S. Sakamoto filed herewith (page
II-6).
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act at the
time of an offering of debt securities.
ITEM 17. UNDERTAKINGS
(a) As to Rule 415: The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the change in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, as amended, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) As to documents subsequently filed that are incorporated by reference: The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934, as amended) that is incorporated by reference
in this registration statement shall be deemed to be a new
II-3
<PAGE>
ITEM 17. UNDERTAKINGS (CONTINUED)
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(c) As to indemnification: Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
(d) As to Rule 430A:
The undersigned registrant hereby undertakes:
(1) For the purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus files
as part of the registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933, as amended, shall be deemed to
be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(e) As to qualification of trust indentures under the Trust Indenture Act of
1939 for delayed offerings: The undersigned registrant hereby undertakes to file
an application for the purpose of determining the eligability of the trustee to
act under Subsection (a) of Section 310 of the Trust Indenture Act of 1939, as
amended, in accordance with the rules and regulations prescribed by the
Commission under Section 305(b)(2) of the Trust Indenture Act of 1939, as
amended.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Torrance, State of California, on June 27, 2000.
<TABLE>
<S> <C> <C>
HONDA AUTO RECEIVABLES TRUSTS
BY: AMERICAN HONDA RECEIVABLES CORP.,
as originator of the Honda Auto Receivables
Trusts
By: /s/ Y. KOHAMA
------------------------------------------
Y. Kohama
PRESIDENT
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ Y. KOHAMA Director and President
------------------------------ (Principal Executive June 27, 2000
Y. Kohama Officer)
Director and Treasurer
JOHN I. WEISICKLE* (Principal Financial
------------------------------ Officer and Principal June 27, 2000
John I. Weisickle Accounting Officer)
S. SAKAMOTO*
------------------------------ Director and Secretary June 27, 2000
S. Sakamoto
SCOTT J. NELSON*
------------------------------ Director June 27, 2000
Scott J. Nelson
SCOTT J. ULM*
------------------------------ Director June 27, 2000
Scott J. Ulm
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ Y. KOHAMA
------------------
Y. Kohama Director June 27, 2000
ATTORNEY IN FACT
</TABLE>
II-5
<PAGE>
Know all men by these presents, that S. Sakamoto, whose signature appears
below, constitutes and appoints Y. Kohama and John I. Weisickle as his true and
lawful attorney-in-fact and agent, with full powers of substitution, for him and
in his name, place and stead, in any and all capacities, to sign and to file any
and all amendments, including post-effective amendments to this Registration
Statement, with the Securities and Exchange Commission granting to said
attorney-in-fact power and authority to perform any other act on behalf of the
undersigned required to be done in connection therewith.
<TABLE>
<CAPTION>
NAME TITLE DATE
------------------------------ ------------------------------------------ ---------------
<S> <C> <C>
/s/ S. SAKAMOTO*
------------------------------ Director and Secretary June 26, 2000
S. Sakamoto
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
4.1 Form of Trust Agreement among the Registrant, the Servicer
and the Owner Trustee
4.2 Form of Indenture between the Trust and the Indenture
Trustee
4.3 Form of Sale and Servicing Agreement among the Registrant,
the Servicer and the Owner Trustee
4.4 Form of Pooling and Servicing Agreement among the
Registrant, the Servicer and the Trustee
4.5 Form of Purchase Agreement between AHFC and the Registrant
4.6 Form of Administration Agreement among the Trust, the
Administrator and the Indenture Trustee
4.7 Form of Yield Supplement Agreement among the Seller, the
Servicer and Indenture Trustee
4.8 Form of ISDA Master Agreement between the swap counterparty
and the Trust
5.1(a) Opinion of O'Melveny & Myers LLP regarding legality of
Certificates
5.1(b) Opinion of O'Melveny & Myers LLP regarding legality of Notes
8.1 Opinion of O'Melveny & Myers LLP with respect to tax matters
23.1 Consent of O'Melveny & Myers LLP (included in Exhibits 5.1
and 8.1)
24.1 Power of Attorney*
25.1 Statement of Eligibility on Form T-1 of Trustee**
</TABLE>
------------------------
* Previously filed with the initial Registration Statement on December 15,
1999, except for power of attorney for S. Sakamoto, filed herewith (page
II-6).
** To be filed pursuant to Section 305(b)(2) of the Trust Indenture Act at the
time of an offering of debt securities.
II-7
