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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 8, 1998
ARCADIA RECEIVABLES FINANCE CORP.
as originator of
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B
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(Exact name of registrant as specified in its charter)
Delaware 333-48141 41-1743653
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(State or other jurisdiction (Commission (IRS employer
of incorporation) file number) identification No.)
7825 Washington Avenue South, Suite 410, Minneapolis, Minnesota 55439-2435
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(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 942-9880
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(Former name or former address, if changed since last report)
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Item 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
Item 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS.
Not applicable.
Item 5. OTHER EVENTS.
On June 8, 1998, the Registrant made available to prospective
investors a term sheet (the "Term Sheet") setting forth a
description of the initial collateral pool and the proposed
structure for the issuance of $550,000,000 aggregate principal
amount of asset-backed notes by Arcadia Automobile Receivables
Trust, 1998-B. The Term Sheet is attached hereto as Exhibit 99.
Item 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
The following are filed herewith. The exhibit numbers correspond
with Item 601(b) of Regulation S-K.
Exhibit No. Description
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99 Term Sheet dated June 8, 1998 of Arcadia
Automobile Receivables Trust, 1998-B
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 9, 1998 ARCADIA RECEIVABLES FINANCE CORP.,
as originator of Arcadia Automobile
Receivables Trust, 1998-B
By: /s/ Brian S. Anderson
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Brian S. Anderson
Senior Vice President
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SUBJECT TO REVISION
TERM SHEET DATED JUNE 8, 1998
$550,000,000 AUTOMOBILE RECEIVABLES-BACKED NOTES
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B
ISSUER
ARCADIA RECEIVABLES FINANCE CORPORATION
SELLER
ARCADIA FINANCIAL LTD.
SERVICER
Attached is a preliminary term sheet (the "TERM SHEET") describing the
structure, collateral pool and certain aspects of the Arcadia Automobile
Receivables Trust, 1998-B (the "TRUST"). The Term Sheet has been prepared by
the Seller for informational purposes only and is subject to modification or
change. The information and assumptions contained in the Term Sheet are
preliminary and will be superseded in their entirety by a prospectus supplement
(the "PROSPECTUS SUPPLEMENT") and by any other additional information
subsequently filed with the Securities and Exchange Commission (the
"COMMISSION") or incorporated by reference in the relevant registration
statement (the "REGISTRATION STATEMENT"). In addition, the attached Term Sheet
supersedes any prior or similar term sheet.
None of the Underwriters named below and none of their respective affiliates
makes any representation as to the accuracy or completeness of any of the
information set forth in the attached Term Sheet. This cover sheet is not a
part of the Term Sheet.
THE REGISTRATION STATEMENT (INCLUDING A BASE PROSPECTUS (THE "PROSPECTUS"))
RELATING TO THE TRUST HAS BEEN FILED WITH THE COMMISSION AND HAS BEEN DECLARED
EFFECTIVE. THE PROSPECTUS SUPPLEMENT RELATING TO THE SECURITIES OFFERED BY THE
TRUST WILL BE FILED AFTER THE SECURITIES HAVE BEEN PRICED AND ALL OF THE TERMS
AND INFORMATION ARE FINALIZED. THIS COMMUNICATION IS NOT AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE
SECURITIES OF THE TRUST IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL BEFORE THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE. INTERESTED PERSONS ARE REFERRED TO THE PROSPECTUS AND
PROSPECTUS SUPPLEMENT. ANY INVESTMENT DECISION SHOULD BE BASED UPON THE
INFORMATION IN THE PROSPECTUS AND PROSPECTUS SUPPLEMENT AS OF THEIR PUBLICATION
DATE. SALES OF THE SECURITIES TO BE OFFERED BY THE TRUST MAY NOT BE CONSUMMATED
UNLESS THE PURCHASER HAS RECEIVED BOTH THE PROSPECTUS AND THE PROSPECTUS
SUPPLEMENT. THE SECURITIES TO BE OFFERED BY THE TRUST UNDER THE PROSPECTUS
SUPPLEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY STATE
SECURITIES COMMISSION; ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITERS OF THE NOTES
BancAmerica Robertson Stephens
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
J.P. Morgan & Co.
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$550,000,000 AUTOMOBILE RECEIVABLES-BACKED NOTES
ARCADIA AUTOMOBILE RECEIVABLES TRUST, 1998-B
SUBJECT TO REVISION
TERM SHEET
Issuer . . . . . . . . . . . . Arcadia Automobile Receivables Trust, 1998-B
(the "Trust" or the "Issuer"), a Delaware
business trust.
Seller . . . . . . . . . . . . Arcadia Receivables Finance Corp. (the
"Seller"), a wholly owned subsidiary of
Arcadia Financial.
Servicer . . . . . . . . . . . Arcadia Financial Ltd. ("Arcadia Financial"
or the "Servicer" or, in its capacity as
custodian, the "Custodian").
Indenture Trustee. . . . . . . Norwest Bank Minnesota, National Association,
as Indenture Trustee and Indenture Collateral
Agent (the "Indenture Trustee") under the
Indenture, dated as of June 1, 1998 (the
"Indenture"), between the Trust and Norwest
Bank Minnesota, National Association.
Owner Trustee. . . . . . . . . Wilmington Trust Company, as Owner Trustee
(the "Owner Trustee") under the Trust
Agreement, dated as of June 1, 1998 (the
"Trust Agreement"), among the Seller,
Financial Security Assurance Inc. ("Financial
Security") and Wilmington Trust Company.
Backup Servicer. . . . . . . . Norwest Bank Minnesota, National Association
(the "Backup Servicer").
Administrator. . . . . . . . . Wilmington Trust Company (the
"Administrator").
The Notes. . . . . . . . . . . $59,500,000 Class A-1 Automobile
Receivables-Backed Notes (the "Class A-1
Notes")
$188,000,000 Class A-2 Automobile
Receivables-Backed Notes (the "Class A-2
Notes")
$141,500,000 Class A-3 Automobile
Receivables-Backed Notes (the "Class A-3
Notes")
$106,000,000 Class A-4 Automobile
Receivables-Backed Notes (the "Class A-4
Notes")
$55,000,000 Class A-5 Automobile
Receivables-Backed Notes (the "Class A-5
Notes" and, together with the Class A-1
Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes, the "Notes")
The Receivables. . . . . . . . The Receivables will consist of retail
installment sales contracts and promissory
notes purchased from motor vehicle dealers
("Dealers") by Arcadia Financial in the
ordinary course of business and secured by
new and used automobiles and light trucks
(the "Financed Vehicles").
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On the Closing Date, the Trust will purchase
Receivables (the "Initial Receivables")
that are expected to have an aggregate
principal balance of approximately
$385,000,000 on or about June 11, 1998 (the
"Initial Cutoff Date"), from the Seller
pursuant to a Sale and Servicing Agreement,
dated as of June 1, 1998 (the "Sale and
Servicing Agreement"), among the Trust, the
Seller, Arcadia Financial, in its individual
capacity and as Servicer, and the Backup
Servicer. Following the Closing Date,
pursuant to the Sale and Servicing Agreement,
the Seller will be obligated, subject only to
the availability thereof, to sell, and the
Trust will be obligated to purchase, subject
to the satisfaction of certain conditions set
forth therein, additional Receivables (the
"Subsequent Receivables") from time to time
during the Funding Period (as defined below)
having an aggregate principal balance equal
to approximately $165,000,000 (such amount,
as reduced from time to time by the aggregate
principal balance of all Subsequent
Receivables purchased by the Trust, being
hereafter referred to as the "Pre-Funded
Amount"). With respect to each sale of
Subsequent Receivables to the Trust, the
Seller will designate as a cutoff date (each,
a "Subsequent Cutoff Date"), the date as of
which such Subsequent Receivables are sold to
the Trust. Subsequent Receivables will be
conveyed to the Trust on approximately a
monthly basis on dates specified by the
Seller (each date on which Subsequent
Receivables are conveyed being referred to as
a "Subsequent Transfer Date") occurring
during the Funding Period.
The Initial Receivables and the Subsequent
Receivables will be selected from retail
installment sales contracts and promissory
notes in Arcadia Financial's portfolio based
on the criteria specified in the Sale and
Servicing Agreement and described in the
Prospectus Supplement and in the accompanying
Prospectus. As of June 3, 1998 (the
"Preliminary Cutoff Date"), the weighted
average annual percentage rate (the "APR")
of the portion of the Initial Receivables
originated by Arcadia Financial on or before
the Preliminary Cutoff Date (the
"Preliminary Initial Receivables") was
approximately 17.31%, the weighted average
remaining maturity of the Preliminary Initial
Receivables was approximately 65.5 months and
the weighted average original maturity of the
Preliminary Initial Receivables was
approximately 66.1 months. No Receivable will
have a scheduled maturity later than August
31, 2005 (the "Final Scheduled Maturity
Date"). The Receivables generally are or
will be prepayable at any time without
penalty to the purchaser or co-purchasers of
the Financed Vehicle or any other person who
is or persons who are obligated to make
payments thereunder (each, an "Obligor").
Subsequent Receivables may be originated
using credit criteria different from the
criteria applied with respect to the Initial
Receivables and may be of a different credit
quality and seasoning. In addition, following
the transfer of Subsequent Receivables to the
Trust, the characteristics of the entire pool
of Receivables included in the Trust may vary
from those of the Preliminary Initial
Receivables.
The "Aggregate Principal Balance" of the
Receivables as of any Determination Date
(I.E., the sixth Business Day prior to the
corresponding Distribution Date) means the
aggregate principal balance of the
Receivables at the end of the preceding
calendar month (a "Monthly Period") (other
than (i) any Receivable that became a
Liquidated Receivable during such Monthly
Period and (ii) any Receivable that the
Seller, Arcadia Financial or the Servicer has
repurchased with respect to the next
Distribution Date), after giving effect to
all payments received from Obligors for such
Monthly Period as of the end of such Monthly
Period.
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Trust Property . . . . . . . . Each Note will represent an obligation of the
Trust. The Trust's assets (the "Trust
Property") will include, among other things,
a pool of Receivables (the "Receivables
Pool") consisting of the Initial Receivables
and the Subsequent Receivables, certain
monies paid or payable under the Initial
Receivables after the Initial Cutoff Date,
certain monies paid or payable under the
Subsequent Receivables after the respective
Subsequent Cutoff Dates, an assignment of
Arcadia Financial's security interests in the
Financed Vehicles and of the right to receive
proceeds from claims on certain insurance
policies covering the Financed Vehicles or
the Obligors, an assignment of certain rights
of Arcadia Financial against the Dealers
originating such Receivables, the Collection
Account, the Pre-Funding Account and certain
other accounts (including all investments
therein, all income from the investment of
funds therein and all proceeds thereof), and
certain other rights under the Trust
Documents (as defined herein). The Initial
Receivables will be purchased by the Seller
from Arcadia Financial pursuant to one or
more purchase agreements (the "Purchase
Agreements") between the Seller and Arcadia
Financial on or prior to the date of issuance
of the Notes, and the Subsequent Receivables
will be purchased by the Seller from Arcadia
Financial pursuant to one or more purchase
agreements (each, a "Subsequent Purchase
Agreement") on or prior to the applicable
Subsequent Transfer Date. The Trust Property
will also include an assignment of the
Seller's rights under the Purchase Agreements
and the Subsequent Purchase Agreements,
including rights against Arcadia Financial
upon the occurrence of certain breaches of
representations and warranties thereunder (a
"Repurchase Event").
Terms of the Notes . . . . . . The principal terms of the Notes will be as
described below:
A. Distribution Dates . Payments of interest and principal on the
Notes will be made on the fifteenth day of
each month or, if the fifteenth day is not a
Business Day, on the next following Business
Day (each, a "Distribution Date"),
commencing July 15, 1998. Payments will be
made to holders of record of the Notes (the
"Noteholders") as of the Business Day
immediately preceding such Distribution Date
(a "Record Date").
B. Interest . . . . . . Interest on the outstanding principal amount
of the Notes of each class will accrue at the
applicable interest rate from and including
the Closing Date (in the case of the first
Distribution Date) or from and including the
most recent Distribution Date on which
interest has been paid to but excluding the
following Distribution Date (each, an
"Interest Period"). Interest on the Notes
for any Distribution Date due but not paid on
such Distribution Date will be due on the
next Distribution Date together with interest
on such amount at the applicable interest
rate. Interest on the Class A-1 Notes and the
Class A-2 Notes will be calculated on the
basis of the actual number of days elapsed
during the applicable Interest Period divided
by 360. Interest on the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes for
each Interest Period will be calculated on
the basis of a 360-day year consisting of
twelve 30-day months.
C. Principal. . . . . . Principal of the Notes will be payable on
each Distribution Date in an amount equal to
the Noteholders' Principal Distributable
Amount for the Monthly Period preceding such
Distribution Date. The Noteholders' Principal
Distributable Amount will equal the sum of
the following amounts with respect to the
related Monthly Period: (i) that portion of
all collections on Receivables (other than
Liquidated Receivables and Purchased
Receivables) allocable to principal,
including full and partial principal
prepayments, received during such Monthly
Period, (ii) the principal balance of each
Receivable that became a Liquidated
Receivable during such Monthly Period, (iii)
the principal balance
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of each Receivable that was repurchased by
Arcadia Financial or the Servicer as of the
last day of such Monthly Period, and, at the
option of Financial Security, the principal
balance of each Receivable that was required
to be, but was not, so repurchased, (iv) the
aggregate amount of any reduction of the
principal balance of a Receivable as a result
of a court order in an insolvency proceeding
and (v) any unpaid portion of the amounts
included in clauses (i), (ii), (iii) and (iv)
above with respect to a prior Distribution
Date.
Payments of principal on the Notes will be
paid to the holders of Class A-1 Notes until
the principal balance of the Class A-1 Notes
has been reduced to zero, then to the holders
of Class A-2 Notes until the principal
balance of the Class A-2 Notes has been
reduced to zero, then to the holders of Class
A-3 Notes until the principal balance of the
Class A-3 Notes has been reduced to zero,
then to the holders of the Class A-4 Notes
until the principal balance of the Class A-4
Notes has been reduced to zero and then to
the holders of Class A-5 Notes until the
principal balance of the Class A-5 Notes has
been reduced to zero.
D. Optional Redemption. The Class A-5 Notes, to the extent still
outstanding, may be redeemed in whole, but
not in part, on any Distribution Date on
which the Seller or the Servicer exercises
its option to purchase the Receivables,
which, subject to certain provisions in the
Sale and Servicing Agreement, can occur after
the Aggregate Principal Balance declines to
10% or less of the Original Pool Balance, at
a redemption price equal to the unpaid
principal amount of the Notes of each such
class plus accrued and unpaid interest
thereon. The "Original Pool Balance" will
equal the sum of (i) the Aggregate Principal
Balance as of the Initial Cutoff Date plus
(ii) the aggregate principal balances of all
Subsequent Receivables added to the Trust as
of their respective Subsequent Cutoff Dates.
E. Mandatory Redemption Each class of Notes will be redeemed in part
on the Distribution Date on or immediately
following the last day of the Funding Period
in the event that any portion of the
Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date (a
"Mandatory Redemption"). The aggregate
principal amount of each class of Notes to be
redeemed will be an amount equal to such
class's pro rata share (based on the
respective current principal balance of each
class of Notes) of the Pre-Funded Amount on
such date (such class's "Note Prepayment
Amount"). A limited recourse mandatory
prepayment premium (the "Note Prepayment
Premium") will be payable by the Trust to
the Noteholders if the Pre-Funded Amount at
the end of the Funding Period exceeds
$100,000.
The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an event of default under the Indenture.
So long as Financial Security shall not be in
continuing default on its obligations under
the Note Policy and certain bankruptcy events
shall not have occurred with respect to
Financial Security, an event of default under
the Indenture will occur only upon delivery
by Financial Security to the Indenture
Trustee of notice of the occurrence of
certain events of default. In the case of
such an event of default, the Notes will
automatically be accelerated and subject to
immediate payment at par. The Note Policy
does not guarantee payment of any amounts
that become due on an accelerated basis,
unless Financial Security elects, in its sole
discretion, to pay such amounts in whole or
in part.
Pre-Funding Account. . . . . . During the period (the "Funding Period")
from and including the Closing Date until the
earliest of (i) the Determination Date on
which (a) the Pre-Funded
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Amount is less than $100,000, (b) an event of
default has occurred under the Indenture or a
Servicer termination event has occurred under
the Sale and Servicing Agreement, or (c)
certain events of insolvency have occurred
with respect to the Seller or the Servicer,
or (ii) the close of business on the August
1998 Distribution Date, the Pre-Funded Amount
will be maintained as an account in the name
of the Indenture Trustee (the "Pre-Funding
Account"). The Pre-Funded Amount is
initially expected to equal approximately
$165,000,000 and, during the Funding Period,
will be reduced by the principal balance of
Subsequent Receivables purchased by the Trust
from time to time in accordance with the Sale
and Servicing Agreement. The Seller expects
that the Pre-Funded Amount will be reduced to
less than $100,000 by the August 1998
Distribution Date. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be distributed with respect to each
class of Notes pro rata in proportion to the
respective principal balances of each class
of Notes.
Reserve Account. . . . . . . . During the Funding Period, funds will be held
in a reserve account (the "Reserve Account")
to cover any shortfalls due to investment
earnings on funds in the Pre-Funding Account
being less than the interest due on a
comparable principal amount of Notes.
The Note Policy. . . . . . . . On the Closing Date, Financial Security will
issue a financial guaranty insurance policy
(the "Note Policy") to the Indenture Trustee.
Pursuant to the Note Policy, Financial
Security will unconditionally and irrevocably
guarantee to the Noteholders payment of the
Noteholders' Distributable Amount for each
Distribution Date.
Collection Account . . . . . . Except under certain conditions described
herein, the Servicer will establish one or
more accounts in the name of the Indenture
Trustee (the "Collection Account") for the
benefit of Noteholders. All payments from
Obligors that are received by the Lockbox
Bank on behalf of the Trust will be deposited
in the Collection Account no later than two
Business Days after receipt thereof.
Priority of Distributions. . . Pursuant to the Sale and Servicing Agreement,
the Indenture Trustee will, based upon the
information contained in a certificate
provided by the Servicer, on each
Distribution Date, withdraw the Available
Funds with respect to such Distribution Date
from the Collection Account and apply such
funds to the following (in the priority
indicated):
(i) to the Servicer, the amount the
Servicer is entitled to be reimbursed for
prior Monthly Advances,
(ii) to the Owner Trustee and the
Indenture Trustee, any accrued and unpaid
trustee fees and any accrued and unpaid fees
of the separate Lockbox Bank, Custodian,
Backup Servicer, Collateral Agent, Indenture
Collateral Agent or Administrator (in each
case, to the extent such fees have not been
previously paid by the Servicer or Arcadia
Financial),
(iii) to the Servicer, the servicing fee
for the related Monthly Period and any
overdue servicing fees,
(iv) into the Note Distribution Account,
the Noteholders' Interest Distributable
Amount,
(v) into the Note Distribution Account,
the Noteholders' Principal Distributable
Amount,
(vi) to Financial Security, amounts owing
and not paid to Financial Security, and
(vii) the remaining balance, if any, to a
financial institution acting as collateral
agent (the "Collateral Agent") on behalf of
Financial Security, the Indenture Trustee (on
behalf of the Noteholders) and the trustees
for other
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trusts and warehousing facilities established
and to be established by the Seller.
Tax Status . . . . . . . . . . It is contemplated that the Notes, for
federal income tax purposes, will be
characterized as debt, and the Trust will not
be characterized as an association (or a
publicly traded partnership) taxable as a
corporation.
ERISA Considerations . . . . . Subject to certain considerations, it is
contemplated that the Notes will be eligible
for purchase by employee benefit plans.
Legal Investment . . . . . . . The Class A-1 Notes will be eligible
securities for purchase by money market funds
under Rule 2a-7(a) under the Investment
Company Act of 1940, as amended.
Ratings . . . . . . . . . . It is a condition of issuance that the Class
A-1 Notes be rated A-1+ by Standard & Poor's
Ratings Services, a division of The
McGraw-Hill Companies, Inc. ("S&P"), and
P-1 by Moody's Investors Service, Inc.
("Moody's" and, together with S&P, the
"Rating Agencies"), and the Class A-2
Notes, the Class A-3 Notes, the Class A-4
Notes and the Class A-5 Notes each be rated
AAA by S&P and Aaa by Moody's. There is no
assurance that the ratings initially assigned
to the Notes will not subsequently be lowered
or withdrawn by the Rating Agencies.
Risk Factors . . . . . . . . . Before making an investment decision,
prospective investors should consider the
factors that will be set forth under the
caption "Risk Factors" in the Prospectus
Supplement and the Prospectus.
THE RECEIVABLES POOL
GENERAL
The Receivables Pool will include the Initial Receivables and all amounts
due thereunder after the Initial Cutoff Date, and any Subsequent Receivables and
all amounts due thereunder after the applicable Subsequent Cutoff Date (the
Initial Cutoff Date or any Subsequent Cutoff Date being individually referred to
herein as a "Cutoff Date").
All of the Receivables are or will be retail installment sales contracts or
promissory notes purchased in the ordinary course of business by Arcadia
Financial from Dealers who regularly originate and sell such contracts or notes
to Arcadia Financial. Retail installment sales contracts and promissory notes
are hereinafter referred to individually as a "Loan" or collectively as
"Loans." The Initial Receivables and the Subsequent Receivables were or will
be selected from Arcadia Financial's portfolio for inclusion in the Receivables
Pool in compliance with several criteria, some of which are set forth below
under "-Selection Criteria." No selection procedures believed by Arcadia
Financial or by the Seller to be adverse to Noteholders were used or will be
used in selecting the Receivables.
The obligation of the Trust to purchase the Subsequent Receivables on a
Subsequent Transfer Date will be subject to the Receivables in the Trust,
together with the Subsequent Receivables to be conveyed to the Trust on such
Subsequent Transfer Date, meeting the following criteria (computed based on the
characteristics of the Initial Receivables on the Initial Cutoff Date and any
Subsequent Receivables as of the related Subsequent Cutoff Date): (i) the
weighted average APR of such Receivables will not be lower than one percentage
point below the weighted average APR of the Preliminary Initial Receivables on
the Preliminary Cutoff Date; (ii) the weighted average remaining term of such
Receivables will not be greater than 67 months nor less than 63 months; (iii)
not more than 90% of the Aggregate Principal Balance of such Receivables will be
attributable to Loans for the purchase of used Financed Vehicles; (iv) not more
than 73% of the Aggregate Principal Balance of such Receivables will represent
Receivables originated under Arcadia Financial's "Classic" program (excluding
loans
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for the purchase of repossessed automobiles that would otherwise be deemed
originated under the "Classic" program); and (v) not more than 4% of the
Aggregate Principal Balance of such Receivables will be attributable to
Receivables with an APR in excess of 21%.
The Aggregate Principal Balance of the Initial Receivables is expected to
be equal to approximately 70% of the aggregate initial principal balance of the
Notes. However, except for the criteria described in the preceding paragraphs,
there will be no required characteristics of the Subsequent Receivables and the
Receivables included in the Initial Receivables originated after the Preliminary
Cutoff Date. Therefore, following the transfer of Subsequent Receivables to the
Trust, the aggregate characteristics of the entire Receivables Pool, including
the composition of the Receivables, the distribution by APR and the geographic
distribution described in the following tables, may vary from those of the
Preliminary Initial Receivables.
DELINQUENCY, CREDIT LOSS AND REPOSSESSION INFORMATION
The following tables set forth information relating to Arcadia Financial's
delinquency, credit loss and repossession experience for each period indicated
with respect to all Loans it has purchased and continues to service. This
information includes the experience with respect to all Loans in Arcadia
Financial's portfolio of Loans serviced during each such period, including Loans
which do not meet the criteria for selection as a Receivable. At the
Preliminary Cutoff Date, the Preliminary Initial Receivables represented
approximately 6.71%, by principal balance, of Arcadia Financial's portfolio of
Loans serviced.
DELINQUENCY EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------ At March 31,
1995 1996 1997 1998
----------------------- ------------------- ------------------- -------------------
Number Number Number Number
of of of of
Loans Balances Loans Balances Loans Balances Loans Balances
------- ----------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Servicing Portfolio at
End of Period . . . . . . . . . . . 185,241 $2,267,107 302,450 $3,791,857 411,429 $4,956,090 426,884 $5,026,479
Delinquencies:
31-60 days. . . . . . . . . . . . . 1,536 $ 17,667 3,884 $ 47,225 8,297 $ 100,161 7,484 $ 90,148
61-90 days. . . . . . . . . . . . . 520 5,694 1,255 15,877 3,635 45,485 3,358 41,363
91 days or more . . . . . . . . . . 614 6,881 2,911 37,019 3,019 34,047 3,967 46,023
--------- ---------- -------- ---------- ------- ---------- -------- ----------
Total Automobile Loans
Delinquent 31 or More Days. . . . . 2,670 $ 30,242 8,050 $ 100,121 14,951 $ 179,693 14,809 $ 177,534
Delinquencies as a Percentage
of Number of Loans and Amount
Outstanding at End of Period (2). . 1.44% 1.33% 2.66% 2.64% 3.63% 3.63% 3.47% 3.53%
Amount in Repossession (3). . . . . . . 1,489 $ 17,676 4,651 $ 64,929 6,083 $ 55,300 5,646 $ 51,482
--------- ---------- -------- ---------- ------- ---------- -------- ----------
Total Delinquencies and Amount in
Repossession (2). . . . . . . . . . 4,159 $ 47,918 12,701 $ 165,050 21,034 $ 234,993 20,455 $ 229,016
--------- ---------- -------- ---------- ------- ---------- -------- ----------
--------- ---------- -------- ---------- ------- ---------- -------- ----------
</TABLE>
- - -------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Loan. The information in the table includes previously sold
Loans which Arcadia Financial continues to service.
(2) Amounts shown do not include Loans which are less than 31 days delinquent.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
-8-
<PAGE>
CREDIT LOSS AND REPOSSESSION EXPERIENCE(1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, Three
------------------------------------- Months Ended
1995 1996 1997 March 31, 1998(4)
---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
Average Servicing Portfolio Outstanding During the Period. . . . . $1,534,720 $3,015,411 $4,458,677 $5,001,781
Average Number of Loans Outstanding During the Period. . . . . . . 128,783 242,419 362,626 419,179
Number of Charge-Offs. . . . . . . . . . . . . . . . . . . . . . . 5,020 14,403 24,616 7,597
Gross Charge-Offs (2). . . . . . . . . . . . . . . . . . . . . . . $ 11,247 $ 35,642 $ 165,233 $ 52,479
Recoveries (3) . . . . . . . . . . . . . . . . . . . . . . . . . . 911 5,653 9,855 3,576
---------- ---------- ---------- ----------
Net Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,336 $ 29,989 $ 155,378 $ 48,903
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Gross Charge-Offs as a Percentage of Average Servicing
Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 0.73% 1.18% 3.71% 4.20%
Net Losses as a Percentage of Average Servicing Portfolio. . . . . 0.67% 0.99% 3.48% 3.91%
</TABLE>
- - -------------------------
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Loan. The information in the table includes previously
sold Loans which Arcadia Financial continues to service.
(2) Gross charge-offs represent principal amounts which management estimated to
be uncollectible after the consideration of anticipated proceeds from the
disposition of repossessed assets and selling expenses.
(3) Includes post-disposition amounts received on previously charged off Loans.
(4) Percentage calculations for the three months ended March 31, 1998 are
annualized.
The increase in the rate of delinquencies, gross charge-offs, net losses
and repossessions during 1996, experienced by both the Premier and Classic
programs, was primarily due to (i) increased demands on Arcadia Financial's
servicing and collection resources as the result of rapid growth in its
servicing portfolio and as a result of continued expansion of the Classic loan
program (which generally requires greater collection efforts than the Premier
program), (ii) the performance of Arcadia Financial's discontinued Classic
product for first time automobile buyers and Arcadia Financial's financed
repossession program, which experienced significantly higher delinquencies,
repossessions and losses than Arcadia Financial's other products and programs
and (iii) the continued seasoning of Arcadia Financial's servicing portfolio.
The significant rise in repossession inventory levels during 1996 was the result
of the growth in Arcadia Financial's servicing portfolio and increased
utilization of retail distribution channels to liquidate repossessed
automobiles.
The increase in delinquencies, gross charge-offs and net losses during 1997
was primarily due to the continued seasoning of Arcadia Financial's existing
servicing portfolio to include a greater proportion of loans in the period of
highest probability for delinquencies and defaults (generally six to 14 months
from the date of origination), especially with respect to Arcadia Financial's
Premier loan portfolio. Much of the increase in performance statistics was due
to performance of loans originated in 1995 and the first half of 1996. As
expected, performance statistics also increased during 1997 as a result of a
rise in the proportion of Classic loans in Arcadia Financial's portfolio. At
December 31, 1997, the portfolio consisted of approximately 43% Classic loans
compared to 29% at December 31, 1996. Net losses during the year were further
affected by selling an increased proportion of repossessed vehicles through
wholesale auctions. During 1997, Arcadia Financial liquidated approximately 54%
of all repossessed vehicles sold through wholesale auctions compared to 30%
during 1996. Because recovery rates are generally lower on vehicles sold at
auction compared to those liquidated through retail channels, the increased
utilization of auctions has increased net losses experienced by Arcadia
Financial. Included in the 1997 gross charge-off and net loss statistics is a
special charge of approximately $25 million resulting from a revision to Arcadia
Financial's inventory valuation policy, which requires Arcadia Financial to
record all repossessed vehicles at recovery rates that reflect expected values
to be achieved through wholesale auctions, regardless of the specific asset
disposition strategy to be employed.
Arcadia Financial's delinquency rate at March 31, 1998 declined compared to
December 31, 1997, in part because of seasonal pressure on collection efforts,
which is generally highest in the fourth quarter of the year. Management also
believes that the decrease in the delinquency rate reflects improvements in
Arcadia Financial's collections and servicing functions. During the first
quarter of 1998, Arcadia Financial began incorporating more aggressive use of
autodialers and introduced borrower behavioral scoring information into its
collection calling strategy in order to focus resources where management
believes they will make the most difference in improving collection efforts.
Arcadia Financial has also begun to move collection personnel out of buying
centers to
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<PAGE>
centralized sites to better leverage collections resources and technology and
control collection processes more tightly.
Excluding the one-time inventory valuation adjustment described above,
gross charge-off and net loss rate increased during the first quarter of 1998
compared to the same period of 1997 primarily due to the continued rise in
Classic loan volume and the seasoning of Arcadia Financial's existing servicing
portfolio. Net losses during the first quarter of 1998 were further affected by
the increased use of wholesale auctions to dispose of repossessed vehicles.
During the first quarter of 1998, Arcadia Financial liquidated approximately 71%
of all repossessed vehicles sold through wholesale auctions compared with 35% in
the first quarter of 1997. In addition, wholesale recovery rates have continued
to decline during the past few quarters, reflecting a softening in the used car
market.
The Loans in Arcadia Financial's servicing portfolio include Loans other
than the Receivables, including Loans which do not meet the criteria for
selection as a Receivable. There can be no assurance that the delinquency, loan
loss or repossession experience of the Trust with respect to the Receivables
will be better than, worse than or comparable to the experience set forth above.
SELECTION CRITERIA
The Preliminary Initial Receivables represent substantially all Loans in
Arcadia Financial's portfolio, owned and not serviced for others, that (i) were
not more than 30 days past due as of the Preliminary Cutoff Date, (ii) did not
have a remaining principal balance as of the Preliminary Cutoff Date less than
$500.00, (iii) did not have a final scheduled payment date prior to September 1,
1998, and (iv) were otherwise eligible under criteria established by Arcadia
Financial and Financial Security.
CERTAIN OTHER CHARACTERISTICS
The Preliminary Initial Receivables (i) had a remaining maturity, as of the
Preliminary Cutoff Date, of at least 3 months, but not more than 84 months, (ii)
had an original maturity of at least 6 months, but not more than 84 months,
(iii) had an original principal balance of at least $1,500.00 and not more than
$38,566.74 (iv) had a remaining principal balance, as of the Preliminary Cutoff
Date, of at least $940.58 and not more than $38,273.26 and (v) had an APR of at
least 8.70% and not more than 23.95%. Approximately 12.04% of the Aggregate
Principal Balance of the Preliminary Initial Receivables, as of the Preliminary
Cutoff Date, was attributable to Loans for the purchase of new Financed
Vehicles, and approximately 87.96% of the Aggregate Principal Balance was
attributable to Loans for the purchase of used Financed Vehicles. The
Preliminary Initial Receivables were purchased from more than 4,000 Dealers. Not
more than 0.41% of the Aggregate Principal Balance of the Preliminary Initial
Receivables as of the Preliminary Cutoff Date was originated by any single
Dealer. The ten most significant Dealers, each of whom individually accounted
for at least 0.25% of the Aggregate Principal Balance as of the Preliminary
Cutoff Date, in the aggregate, originated approximately 3.18% of the Aggregate
Principal Balance as of the Preliminary Cutoff Date. Approximately 97.26% of the
Preliminary Initial Receivables, by principal balance, are simple interest
obligations, and interest on the remaining 2.74% of the Preliminary Initial
Receivables is computed on an actuarial basis, with prepayment rebates computed
according to the Rule of 78's. Neither the Seller, Arcadia Financial nor the
Servicer may substitute other Loans for the Receivables at any time during the
term of the Sale and Servicing Agreement.
-10-
<PAGE>
The composition and distribution by APR and geographic concentration of the
Receivables Pool as of the Preliminary Cutoff Date are set forth in the
following tables:
COMPOSITION OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
Weighted
Average Aggregate Number of Average Weighted Weighted Average
APR of Principal Receivables in Principal Average Original Scheduled
Receivables Balance Pool Balance Remaining Term (1) Term (1)
----------- --------------- -------------- ---------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
17.31% $339,071,024.78 24,710 $13,722.02 65.5 months 66.1 months
</TABLE>
- - --------------------------
(1) Based on scheduled payments due after the Preliminary Cutoff Date (in the
case of the Weighted Average Remaining Term) and assuming no prepayments on
the Preliminary Initial Receivables.
DISTRIBUTION BY APR OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
Number of Aggregate Percent of Aggregate
APR Range (%) Receivables Principal Balance Principal Balance
- - ------------ ----------- ----------------- -----------------
<S> <C> <C> <C>
8.00 to 8.99 . . . . . . . . . . . . . . . . 1 $ 22,016.50 0.01%
9.00 to 9.99 . . . . . . . . . . . . . . . . 16 231,600.85 0.07
10.00 to 10.99 . . . . . . . . . . . . . . . 90 1,504,435.86 0.44
11.00 to 11.99 . . . . . . . . . . . . . . . 410 6,914,573.61 2.04
12.00 to 12.99 . . . . . . . . . . . . . . . 980 16,280,020.04 4.80
13.00 to 13.99 . . . . . . . . . . . . . . . 1,253 20,664,511.49 6.09
14.00 to 14.99 . . . . . . . . . . . . . . . 1,575 25,166,170.66 7.42
15.00 to 15.99 . . . . . . . . . . . . . . . 1,617 24,471,704.08 7.22
16.00 to 16.99 . . . . . . . . . . . . . . . 2,659 40,508,945.86 11.95
17.00 to 17.99 . . . . . . . . . . . . . . . 4,365 61,590,633.20 18.17
18.00 to 18.99 . . . . . . . . . . . . . . . 4,068 54,570,905.83 16.09
19.00 to 19.99 . . . . . . . . . . . . . . . 4,075 50,764,266.20 14.97
20.00 to 20.99 . . . . . . . . . . . . . . . 2,480 26,767,810.79 7.89
21.00 to 21.99 . . . . . . . . . . . . . . . 911 7,832,976.37 2.31
22.00 to 23.99 . . . . . . . . . . . . . . . 210 1,780,453.44 0.53
------ --------------- ------
24,710 $339,071,024.78 100.00%
------ --------------- ------
------ --------------- ------
</TABLE>
-11-
<PAGE>
GEOGRAPHIC CONCENTRATION OF THE PRELIMINARY INITIAL RECEIVABLES
AS OF THE PRELIMINARY CUTOFF DATE
<TABLE>
<CAPTION>
Number of Aggregate Percent of Aggregate
State Receivables Principal Balance Principal Balance
- - ----- ----------- ----------------- --------------------
<S> <C> <C> <C>
Texas. . . . . . . . . . . . . . . . . . . . 4,111 61,760,203.58 18.22%
Florida. . . . . . . . . . . . . . . . . . . 2,163 30,268,433.43 8.93
California . . . . . . . . . . . . . . . . . 1,592 22,158,207.47 6.53
Tennessee. . . . . . . . . . . . . . . . . . 1,376 18,947,621.61 5.59
Georgia. . . . . . . . . . . . . . . . . . . 1,185 17,407,633.61 5.13
North Carolina . . . . . . . . . . . . . . . 1,151 16,754,298.59 4.94
South Carolina . . . . . . . . . . . . . . . 1,036 14,295,514.94 4.22
Colorado . . . . . . . . . . . . . . . . . . 993 12,740,085.97 3.76
Missouri . . . . . . . . . . . . . . . . . . 889 11,742,222.18 3.46
Oklahoma . . . . . . . . . . . . . . . . . . 857 11,556,685.54 3.41
Arizona. . . . . . . . . . . . . . . . . . . 730 10,643,000.38 3.14
Oregon . . . . . . . . . . . . . . . . . . . 666 8,863,271.54 2.61
New York . . . . . . . . . . . . . . . . . . 707 8,076,426.11 2.38
Washington . . . . . . . . . . . . . . . . . 620 7,898,087.02 2.33
Minnesota. . . . . . . . . . . . . . . . . . 569 7,282,840.10 2.15
Massachusetts. . . . . . . . . . . . . . . . 531 6,286,090.84 1.85
Nevada . . . . . . . . . . . . . . . . . . . 407 6,150,099.16 1.81
Maryland . . . . . . . . . . . . . . . . . . 355 5,040,403.20 1.49
Connecticut. . . . . . . . . . . . . . . . . 394 4,990,610.89 1.47
Utah . . . . . . . . . . . . . . . . . . . . 309 4,242,165.31 1.25
New Mexico . . . . . . . . . . . . . . . . . 295 4,228,766.52 1.25
Kentucky . . . . . . . . . . . . . . . . . . 329 4,142,513.48 1.22
Ohio . . . . . . . . . . . . . . . . . . . . 334 4,125,023.92 1.22
Wisconsin. . . . . . . . . . . . . . . . . . 281 3,395,392.48 1.00
Nebraska . . . . . . . . . . . . . . . . . . 269 3,208,765.71 0.95
Illinois . . . . . . . . . . . . . . . . . . 250 3,195,182.05 0.94
All other states . . . . . . . . . . . . . . 2,311 29,671,479.15 8.75
------- --------------- ------
24,710 $339,071.024.78 100.00%
------- --------------- ------
------- --------------- ------
</TABLE>
-12-
<PAGE>
DEFINITIONS
As used herein the following terms have the following meanings:
"AVAILABLE FUNDS" means, with respect to any Distribution Date, the sum of
the Collected Funds, any Purchase Amounts, all Monthly Advances and all earnings
from the investment of funds in the Collection Account, the Pre-Funding Account
and the Reserve Account during the Monthly Period.
"BUSINESS DAY" means any day other than a Saturday, Sunday, legal holiday
or other day on which commercial banks located in the City of New York or
Minneapolis, Minnesota or any other location of any successor Servicer,
successor Owner Trustee or successor Collateral Agent are authorized or
obligated by law, executive order or governmental decree to be closed.
"COLLECTED FUNDS" means the amount of funds in the Collection Account
allocable to collections on the Receivables in the preceding Monthly Period
(excluding any Monthly Advances and any Purchase Amounts).
"LIQUIDATED RECEIVABLE" means a Receivable as to which (i) 91 days have
elapsed since the Servicer repossessed the related Financed Vehicle, (ii) the
Servicer has determined in good faith that all amounts it expects to recover
have been received or (iii) all or some portion of a scheduled payment thereon
has become more than 180 days past due.
"LOCKBOX BANK" means a bank acting as agent for the Owner Trustee and for
other owners of automobile receivables serviced by Arcadia Financial that shall
receive all payments by Obligors on the Receivables held by the Trust.
"MONTHLY ADVANCE" shall mean the amount advanced to the Trust by the
Servicer that is equal to any shortfall between the amount paid on a receivable
held by the Trust in any Monthly Period and the full amount of the interest
accrued on such Receivable for the number of calendar days in such Monthly
Period.
"NOTE DISTRIBUTION ACCOUNT" means the account established and maintained by
the Servicer, in the name of the Indenture Trustee on behalf of the Noteholders,
in which amounts released from the Collection Account for distribution to
Noteholders will be deposited and from which all distributions to Noteholders
will be made.
"NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Principal Distributable Amount
and the Noteholders' Interest Distributable Amount.
"NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to any
Distribution Date and a class of Notes, the excess of the Noteholders' Interest
Distributable Amount for such class for the preceding Distribution Date, over
the amount in respect of interest that was actually deposited in the Note
Distribution Account with respect to such class on such preceding Distribution
Date, plus interest on the amount of interest due but not paid to Noteholders of
such class on the preceding Distribution Date, to the extent permitted by law,
at the interest rate borne by such class of Notes from such preceding
Distribution Date to but excluding the current Distribution Date.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Interest Distributable
Amount for each class of Notes for such Distribution Date and the Noteholders'
Interest Carryover Shortfall for each class of Notes for such Distribution Date.
"NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the sum of the interest amounts payable on each class
of Notes. The interest amounts payable with respect to the Class A-1 Notes and
the Class A-2 Notes shall equal the product of the outstanding principal balance
of such class and the interest rate on such class multiplied by a fraction whose
numerator is the actual number of days in the Interest Period and whose
denominator is 360. The interest amounts payable with respect to the Class A-3
Notes, the Class A-4 Notes and the Class A-5 Notes shall equal the product of
the outstanding principal balance of such class and the interest rate on such
class multiplied by a fraction whose numerator is the number of days in the
Interest Period (assuming each month is composed of 30 days) and whose
denominator is 360. The outstanding principal balance for each Interest Period
is measured as of the preceding Distribution Date (after giving effect to all
payments of principal
-13-
<PAGE>
to the Noteholders on or prior to such Distribution Date) or, in the case of the
initial Interest Period, as of the Closing Date.
"NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, 100% of the Principal Distribution Amount.
"NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close of
any Distribution Date, the excess of the Noteholders' Principal Distributable
Amount for the preceding Distribution Date over the amount in respect of
principal that was actually deposited in the Note Distribution Account on such
Distribution Date.
"NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date (other than the Final Scheduled Distribution Date for any
class of Notes), the sum of the Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and the Noteholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date. The Noteholders'
Principal Distributable Amount on the Final Scheduled Distribution Date for any
class of Notes will equal the sum of (i) the Noteholders' Monthly Principal
Distributable Amount for such Distribution Date, (ii) the Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date, and
(iii) the excess of the outstanding principal balance of such class of Notes, if
any, over the amounts described in clauses (i) and (ii).
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any Distribution
Date, the amount equal to the sum of the following amounts with respect to the
related Monthly Period: (i) that portion of all collections on Receivables
(other than Liquidated Receivables and Purchased Receivables) allocable to
principal, including all full and partial prepayments received during such
Monthly Period, (ii) the aggregate unpaid principal balance of all Receivables
(other than the Purchased Receivables) that became Liquidated Receivables during
the Monthly Period, (iii) the aggregate principal balances of all Receivables
that became Purchased Receivables as of the last day of the prior Monthly
Period, and, at the option of Financial Security, the principal balance of each
Receivable that was required to be, but was not, so repurchased and (iv) the
aggregate amount of any reductions in the principal balance of Receivables as a
result of a court order in an insolvency proceeding.
"PURCHASE AMOUNT" of any Receivable means, with respect to the last
calendar day of a month, the outstanding principal balance of such Receivable as
of such date, plus accrued and unpaid interest thereon.
"PURCHASED RECEIVABLE" means a Receivable (i)(A) that Arcadia Financial or
the Seller has become obligated to repurchase (or, under certain circumstances,
has elected to repurchase) as a result of an uncured breach by Arcadia Financial
or the Seller of a representation or warranty made by Arcadia Financial or the
Seller with respect to such Receivable or (B) that the Servicer has become
obligated to repurchase (or, under certain circumstances, has elected to
repurchase) as a result of an uncured breach of the covenants made by it with
respect to such Receivable and (ii) as to which the related Purchase Amount has
been deposited in the Collection Account by Arcadia Financial, the Seller or the
Servicer, as the case may be, on or before the business day immediately
preceding the related Determination Date.
"TRUST DOCUMENTS" shall include the Sale and Servicing Agreement, the Trust
Agreement and the Purchase Agreements.
-14-
