As filed with the Securities and Exchange Commission on March 24, 2000
Registration No. 333-30840
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
PRE-EFFECTIVE AMENDEMENT NO.1
TO FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------------
USAA FEDERAL SAVINGS BANK
(Originator of the trusts described herein)
(Exact Name of Registrant as specified in its charter)
--------------------------
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<S> <C> <C>
United States 0749 74-2291652
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
--------------------------
10750 McDermott Freeway, San Antonio, Texas 78288
(210) 498-2265
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive offices)
--------------------------
Michael J. Broker, Esq.
Vice President and Banking Counsel
10750 McDermott Freeway, San Antonio, Texas 78288
(210) 498-2265
(Name, address, including zip code and telephone number, including
area code, of agent for service)
--------------------------
Copies to:
Renwick D. Martin Laura Palma
Brown & Wood LLP Simpson Thacher & Bartlett
One World Trade Center 425 Lexington Avenue
New York, New York 10048 New York, New York 10017
(212) 839-5319 (212) 455-2000
--------------------------
Approximate date of commencement of proposed sale to public: As soon as
practicable on or after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please check
the following box. / /
---
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. /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 statement number of the earlier effective registration statement
for the same offering./ /
--
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
--
<PAGE>
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<CAPTION>
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Offering Price Offering Registration
Securities to be Registered Registered Per Unit(1) Price(1) Fee(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Asset Backed Notes and Certificates................ $1,000,000 100% $1,000,000 $264
(1) Estimated solely for purposes of calculating the Registration Fee.
(2) Previously paid.
------------------------------------
</TABLE>
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 this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Subject to completion, dated March 24, 2000.
Prospectus Supplement to Prospectus Dated _____________, 200_
$-------------------
USAA Auto Owner Trust _______
[USAA LOGO]
USAA Federal Savings Bank
Seller and Servicer
<TABLE>
<CAPTION>
Before you purchase
any of these securities,
be sure you read this
prospectus supplement
and the attached
prospectus, especially
the risk factors The underwriters are offering the following securities by this prospectus
beginning on page S-__ supplement:
of this prospectus
supplement and on page Class A-1 Class A-2 Class A-3 Class B
__ of the prospectus. Notes Notes Notes Certificates
<S> <C> <C> <C> <C> <C>
A security is not a deposit Principal Amount.................... $ $ $ $
and neither the securities Per Annum Interest Rate............. % % % %
nor the underlying motor Final Scheduled Payment Date........
vehicle loans are insured Initial Public Offering Price(1).... $ % $ % $ % $ %
or guaranteed by the Underwriting Discount............... $ % $ % $ % $ %
FDIC or any other Proceeds to Seller(1)(2)............ $ % $ % $ % $ %
governmental authority. ---------------
These securities are (1) The price of the securities will also include interest accrued on the securities,
issued by the trust. The if any, from _________________.
securities are not (2) Before deducting expenses payable by the seller estimated to be $___________.
obligations of USAA o The trust will pay interest and principal on the securities on the ___th day
Federal Savings Bank or of each month. The first payment date will be ________________.
any of its affiliates. o The trust will pay principal sequentially to the earliest maturing class of
securities then outstanding until paid in full.
No one may use this o The certificates are subordinated to the notes.
prospectus supplement to
offer and sell these
securities unless it is
accompanied by the
prospectus.
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the attached prospectus.
Any representation to the contrary is a criminal offense.
[Underwriters]
The date of this prospectus supplement is _____________.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus supplement
and the attached prospectus are not an offer to sell these securities and they
are not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
<PAGE>
TABLE OF CONTENTS
READING THESE DOCUMENTS.............................5
SUMMARY OF TERMS OF THE SECURITIES..................6
RISK FACTORS.......................................12
THE TRUST..........................................15
Limited Purpose and Limited Assets..............15
Capitalization of the Trust.....................16
The Owner Trustee...............................16
THE RECEIVABLES POOL...............................16
The Bank's Delinquency, Loan Loss and
Recovery Information..........................20
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES.........21
Notes...........................................21
Certificates....................................21
The Factors Described Above
Will Decline as the Trust
Makes Payments on the
Securities....................................22
MATURITY AND PREPAYMENT CONSIDERATIONS.............22
Weighted Average Life of the Securities.........24
DESCRIPTION OF THE NOTES...........................28
Payments of Interest............................28
Payments of Principal...........................29
Optional Prepayment.............................29
DESCRIPTION OF THE CERTIFICATES....................29
Distributions...................................30
Subordination of Certificates...................30
Optional Prepayment.............................31
APPLICATION OF AVAILABLE FUNDS.....................31
Sources of Funds of Distributions...............31
Priority of Distributions.......................32
DESCRIPTION OF THE SALE AND SERVICING AGREEMENT....33
Accounts........................................33
Servicing Compensation and Expenses.............33
Rights Upon Event of Servicing Termination......33
Waiver of Past Events of Servicing Termination..34
Deposits to the Collection Account..............34
Reserve Account.................................36
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............37
CERTAIN STATE TAX CONSEQUENCES.....................37
ERISA CONSIDERATIONS...............................37
The Notes.......................................37
The Certificates................................38
UNDERWRITING.......................................38
LEGAL OPINIONS.....................................41
GLOSSARY OF TERMS..................................41
<PAGE>
READING THESE DOCUMENTS
We provide information on the securities in two documents that offer
varying levels of detail:
1. Prospectus - provides general information, some of which may not
apply to the securities.
2. Prospectus Supplement - provides a summary of the specific terms
of the securities.
We suggest you read this prospectus supplement and the prospectus in
their entirety. The prospectus supplement pages begin with "S". If the terms
of the offered securities described in this prospectus supplement vary with
the accompanying prospectus, you should rely on the information in this
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents on page S-3
in this document and on page 4 in the prospectus to locate the referenced
sections.
The Glossary of Terms on page S-__ of this prospectus supplement and the
Glossary of Terms on page __ in the prospectus list definitions of certain
terms used in this prospectus supplement or the prospectus.
You should rely only on information on the securities provided in this
prospectus supplement and the prospectus. We have not authorized anyone to
provide you with different information.
In this prospectus supplement, the terms "we," "us" and "our" refer to
USAA Federal Savings Bank.
<PAGE>
SUMMARY OF TERMS OF THE SECURITIES
The following summary is a short description of the main terms of the
offering of the securities. For that reason, this summary does not contain all
of the information that may be important to you. To fully understand the terms
of the offering of the securities, you will need to read both this prospectus
supplement and the attached prospectus in their entirety.
Issuer
USAA Auto Owner Trust ____, a Delaware [common law] [statutory business]
trust, will use the proceeds from the issuance and sale of the securities to
purchase from the seller a pool of motor vehicle installment loans which
constitute the receivables. The trust will rely upon collections on the
receivables and the funds on deposit in certain accounts to make payments on
the securities. The trust will be solely liable for the payment of the
securities.
Offered Securities
The following securities are being offered by this prospectus supplement:
$____________ Class A-1 ____% Asset Backed Notes
$____________ Class A-2 ____% Asset Backed Notes
$____________ Class A-3 ____% Asset Backed Notes
$____________ Class B ____% Asset Backed Certificates
Closing Date
The trust expects to issue the securities on __________________.
Seller and Servicer
USAA Federal Savings Bank.
Owner Trustee
____________________.
Indenture Trustee
____________________.
Payment Dates
On the ___th day of each month (or if the ___th day is not a Business Day, the
next Business Day), the trust will pay interest and principal on the
securities.
First Payment Date
The first payment date will be _________________.
Record Dates
On each payment date, the trust will pay interest and principal to the holders
of the securities as of the related record date. The record dates for the
securities will be the day immediately preceding the payment date. If
definitive securities are issued for the securities, the record date will be
the last day of the month immediately preceding the payment date.
Interest Rates
The trust will pay interest on each class of securities at the rates specified
on the cover of this prospectus supplement.
Interest Accrual
Class A-1 Notes
"Actual/360", accrued from the prior payment (or the closing date, in the case
of the first payment date) to and excluding the current payment date) .
Class A-2 Notes; Class A-3 Notes and Certificates
"30/360", accrued from the 15th day of the previous month (or the closing
date, in the case of the first payment date) to and excluding the 15th day of
the current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on each payment date will be the product of:
1. the outstanding principal balance;
2. the interest rate; and
3. [(i)in the case of the Class A-1 Notes:
the actual number of days in the accrual period divided by 360; and
(ii)in the case of the other classes of notes and the certificates:
30 (or in the case of the first payment date, _____) divided by 360.]
For a more detailed description of the payment of interest, refer to the
sections of this prospectus supplement entitled "Description of the Notes --
Payments of Interest" and "Description of the Certificates -- Distributions."
Priority of Distributions
From collections on the receivables received during the prior calendar month
and amounts withdrawn from the reserve account, the trust will pay the
following amounts on each payment date in the following order of priority,
after reimbursement of advances made in prior months by the servicer for
interest payments due from obligors but not received:
(1) Servicing Fee-- the servicing fee payable to the servicer;
(2) Note Interest-- interest due on all the notes ratably to the holders
of each class of notes;
(3) Certificate Interest -- interest distributable to the
holders of the certificates; however, if the notes have been
accelerated because of a failure to pay an amount due on the
notes or certain insolvency events in respect of the trust,
this distribution will instead be made after the notes have
been paid in full;
(4) Regular Principal Payment-- An amount equal to the sum of
o the principal collections on the receivables received during
the prior calendar month and
o the aggregate principal balance (net of liquidation proceeds
applied to principal) of all receivables designated as
"defaulted receivables" in that month,
will be applied to pay principal on the securities in the following
order of priority:
(i) on the Class A-1 Notes until they are paid in full;
(ii) on the Class A-2 Notes, until they are paid in full;
(iii) on the Class A-3 Notes until they are paid in full; and
(iv) on the certificates until they are paid in full;
If payment of the notes is accelerated after an event of default,
all of the funds remaining after clause (2) will be paid as
principal pro rata on all classes of the notes until they are paid
in full and then will be distributed to the holders of the
certificates, first to pay interest distributable to the holders of
the certificates and, second to pay principal on the certificates
until they are paid in full;
(5) Final Scheduled Payment Date -- if the payment date is a
final scheduled payment date for a class of securities, the
amount, if any, necessary to pay that class in full after
giving effect to the payment pursuant to clause (4) will be
paid on that class;
(6) Reserve Account Deposit-- to the reserve account, the amount, if any,
necessary to reinstate the balance of the reserve account up to its
required amount; and
(7) any amounts remaining after the above distributions will be paid to
the seller.
For a more detailed description of the priority of distributions and the
allocation of funds on each payment date, you should refer to "Application of
Available Funds" in this prospectus supplement.
Credit Enhancement
The credit enhancement for the securities will be as follows:
Subordination of Principal and Interest
Payments of interest on the certificates will be subordinated to payments of
interest on the notes, and no payments of principal will be made on the
certificates until the notes have been paid in full. If an event of default
occurs and the notes are accelerated, no payments will be made on the
certificates until the notes are paid in full.
Reserve Account
On the closing date, the trust will deposit $______________ to the reserve
account.
On each payment date, if collections on the receivables are insufficient to
pay the first five items listed in "Priority of Distributions" above, the
indenture trustee will withdraw funds from the reserve account to pay such
amounts.
Generally, the balance required to be on deposit in the reserve account will
be the lesser of (a) __% of the outstanding principal balance of the
receivables and (b) __% of the principal balance of the receivables as of the
Cut-off Date.
On each payment date, the trust will deposit into the reserve account, to the
extent necessary to reinstate the required balance of the reserve account, any
collections on the receivables remaining after the first five items listed in
"Priority of Distributions" above are satisfied.
On each payment date, the trust will distribute funds on deposit in the
reserve account in excess of the required balance to the seller.
For a more detailed description of the deposits to and withdrawals from the
reserve account, you should refer to "Description of the Sale and Servicing
Agreement -- Reserve Account" in this prospectus supplement.
Optional Prepayment
The servicer has the option to purchase the receivables on any payment date on
which the aggregate principal balance of the receivables is ___% or less of
the aggregate principal balance of the receivables at the time they were sold
to the trust. The purchase price will equal the outstanding principal balance
of the receivables plus interest accrued thereon at the weighted average
interest rate borne by the securities. The trust will apply such payment to
the payment of the securities in full.
It is expected that at the time this purchase option becomes available to the
servicer only the Class A-3 Notes and the certificates will be outstanding.
Final Scheduled Payment Dates
The trust is required to pay the entire principal amount of each class of
securities, to the extent not previously paid, on the respective final
scheduled payment dates specified on the cover page of this prospectus
supplement.
Property of the Trust
The property of the trust will include the following:
o the receivables and the collections on the receivables on or after
________;
o security interests in the vehicles financed by the receivables;
o bank accounts; and
o rights to proceeds under insurance policies that cover the obligors
under the receivables or the vehicles financed by the receivables.
Composition of the Receivables
The composition of the receivables as of ________________ is as follows:
o Aggregate Principal
Balance.................... $
o Number of
Receivables................
o Average Principal
Balance.................... $
(Range)................ $ to $
o Average Original
Amount Financed............ $
(Range)................ $ to $
o Weighted Average Contract Rate %
(Range)................ % to
%
o Weighted Average
Original Term.............. months
(Range)................ months to
months
o Weighted Average
Remaining Term............. months
(Range)................ month to
months
Servicer of the Receivables
The trust will pay the servicer a servicing fee on each payment date for the
previous month equal to 1/12 of __% of the principal balance of the
receivables at the beginning of the previous month. In addition to the
servicing fee, the trust will also pay the servicer a supplemental servicing
fee equal to any late fees and other administrative fees and expenses, if any,
collected during each month and any reinvestment earnings on any payments
received on the receivables and deposited into the collection account.
Ratings
It is a condition to the issuance of the securities that:
o [the Class A-1 Notes be rated in the highest short-term rating
category by at least two nationally recognized rating agencies;]
o [the Class A-2 Notes and Class A-3 Notes] be rated in the [highest]
long-term rating category by at least [two] nationally recognized
rating agencies; and
o the certificates be rated "____" or its equivalent by at least [two]
nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or sell the offered notes
and certificates, inasmuch as such rating does not comment as to market price
or suitability for a particular investor. The ratings of the securities
address the likelihood of the payment of principal and interest on the
securities according to their terms. A rating agency rating the securities may
lower or withdraw its rating in the future, in its discretion, as to any class
of the securities.
Minimum Denominations
Notes $1,000 and integral multiples thereof
Certificates $1,000 and integral multiples thereof
Registration, Clearance and Settlement
Notes book-entry through DTC/Clearstream/ Euroclear
Certificates book-entry through DTC
Tax Status
Opinions of Counsel
Brown & Wood LLP will deliver its opinion that for federal income tax
purposes:
o the notes will be characterized as debt; and
o the trust will not be characterized as an association (or a
publicly traded partnership) taxable as a corporation.
Investor Representations
Notes If you purchase the notes, you agree by your purchase that you
will treat the notes as indebtedness for federal income tax
purposes.
Certificates If you purchase the certificates, you agree by your purchase
that you will treat the trust as a partnership in which the
certificateholders are partners for federal income tax
purposes.
Tax-Related Investment Restrictions on Certificates
Certificates The certificates may not be purchased by persons who are not
U.S. Persons for federal income tax purposes.
<PAGE>
If you are considering purchasing the certificates, you should refer to
"Certain Federal Income Tax Consequences" in this prospectus supplement and in
the prospectus and "Certain State Tax Consequences" in this prospectus
supplement for more details.
ERISA CONSIDERATIONS
Notes The notes are generally eligible for purchase by employee
benefit plans, subject to the considerations discussed under
"ERISA Considerations" in this prospectus supplement and the
prospectus.
Certificates The certificates may not be acquired by an employee benefit
plan or by an individual retirement account. However, an
insurance company using its general account may acquire the
certificates subject to the considerations discussed under
"ERISA Considerations" in this prospectus supplement and in the
prospectus.
Investor Information -- Mailing Address and Telephone Number
The mailing address of the principal executive offices of USAA Federal Savings
Bank is 10750 McDermott Freeway, San Antonio, Texas 78288. Its telephone
number is (210) 498-2265.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these securities.
Certificates are Subject to Greater
Credit Risk Because the Certificates
are Subordinate to the Notes The
certificates bear greater credit risk
than the notes because payments of
interest and principal on the
certificates are subordinated, to the
extent described below, to payments
of interest and principal on the
notes.
Interest payments on the certificates
on each payment date will be
subordinated to interest payments on
the notes and, if the notes have been
accelerated because of a failure to
pay an amount due on the notes or
certain events of insolvency in
respect of the trust, principal
payments on the notes.
Principal payments on the
certificates will be fully
subordinated to principal payments on
the notes since no principal will be
paid on the certificates until the
notes have been paid in full.
Prepayments and Losses on Your Securities May Result From an Event of Default
under the Indenture
An event of default under the
indenture may result in
o losses on your notes or
certificates if the receivables are
sold and the sale proceeds, together
with any other assets of the trust,
are insufficient to pay the amounts
owed on the notes and the
certificates; and
o your notes or certificates being
repaid earlier than scheduled, which
may require you to reinvest your
principal at a lower rate of return.
See "The Indenture" in the
prospectus.
You May Suffer Losses Because You Have
Limited Control Over Actions of the
Trust and Conflicts Between the
Noteholders and the Certificateholders Because the trust has pledged its
May Occur property to the indenture trustee to
secure payment on the notes, the
indenture trustee may, and at the
direction of the holders of the
specified percentage of the notes
will, take one or more of the other
actions specified in the indenture
relating to the property of the
trust, including a sale of the
receivables. Furthermore, the holders
of a majority of the notes, or the
indenture trustee acting on behalf of
the holders of the notes, under
certain circumstances, has the right
to waive Events of Servicing
Termination or to terminate the
servicer as the servicer of the
receivables without consideration of
the effect such waiver or termination
would have on the holders of the
certificates. The holders of
certificates will not have the
ability to waive Events of Servicing
Termination or to remove the servicer
until the notes have been paid in
full.
See "Description of the Receivables
Transfer and Servicing Agreements --
Events of Servicing Termination", "
-- Rights Upon Event of Servicing
Termination" and "-- Waiver of Past
Events of Servicing Termination" in
the prospectus.
Geographic Concentration May Result in
More Risk to You The servicer's records indicate that
the billing addresses of the obligors
of the receivables as of ________,
were in the following states:
<TABLE>
<CAPTION>
Percentage of
Aggregate
Principal
Balance
<S> <C> <C>
[ ]........................... %
[ ]........................... %
[ ]........................... %
[ ]........................... %
No other state, by those billing
addresses, constituted more than 5%
of the balance of the receivables as
of _____________. Economic conditions
or other factors affecting these
states in particular could adversely
affect the delinquency, credit loss
or repossession experience of the
trust.
</TABLE>
<PAGE>
THE TRUST
Limited Purpose and Limited Assets
USAA Auto Owner Trust _____-__ is a [common law] [statutory] business trust
formed under the laws of the State of Delaware by a trust agreement dated as
of __________ between USAA Federal Savings Bank (the "Bank") and __________,
as the owner trustee. The trust will not engage in any activity other than:
o acquiring, holding and managing the assets of the trust, including
the receivables, and the proceeds of those assets;
o issuing the securities;
o making payments on the securities; and
o engaging in other activities that are necessary, suitable or
convenient to accomplish any of the other purposes listed above or
are in any way connected with those activities.
The trust will be capitalized by the issuance of the notes and the
certificates. The proceeds from the issuance of the securities will be used by
the trust (1) to purchase the receivables from the seller under a sale and
servicing agreement to be dated as of ______________ among the trust, the
seller and the servicer, and (2) to fund the initial deposit to the Reserve
Account.
The trust property will also include:
o all monies received on the receivables on or after ___________ (the
"Cut-off Date");
o security interests in the financed vehicles;
o the rights to proceeds, if any, from claims on certain theft,
physical damage, credit life or credit disability insurance
policies, if any, covering the financed vehicles or the obligors;
o the seller's rights to certain documents and instruments relating to
the receivables;
o such amounts as from time to time may be held in the accounts
maintained for the trust;
o certain payments and proceeds with respect to the receivables held
by the servicer;
o certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the receivables;
and
o any proceeds of the above items.
If the protection provided to the noteholders by the subordination of
the certificates and to the noteholders and the certificateholders by the
Reserve Account is insufficient, the trust will have to look solely to the
obligors on the receivables and the proceeds from the repossession and sale of
the financed vehicles which secure defaulted receivables. In that event,
various factors, such as the trust not having perfected security interests in
the financed vehicles securing the receivables in all states, may affect the
servicer's ability to repossess and sell the collateral securing the
receivables, and thus may reduce the proceeds which the trust can distribute
to the noteholders and the certificateholders. See "Application of Available
Funds-- Priority of Distributions" and "Description of the Sale and Servicing
Agreement-- Reserve Account" in this prospectus supplement and "Some Important
Legal Issues Relating to the Receivables" in the prospectus.
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 such date:
Class A-1 Notes........................................................ $_____
Class A-2 Notes........................................................
Class A-3 Notes........................................................
Certificates...........................................................
Total.................................................................. $
======
The Owner Trustee
___________ will be the owner trustee under the trust agreement.
_______________is a ________________ and its principal offices are located at
_________________________________. The seller and its affiliates may maintain
normal commercial banking relations with the owner trustee and its affiliates.
THE RECEIVABLES POOL
The trust will own a pool of receivables consisting of motor vehicle
installment loans secured by security interests in the motor vehicles financed
by those contracts. The pool will consist of the receivables which the seller
sells to the trust on the closing date. The receivables will include payments
on the receivables which are made on or after the Cut-off Date.
Criteria Applicable to Selection of Receivables.
The receivables were selected from the seller's portfolio for
inclusion in the pool by several criteria, some of which are set forth in the
prospectus under "The Receivables Pools." These criteria include the
requirement that each receivable:
o has a remaining maturity, as of the Cut-off Date, of at least ____ months
and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an original
maturity of at least ____ months and not more than ____ months; with
respect to loans secured by used financed vehicles, had an original
maturity of at least _____ months and not more than ____ months;
o is a fully-amortizing, fixed rate simple interest loan which provides for
level scheduled monthly payments (except for the last payment, which may
be minimally different from the level payments) over its remaining term
and has a simple interest contract rate (a "Contract Rate") that equals
or exceeds ____% per annum, is not secured by any interest in real
estate, and has not been identified on the computer files of the seller
as relating to an obligor who had requested a reduction in the periodic
finance charges, as of the Cut-off Date, by application of the Soldiers'
and Sailors' Civil Relief Act of 1940, as amended;
o is secured by a financed vehicle that, as of the Cut-off Date, had not
been repossessed without reinstatement;
o has not been identified on the computer files of the seller as relating
to an obligor who was in bankruptcy proceedings as of the Cut-off Date;
o has no payment more than ____ days past due as of the Cut-off Date; and
o has a remaining principal balance, as of the Cut-off Date, of at least
$___________.
The receivables were selected from the seller's portfolio of
installment loans for new and used vehicles, in each case meeting the criteria
described above and in the prospectus. No selection procedures believed by the
seller to be adverse to the securityholders were utilized in selecting the
receivables. No receivable has a scheduled maturity later than
____________________ .
The composition of the receivables as of the Cut-off Date is as
follows:
o Aggregate Principal
Balance............................................. $
o Number of Receivables...............................
o Average Principal
Balance............................................ $
(Range)........................................... $ to $
o Average Original
Amount Financed.................................... $
(Range)........................................... $ to $
o Weighted Average
Contract Rate...................................... %
(Range)........................................... % to %
o Weighted Average
Original Term...................................... months
(Range)........................................... months to
months
o Weighted Average
Remaining Term..................................... months
(Range)........................................... months to
months
o Percentage of Aggregate Principal
Balance of Receivables for
New/Used Vehicles.................................. % / %
The geographical distribution and distribution by Contract Rate of
the receivables as of the Cut-off Date are set forth in the following tables.
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cut-off Date
Percentage
of Percentage
Aggregate of
Number Principal Aggregate
of Principal Balance Number of Principal Principal
State (1) Receivable Balance (2) State (1) Receivables Balance Balance (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama................. Montana...........
Alaska.................. Nebraska..........
Arizona................. Nevada............
Arkansas................ New Hampshire.....
California.............. New Jersey........
Colorado................ New Mexico........
Connecticut............. New York..........
Delaware................ North Carolina....
District of Columbia.... North Dakota......
Florida................. Ohio..............
Georgia................. Oklahoma..........
Hawaii.................. Oregon............
Idaho................... Pennsylvania......
Illinois................ Rhode Island......
Indiana................. South Carolina....
Iowa.................... South Dakota......
Kansas.................. Tennessee.........
Kentucky................ Texas.............
Louisiana............... Utah..............
Maine................... Vermont...........
Maryland................ Virginia..........
Massachusetts........... Washington........
Michigan................ West Virginia.....
Minnesota............... Wisconsin.........
Mississippi............. Wyoming...........
Missouri................
</TABLE>
(1) Based on the billing addresses of the obligors as of the Cut-off Date.
(2) May not add to 100% due to rounding.
<PAGE>
<TABLE>
<CAPTION>
Distribution by Contract Rate of the Receivables as of the Cut-off Date
Percentage of
Aggregate
Number of Principal
Contract Rate Receivables Principal Balance Balance (1)
<S> <C> <C> <C>
1.90 to 1.99%..................................
2.00 to 2.49...................................
2.50 to 2.99...................................
3.00 to 3.49...................................
3.50 to 3.99...................................
4.00 to 4.49...................................
4.50 to 4.99...................................
5.00 to 5.49...................................
5.50 to 5.99...................................
6.00 to 6.49...................................
6.50 to 6.99...................................
7.00 to 7.49...................................
7.50 to 7.99...................................
8.00 to 8.49...................................
8.50 to 8.99...................................
9.00 to 9.49...................................
9.50 to 9.99...................................
10.00 to 10.49.................................
10.50 to 10.99.................................
11.00 to 11.49.................................
11.50 to 11.99.................................
12.00 to 12.49.................................
12.50 to 12.99.................................
13.00 to 13.49.................................
13.50 to 13.99.................................
14.00 to 14.49.................................
14.50 to 14.99.................................
15.00 to 15.49.................................
15.50 to 15.99.................................
16.00 to 16.49.................................
16.50 to 16.99.................................
17.00 to 17.49.................................
17.50 to 17.99.................................
18.00 to 18.49.................................
18.50 to 18.99.................................
19.00 to 19.49.................................
19.50 to 19.99.................................
20.00..........................................
Totals.........................................
(1) May not add to 100.00% due to rounding.
</TABLE>
<PAGE>
The Bank's Delinquency, Loan Loss and Recovery Information
The following tables set forth information with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries for each of
the periods shown for the portfolio of motor vehicle loans originated and
serviced by the Bank. The portfolio of motor vehicle loans originated and
serviced by the Bank during the periods shown includes both fixed rate motor
vehicle loans and variable rate motor vehicle loans. The Bank does not
maintain separate records with respect to fixed rate motor vehicle loans and
variable rate motor vehicle loans regarding delinquency, loan loss and
recovery experience. The receivables include only fixed rate motor vehicle
loans. The following tables also include information with respect to certain
consumer loans which are not motor vehicle loans. These other consumer loans
did not exceed 10% of outstandings as of each of the dates shown in the
following tables. The Bank believes that the inclusion of variable rate motor
vehicle loans and these consumer loans has an immaterial effect on the
information set forth in the following tables with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries on its fixed
rate motor vehicle loans.
<TABLE>
<CAPTION>
Delinquency Experience
At December 31,
1999 1998 1997 1996 1995
Dollars Number Dollars Number Dollars Number Dollars Number Dollars Number
(in 000s) of Loans (in 000s) of Loans (in 000s) of Loans (in 000s) of Loans (in 000s) of Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings.... $3,661,825 283,810 $2,802,144 234,281 $2,076,318 186,560 $1,687,922 159,812 $1,454,843 145,246
Delinquencies over
30 days(1)(2)... $16,927 1,689 $12,297 1,366 $7,028 871 $8,634 1,082 $580 2,338
Delinquencies over
30 days (%)(3).. 0.46% 0.60% 0.44% 0.58% 0.34% 0.47% 0.51% 0.68% 0.34% 0.40%
(1) Delinquencies include principal amounts only.
(2) The period of delinquency is based on the number of days payments are contractually past due.
(3) As a percent of outstandings.
</TABLE>
<TABLE>
<CAPTION>
Loan Loss Experience
Year Ended December 31,
1999 1998 1997 1996 1995
(Dollars in 000s)
<S> <C> <C> <C> <C> <C>
Number of Loans(1) .......................... 283,810 234,281 186,560 159,812 145,246
Period Ending Outstandings................... $3,661,825 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(2) ..................... $3,281,001 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs ................. 1,438 874 797 805 422
Gross Charge-Offs(3)......................... $16,066 $9,311 $6,157 $4,131 $2,244
Gross Charge-Offs as a % of Period End 0.44% 0.33% 0.30% 0.24% 0.15%
Outstandings................................
Gross Charge-Offs as a % of Average 0.49% 0.39% 0.33% 0.27% 0.17%
Outstandings.................................
Recoveries(4)................................ $7,296 $4,856 $2,158 $1,068 $683
Net Charge-Offs(5)........................... $8,770 $4,455 $3,999 $3,063 $1,561
Net Charge-Offs as a % of Period End 0.24% 0.16% 0.19% 0.11% 0.11%
Outstandings...............................
Net Charge-Offs as a % of Average
Outstandings............................... 0.27% 0.19% 0.21% 0.20% 0.12%
</TABLE>
(1) Number of loans as of period end.
(2) Averages were computed by taking an average of daily outstandings for
the loans owned by the Bank combined with an average of month-end
outstandings
for the loans sold and serviced by the Bank for each period presented.
(3) Prior to July 1997, the amount charged off is the remaining principal
balance less proceeds from the sale of repossessed vehicles or, in
the case of repossessed vehicles which have not yet been sold, the
remaining principal balance less estimated proceeds from the sale of
such repossessed vehicles. As of July 1997, amounts charged off
represent the remaining principal balance.
(4) Recoveries are not net of expenses and generally include amounts
received with respect to loans previously charged off. Prior to July
1997, the proceeds realized in connection with the sale of the
financed vehicles are not included in recoveries.
(5) Net charge-offs means gross charge-offs minus recoveries of loans
previously charged off.
The data presented in the foregoing tables are for illustrative
purposes only. Delinquency and loan loss experience may be influenced by a
variety of economic, social and other factors. The mix of the credit quality
of the obligors will vary from time to time and will affect losses and
delinquencies. We cannot assure you that the delinquency and loan loss
information of the Bank, or that of the trust with respect to its receivables,
in the future will be similar to that set forth above.
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE NOTES OR CERTIFICATES
The servicer will provide to you in each report which it will deliver
to you a factor which you can use to compute your portion of the principal
amount outstanding on the notes or certificates.
Notes
How the Servicer Computes the Factor For Your Class of Notes. The
servicer will compute a separate factor for each class of notes. The factor
for each class of notes will be a seven-digit decimal which the servicer will
compute prior to each distribution with respect to such class of notes
indicating the remaining outstanding principal amount of such class of notes,
as of the applicable payment date. The servicer will compute the factor after
giving effect to payments to be made on such payment date, as a fraction of
the initial outstanding principal amount of such class of notes.
Your Portion of the Outstanding Amount of the Notes. For each note you
own, your portion of that class of notes is the product of--
o the original denomination of your note; and
o the factor relating to your class of notes computed by the servicer in the
manner described above.
Certificates
How the Servicer Computes the Factor For The Certificates. The
servicer will compute a separate factor for the certificates. The factor for
the certificates will be a seven-digit decimal which the servicer will compute
prior to each distribution with respect to the certificates indicating the
remaining certificate balance of the certificates, as of the applicable
payment date. The factor will be calculated after giving effect to
distributions to be made on such payment date, as a fraction of the initial
certificate balance of the certificates.
Your Portion of the Outstanding Amount of the Certificates. For each
certificate you own, your portion of the certificates is the product of--
o the original denomination of your certificate; and
o the factor relating to the certificates computed by the servicer in the
manner described above.
The Factors Described Above Will Decline as the Trust Makes Payments on
the Securities
Each of the factors described above will initially be 1.0000000.
They will then decline to reflect reductions, as applicable, in--
o the outstanding principal amount of the applicable class of notes; or
o the outstanding certificate balance of the certificates.
These amounts will be reduced over time as a result of scheduled
payments, prepayments, purchases of the receivables by the seller or the
servicer and liquidations of the receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations
with respect to the securities is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In addition, no principal payments will be
made
o on the Class A-2 Notes until the Class A-1 Notes have been paid in full;
o on the Class A-3 Notes until the Class A-2 Notes have been paid in full; or
o on the certificates until the Class A-3 Notes have been paid in full.
However, if the notes are accelerated after an Event of Default, principal
payments will be applied pro rata all classes of the notes. See "Application
of Available Funds" in this prospectus supplement.
Since the rate of payment of principal of each class of notes and the
certificates depends on the rate of payment (including prepayments) of the
principal balance of the receivables, final payment of any class of notes and
the final distribution in respect of the certificates could occur
significantly earlier than the respective Final Scheduled Payment Dates.
We Cannot Assure You That Your Securities Will Be Repaid on the
related Final Scheduled Payment Date. It is expected that final payment of
each class of notes and the final distribution in respect of the certificates
will occur on or prior to the respective Final Scheduled Payment Dates.
Failure to make final payment of any class of notes by the respective Final
Scheduled Payment Dates would constitute an Event of Default under the
indenture. See "The Indenture -- Rights upon Event of Default" in the
prospectus. In addition, the remaining certificate balance of the certificates
is required to be paid in full on or prior to its Final Scheduled Payment
Date. However, we cannot assure you that sufficient funds will be available to
pay each class of notes and the certificates in full on or prior to the
respective Final Scheduled Payment Dates. If sufficient funds are not
available, final payment of any class of notes and the final distribution in
respect of the certificates could occur later than such dates.
The Level of Prepayments of the Receivables and Required Purchases by
the Seller and the Servicer are Unpredictable and May Affect Payments on the
Securities. The rate of prepayments of the receivables may be influenced by a
variety of economic, social and other factors. In addition, under
circumstances relating to breaches of representations, warranties or
covenants, the seller and/or the servicer may be obligated to purchase
receivables from the trust. See "The Receivables Pool" in this prospectus
supplement and "Description of the Receivables Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal
balance of the receivables more quickly than expected and thereby reduce the
outstanding amounts of the securities and the anticipated aggregate interest
payments on the securities. The noteholders and the certificateholders alone
will bear any reinvestment risks resulting from a faster or slower incidence
of prepayment of receivables as set forth in the priority of distributions in
this prospectus supplement. Such reinvestment risks include the risk that
interest rates may be lower at the time such holders received payments from
the trust than interest rates would otherwise have been had such prepayments
not been made or had such prepayments been made at a different time.
Risks of slower or faster repayments. Noteholders and
certificateholders should consider--
o in the case of notes or certificates purchased at a discount,
the risk that a slower than anticipated rate of principal payments on the
receivables could result in an actual yield that is less than the
anticipated yield; and
o in the case of notes or certificates purchased at a premium, the risk
that a faster than anticipated rate of principal payments on the
receivables could result in an actual yield that is less than the
anticipated yield.
<PAGE>
Weighted Average Life of the Securities
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the securities
under the stated assumptions and is not a prediction of the prepayment rate
that might actually be experienced by the receivables.
Prepayments on motor vehicle receivables can be measured relative to
a prepayment 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 are the same size
and amortize at the same rate and that each receivable in each month of its
life will either be paid as scheduled or be prepaid in full. For example, in a
pool of receivables originally containing 10,000 receivables, a 1% ABS rate
means that 100 receivables prepay each month. ABS does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of assets, including the
receivables.
The rate of payment of principal of each class of notes and the
certificates will depend on the rate of payment (including prepayments) of the
principal balance of the receivables. For this reason, final payment of any
class of notes and the final distribution in respect of the certificates could
occur significantly earlier than the respective Final Scheduled Payment Dates.
The noteholders and the certificateholders will exclusively bear any
reinvestment risk associated with early payment of their notes and
certificates.
The table (the "ABS Table") captioned "Percent of Initial Note
Principal Amount or Initial Certificate Balance at Various ABS Percentages"
has been prepared on the basis of the characteristics of the receivables. The
ABS Table assumes that --
o the receivables prepay in full at the specified constant percentage of
ABS monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on the receivables is made on the last day
of each month and each month has 30 days;
o payments on the notes and the certificates are made on each payment date
(and each payment date is assumed to be the fifteenth day of the
applicable month);
o the balance in the Reserve Account on each payment date is equal to the
Specified Reserve Balance; and
o the servicer does not exercise its option to purchase the receivables.
The ABS Table indicates the projected weighted average life of each
class of notes and the certificates and sets forth the percent of the initial
principal amount of each class of notes and the percent of the initial
certificate balance of the certificates that is projected to be outstanding
after each of the payment dates shown at various constant ABS percentages.
The ABS Table also assumes 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 its aggregate principal
balance, contract rate of interest, original term to maturity and remaining
term to maturity as of the cut-off date) will be such that each pool will be
fully amortized by the end of its remaining term to maturity. The pools have
an assumed cut-off date of ________________.
<TABLE>
<CAPTION>
Contract Original Term Remaining Term
Aggregate Rate of to Maturity to Maturity
Pool Principal Balance Interest (In Months) (In Months)
<S> <C> <C> <C> <C>
1.............................
2.............................
3.............................
4.............................
5.............................
6.............................
7.............................
8.............................
9.............................
10............................
11............................
12............................
13............................
14............................
15............................
16............................
17............................
18............................
</TABLE>
The actual characteristics and performance of the receivables will
differ from the assumptions used in constructing the ABS Table. 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 lives of each
class of notes and the certificates.
<PAGE>
<TABLE>
<CAPTION>
Percent of Initial Note Principal Amount at Various ABS Percentages
Class A-1 Notes Class A-2 Notes Class A-3 Notes
Payment Date % % % % % % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
...............
Weighted Average
Life(1)........
Weighted Average
Life to Call
(1)(2)
Optional Call
Date
</TABLE>
- ----------
(1) The weighted average life of a note is determined by (a) multiplying the
amount of each principal payment on a note by the number of years from
the date of the issuance of the note to the related payment date, (b)
adding the results and (c) dividing the sum by the related initial
principal amount of the note.
(2) This calculation assumes the servicer purchases the receivables on the
earliest payment date on which it is permitted to do so.
The ABS Table has been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the receivables which will differ from the actual characteristics and
performance thereof) and should be read in conjunction therewith.
Percent of Initial
Certificate Balance at Various ABS Percentages
Class B Certificates
Payment Date % % % %
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
............................
Weighted Average Life(1)....
Weighted Average Life to Call
(1)(2)
Optional Call Date
- ----------------------------------
(1) The weighted average life of a certificate is determined by (a)
multiplying the amount of each principal payment on a certificate by the
number of years from the date of the issuance of the certificate to the
related payment date, (b) adding the results and (c) dividing the sum by
the related initial certificate balance of the certificate.
(2) This calculation assumes that the servicer purchases the receivables on
the first payment date on which it is permitted to do so.
The ABS Table has been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the receivables which will differ from the actual characteristics and
performance thereof) and should be read in conjunction therewith.
DESCRIPTION OF THE NOTES
The trust will issue the notes under an indenture to be dated as of
_______________ between the trust and ______________ , as indenture trustee.
We will file a copy of the indenture in its execution form with the SEC after
the trust issues the notes. We summarize below some of the most important
terms of the notes. This summary is not a complete description of all the
provisions of the notes and the indenture. The following summary supplements
the description of the general terms and provisions of the notes of any trust
and the related indenture set forth under the headings "Certain Information
Regarding the Securities" and "The Indenture" in the prospectus. We refer you
to those sections.
Payments of Interest
Interest on the principal amounts of the notes will accrue at the
respective per annum interest rates for the various classes of notes and will
be payable to the noteholders on each payment date. The trust will make
payments to the noteholders as of each Record Date.
Calculation of interest. Interest will accrue and will be calculated
on the various classes of notes as follows:
[o Actual/360. Interest on the Class A-1 Notes will accrue from and
including the prior payment date (or the closing date, in the case of the
first payment date) to but excluding the current payment date and be
calculated on the basis of actual days elapsed and a 360-day year.]
o 30/360. Interest on the Class A-2 Notes and Class A-3 Notes will
accrue from and including the th day of the previous month (or the
closing date, in the case of the first payment date) to but excluding the
th of the current month and be calculated on the basis of a 360-day year
of twelve 30-day months.
o Unpaid Interest. Interest accrued as of any payment date but not
paid on such payment date will be due on the next payment date, together
with interest on such amount at the applicable interest rate (to the
extent lawful).
Priority of Interest Payments. The trust will pay interest on the
notes (without priority among the classes of notes) on each payment date with
available funds in accordance with the priority set forth under "Application
of Available Funds" in this prospectus supplement.
The Trust Will Pay Interest Pro Rata to Noteholders if it Does Not
Have Enough Funds Available to Pay All Interest Due on the Notes. The amount
available for interest payments on the notes could be less than the amount of
interest payable on the notes on any payment date. In that event, the holders
of each class of notes will receive their ratable share of the aggregate
amount available to be distributed in respect of interest on the notes. Each
such class' ratable share of the amount available to pay interest will be
based on the amount of interest due on such class relative to the total amount
of interest due to the noteholders.
Payments of Principal
Priority and Amount of Principal Payments. The trust will generally
make principal payments to the noteholders on each payment date in the amount
and in the priority set forth under "Application of Available Funds" in this
prospectus supplement.
Event of Default. An Event of Default will occur under the indenture
if the outstanding principal amount of any note has not been paid in full on
its Final Scheduled Payment Date. The failure to pay principal of a note is
not an Event of Default until its Final Scheduled Payment Date. Payments on
the notes may be accelerated upon an Event of Default. Upon an acceleration of
the notes because of a failure to make a payment due on the notes or certain
insolvency events in respect of the trust, the priority in which the trust
makes distributions to the noteholders and certificateholders will change such
that payments of principal will be made pro rata to the holders of each class
of notes and interest payments on the certificates will not be made until the
notes are paid in full.
Notes Might Not Be Repaid on Their Final Scheduled Payment Dates. The
principal balance of any class of notes to the extent not previously paid will
be due on the Final Scheduled Payment Date relating to that class shown on the
cover of this prospectus supplement. The actual date on which the aggregate
outstanding principal amount of any class of notes is paid may be earlier or
later than the Final Scheduled Payment Date for that class of notes based on a
variety of factors, including those described under "Maturity and Prepayment
Considerations" in this prospectus supplement and in the prospectus.
Optional Prepayment
All outstanding notes will be prepaid in whole, but not in part, on
any payment date on which the servicer exercises its option to purchase the
receivables. The servicer may purchase the receivables when aggregate
principal balance of the receivables has declined to __% or less of the
aggregate principal balance of the receivables as of the Cut-off Date, as
described in the prospectus under "Description of the Receivables Transfer and
Servicing Agreements -- Termination." Upon such purchase by the servicer, you
will receive --
o the unpaid principal amount of your notes plus accrued and unpaid
interest on your notes; plus
o interest on any past due interest at the rate of interest on your
notes (to the extent lawful).
DESCRIPTION OF THE CERTIFICATES
The trust will issue the certificates under the trust agreement. We
will file a copy of the trust agreement with the SEC after the trust issues
the certificates. We summarize below some of the most important terms of the
certificates. This summary is not a complete description of all the provisions
of the trust agreement and the certificates. The following summary is a
supplement to the description of the general terms and provisions of the
certificates of any given trust and the related trust agreement provided under
the headings "Certain Information Regarding the Securities" and "Description
of the Receivables Transfer and Servicing Agreements" in the prospectus. We
refer you to those sections.
Distributions
Interest. On each payment date, commencing _____________ , the
certificateholders will be entitled to receive the amount of interest that
accrues on the certificate balance at the applicable rate of interest set
forth on the cover page of this prospectus supplement.
Interest will accrue--
o in the case of the first payment date, from and including the
closing date to but excluding the ___th day of the following
calendar month; or
o otherwise, from and including the ___th day of the calendar
month preceding the payment date to but excluding the ___th day
of the calendar month of that payment date.
Interest is Calculated 30/360. Interest on the certificates will be
calculated on the basis of a 360-day year of twelve 30-day months.
Unpaid Interest Accrues. Interest distributions due for any payment
date but not distributed on such payment date will be due on the next payment
date increased by an amount equal to interest on such amount at the rate of
interest on the certificates (to the extent lawful).
Distributions on Certificates. The trust will make distributions on
the certificates in the amounts and in the priority set forth under
"Application of Available Funds" in this prospectus supplement.
Certificateholders will not receive any distributions of principal until the
notes are paid in full. Following the occurrence of an Event of Default which
has resulted in an acceleration of the notes, the noteholders will be entitled
to be paid interest and all principal in full before any distributions may be
made on the certificates.
The outstanding certificate balance of the certificates will be
payable in full on the Final Scheduled Payment Date for the certificates. The
actual date on which the trust pays the certificate balance of the
certificates may be earlier or later than that Final Scheduled Payment Date,
based on a variety of factors, including those described under "Maturity and
Prepayment Considerations" in this prospectus supplement and in the
prospectus.
Subordination of Certificates
The rights of the certificateholders to receive distributions of
interest are subordinated to the rights of noteholders to receive payments of
interest and, if the notes have been accelerated, principal. In addition, the
certificateholders will have no right to receive distributions of principal
until the aggregate principal amount of all the notes has been paid in full.
This subordination is effected by the priority of distributions set forth
under "Application of Available Funds" in this prospectus supplement.
Optional Prepayment
If the servicer exercises its option to purchase the receivables when
the aggregate principal balance of the receivables declines to __% or less of
the aggregate principal balance of the receivables as of the Cut-off Date, you
will receive an amount in respect of your certificates equal to the sum of:
o the outstanding certificate balance of your certificates
together with accrued and unpaid interest at the rate of
interest for the certificates; and
o interest on any past due interest at the rate of interest
for the certificates, to the extent lawful.
That distribution will cause the early retirement of your
certificates. See "Description of the Receivables Transfer and Servicing
Agreements -- Termination" in the prospectus.
APPLICATION OF AVAILABLE FUNDS
Sources of Funds for Distributions
The funds available to the trust to make payments on the securities
on each payment date will come from the following sources:
o collections received on the receivables during the prior
calendar month,
o net recoveries received during the prior calendar month on
receivables that were charged off as losses in prior months,
o the aggregate amount of Advances remitted by the servicer,
o proceeds of repurchases of receivables by the seller or
purchases of receivables by the servicer because of certain
breaches of representations or covenants, and
o funds, if any, withdrawn from the Reserve Account for that
payment date.
The precise calculation of the funds available to make payments on
the securities is in the definition of Available Funds in the section
"Glossary of Terms". We refer you to that definition. Among other things,
Available Funds are calculated net of (i) reimbursements of outstanding
Advances to the servicer and (ii) payments to the servicer of various fees, if
any, paid by the obligors that constitute the Supplemental Servicing Fee. See
"Description of the Receivables Transfer and Servicing Agreements -- Advances"
and " -- Servicing Compensation and Expenses" in the prospectus.
Priority of Distributions
On each payment date the trust will apply the Available Funds for
that payment date in the following amounts and order of priority:
(1) Servicing Fee -- the Servicing Fee payable to the servicer;
(2) Note Interest -- interest due on all the notes ratably to the
holders of each class of notes;
(3) Certificate Interest -- interest distributable to the holders
of the certificates; however, if an Event of Default due to a
failure to make a payment due on the notes or certain
insolvency events in respect of the trust has occurred and the
notes have been accelerated, interest will not be distributed
to the holders of the certificates until the notes are paid in
full;
(4) Principal Payment -- An amount equal to the sum of (i) the
principal collections on the receivables received during the
prior calendar month and (ii) the aggregate principal balance
(net of liquidation proceeds received during that month applied
to principal) of all receivables designated as "defaulted
receivables" in that month will be applied to pay principal on
the securities in the following order of priority:
(i) the Class A-1 Notes until they are paid in full; and
(ii) the Class A-2 Notes until they are paid in full;
(iii) the Class A-3 Notes until they are paid in full; and
(iv) the certificates until they are paid in full;
however, if the notes are accelerated after an Event of Default
due to a failure to make a payment due on the notes or certain
insolvency events in respect of the trust, the Available Funds
remaining after clause (3) will be applied to pay principal pro
rata on all classes of the notes until they are paid in full
and then to distribute interest and principal on the
certificates until they are paid in full;
(5) Final Scheduled Payment Date -- if the payment date is a
Final Scheduled Payment Date for a class of securities, the
amount, if any, necessary to pay that class in full after giving
effect to the payment pursuant to clause (4) will be paid on that
class;
(6) Reserve Account Deposit-- to the Reserve Account, the
amount, if any, necessary to reinstate the balance of the Reserve
Account up to the Specified Reserve Balance; and
(7) any amounts remaining after the above distributions shall be
paid to the seller.
If the Available Funds are insufficient to make the payments in clauses (1)
through (5), funds, if any, on deposit in the Reserve Account will be applied
to cover those shortfalls. See "Description of the Sale and Servicing
Agreement -- Deposits to the Collection Account".
A receivable will be designated as a "defaulted receivable" when the
servicer determines that it is unlikely to be paid in full or when at least 5%
of a scheduled payment is 120 or more days delinquent.
DESCRIPTION OF THE SALE
AND SERVICING AGREEMENT
We have summarized below some of the important terms of the sale and
servicing agreement. We will file a copy of the sale and servicing agreement
with the SEC after we issue the securities. This summary is not a complete
description of all of the provisions of the sale and servicing agreement. You
can find more information about the transfer of the receivables from the
seller to the trust on the closing date in the prospectus under "Description
of the Receivables Transfer and Servicing Agreements".
Accounts
In addition to the Collection Account, the following accounts will be
established--
o the indenture trustee will establish a distribution
account for the benefit of the noteholders;
o the owner trustee will establish a distribution account for
the benefit of the certificateholders; and
o the servicer will establish the Reserve Account in the name
of the indenture trustee on behalf of the noteholders and the
certificateholders.
Servicing Compensation and Expenses
The servicer is entitled to receive the Servicing Fee on each payment
date. The Servicing Fee, together with any portion of the Servicing Fee that
remains unpaid from prior payment dates, will be payable on each payment date.
The Servicing Fee will be paid only to the extent of the funds deposited in
the Collection Account with respect to the Collection Period preceding such
payment date, plus funds, if any, deposited into the Collection Account from
the Reserve Account. The servicer also is entitled to receive the Supplemental
Servicing Fee. See "Description of the Receivables Transfer and Servicing
Agreements -- Servicing Compensation and Expenses" in the prospectus.
Rights Upon Event of Servicing Termination
If an Event of Servicing Termination occurs, the indenture trustee or
holders of not less than a majority of the principal amount of the notes (or,
if no notes are outstanding, a majority of the certificate balance of the
certificates) may remove the servicer without the consent of any of the other
securityholders.
Waiver of Past Events of Servicing Termination
If an Event of Servicing Termination occurs, holders of not less than
a majority of the principal amount of the notes (or, if no notes are
outstanding, a majority of the certificate balance of the certificates),
subject to the exceptions provided in the sale and servicing agreement, may
waive any Event of Servicing Termination except for a failure to make any
required deposits to or payments from any account, without the consent of any
of the other securityholders. The certificateholders will not have the right
to determine whether any Event of Servicing Termination should be waived until
the notes have been paid in full.
Deposits to the Collection Account.
The servicer will establish the Collection Account as described under
"Description of the Receivables Transfer and Servicing Agreements" in the
prospectus. In general, the servicer will be permitted to retain collections
on the receivables until the Business Day preceding any payment date. However,
the servicer will be required to remit collections received with respect to
the receivables not later than the second Business Day after receipt to the
Collection Account (1) if there is an Event of Servicing Termination, (2) if
the Bank is no longer the servicer or (3) if one of the other conditions set
forth in the sale and servicing agreement is not met.
On or before the payment date, the servicer will cause all
collections on receivables, Advances by the servicer and other amounts
constituting Available Funds to be deposited into the Collection Account. See
"Description of Receivables Transfer and Servicing Agreements -- Collections"
and "-- Advances" in the prospectus.
On or before each payment date, the servicer will notify the
indenture trustee to withdraw the following amounts from the Reserve Account
and deposit them into the Collection Account. In each case, the amount will be
withdrawn only to the extent of funds in the Reserve Account after giving
effect to all prior withdrawals. The amounts to be withdrawn from the Reserve
Account are:
o the amount, if any, by which (a) the Total Required Payment
exceeds (b) the Available Funds for that payment date; and
o the Reserve Account Excess Amount.
The "Total Required Payment" on any payment date, will be the sum of--
(8) the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
(9) all interest payable on the notes, including any accrued
interest and interest on accrued interest;
(10) all interest distributable on the certificates, including
any accrued interest and interest on accrued interest;
(11) the sum of (i) all principal collected on the receivables
during the related Collection Period and (ii) the aggregate
principal balance (net of liquidation proceeds received during
that Collection Period applied to principal) of all receivables
that were designated as defaulted receivables during that
Collection Period; and
(12) if the payment date is a Final Scheduled Payment Date for a
class of securities, the amount, if any, required to reduce the
principal balance of that class of securities to zero after
giving effect to the amount in clause (4) under "Priority of
Distributions" in this prospectus supplement.
However, following the acceleration of the notes after the occurrence of an
Event of Default due to a failure to pay an amount due on the notes or certain
insolvency events in respect of the trust, the Total Required Payment will
equal the sum of --
o the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
o all interest payable on the notes, including any accrued
interest thereon; and
o the amount necessary to reduce the outstanding principal amount
of all the notes to zero.
Consequently, if the notes are accelerated for any of those reasons,
certificateholders will not receive any distributions until the notes are paid
in full. Also, funds on deposit in the Reserve Account will be applied solely
toward payment of the notes until the notes are paid in full.
The "Reserve Account Excess Amount", with respect to any payment
date, will be the amount equal to the excess, if any, of --
o the amount of cash or other immediately available funds in the
Reserve Account on that payment date, prior to giving effect to
any withdrawals from the Reserve Account relating to that
payment date, over
o the Specified Reserve Balance with respect to that payment
date.
The "Specified Reserve Balance" will be the lesser of (a) __% of the
outstanding principal balance of the receivables and (b) __% of the principal
balance of the receivables as of the Cut-off Date.
Servicer Will Provide Information to Indenture Trustee. On the
Business Day prior to each payment date, the servicer will provide the
indenture trustee with the information required pursuant to the sale and
servicing agreement with respect to the Collection Period preceding such
payment date, including:
o the aggregate amount of collections on the receivables;
o the aggregate amount of receivables designated as defaulted
receivables;
o the aggregate Advances to be made by the servicer; and
o the aggregate Purchase Amount of receivables to be repurchased
by the seller or to be purchased by the servicer.
Reserve Account
The servicer will establish the Reserve Account. It will be held in
the name of the indenture trustee for the benefit of the noteholders and
certificateholders. To the extent that amounts on deposit in the Reserve
Account are depleted, the noteholders and the certificateholders will have no
recourse to the assets of the seller or servicer as a source of payment to the
securities.
Deposits to the Reserve Account. The Reserve Account will be funded
by a deposit by the trust on the closing date in the amount of $ . The amount
on deposit in the Reserve Account may increase from time to time up to the
Specified Reserve Balance by deposits of funds withdrawn from the Collection
Account after payment of the Total Required Payment.
Withdrawals From the Reserve Account. The amount on deposit in the
Reserve Account may be deposited into the Collection Account to the extent
described under " -- Deposits to the Collection Account" above.
Investment. Amounts on deposit in the Reserve Account will be
invested by the indenture trustee at the direction of the seller in Permitted
Investments and investment earnings (net of losses and investment expenses)
therefrom will be deposited into the Reserve Account. Permitted Investments
are generally limited to obligations or securities that mature on or before
the next payment date. However, to the extent each Rating Agency rating the
notes or the certificates confirms that such actions will not adversely affect
its ratings of the securities, funds in the Reserve Account may be invested in
obligations that will not mature prior to the next payment date and will not
be sold to meet any shortfalls.
Funds in the Reserve Account Will be Limited. Amounts on deposit in
the Reserve Account from time to time are available to--
o enhance the likelihood that you will receive the amounts
due on your notes or certificates; and
o decrease the likelihood that you will experience losses on
your notes or certificates.
However, the amounts on deposit in the Reserve Account are limited to
the Specified Reserve Balance. If the amount required to be withdrawn from the
Reserve Account to cover shortfalls in funds on deposit in the Collection
Account exceeds the amount available to be withdrawn from the Reserve Account,
a shortfall in the amounts distributed to the noteholders and
certificateholders could result. Depletion of the Reserve Account ultimately
could result in losses on your notes or certificates.
After the payment in full, or the provision for such payment of all
accrued and unpaid interest on the notes and certificates and the outstanding
principal amount of the notes and the certificate balance of the certificates,
any funds remaining on deposit in the Reserve Account, subject to certain
limitations, will be paid to the seller.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the Bank and Federal
Tax Counsel for the trust, for federal income tax purposes, the notes will be
characterized as debt, and the trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation. See
"Certain Federal Income Tax Consequences" in the prospectus.
CERTAIN STATE TAX CONSEQUENCES
The tax discussion in the prospectus does not address the tax
treatment of the trust, the notes, the certificates, noteholders or
certificateholders under any state tax laws. You are urged to consult with
your own tax advisors regarding the state tax treatment of the trust as well
as any state tax consequences to you, particularly in the case of financial
institutions, of purchasing, holding and disposing of your notes or
certificates.
ERISA CONSIDERATIONS
The Notes
The notes may, in general, be purchased by or on behalf of Benefit
Plan Investors. Although we cannot assure you in this regard, the notes should
be treated as "debt" and not as "equity interests" for purposes of the Plan
Assets Regulation because the notes --
o are expected to be treated as indebtedness under local law and will, in
the opinion of Federal Tax Counsel for the trust, be treated as debt,
rather than equity, for federal income tax purposes (see "Certain Federal
Income Tax Consequences" in the prospectus); and
o should not be deemed to have any "substantial equity features."
See "ERISA Considerations" in the prospectus.
However, the acquisition and holding of notes of any class by or on
behalf of a Benefit Plan Investor could be considered to give rise to a
prohibited transaction under ERISA and Section 4975 of the Code if the trust,
the owner trustee, the indenture trustee, any certificateholder or any of
their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Benefit Plan Investor. In such case, certain exemptions from
the prohibited transaction rules could be applicable to such acquisition and
holding by a Benefit Plan Investor depending on the type and circumstances of
the Benefit Plan Investor fiduciary making the decision to acquire a note. For
additional information regarding treatment of the notes under ERISA, see
"ERISA Considerations" in the prospectus.
The Certificates
The certificates are not Senior Certificates. Benefit Plan Investors
may not acquire the certificates. An insurance company using the assets of its
general account may purchase certificates on the condition that --
o such insurance company is able to represent that, as of the date it
acquires an interest in a certificate, less than 25% of the assets of
such general account constitute "plan assets" for purposes of Title I of
ERISA and Section 4975 of the Code; and
o such insurance company agrees that if at any time during any calendar
quarter while it is holding an interest in the certificates, 25% or more
of the assets of such general account constitute "plan assets" for
purposes of Title I of ERISA and Section 4975 of the Code, and, at that
time, if no exemption or exception applies to the continued holding of
the certificates under ERISA, by the end of the next quarter such
insurance company will dispose of all certificates then held in its
general account by the end of the next quarter.
In addition, investors other than Benefit Plan Investors should be
aware that a prohibited transaction under ERISA and the Code could be deemed
to occur if any holder of the certificates or any of its affiliates is or
becomes a party in interest or a disqualified person with respect to any
Benefit Plan Investor that acquires and holds the notes without such Benefit
Plan Investor being covered by one or more exemptions from the prohibited
transaction rules.
Each purchaser of the certificates will be deemed to represent and
certify that it either--
o is not a Benefit Plan Investor and is not acquiring its certificates on
behalf of any such Benefit Plan Investor; or
o is an insurance company using the assets of its general account under the
limitations described above.
For additional information regarding treatment of the certificates
under ERISA, we refer you to "ERISA Considerations" in the prospectus.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to cause the trust to sell to each of the
underwriters named below, and each of those underwriters has severally agreed
to purchase, the initial principal amount of Class A-1 Notes, Class A-2 Notes
and Class A-3 Notes set forth opposite its name below:
<TABLE>
<CAPTION>
Principal
Amount of Principal Amount of Principal Amount of
Class A-1 Class A-2 Class A-3
Note Underwriters Notes Notes Notes
<S> <C> <C> <C>
..................................................
..................................................
..................................................
..................................................
Total........................................
</TABLE>
The seller has been advised by the underwriters of the notes that
they propose initially to offer the notes to the public at the applicable
prices set forth on the cover page of this prospectus supplement. After the
initial public offering of the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes, the public offering prices may change.
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to cause the trust to sell to each of the
underwriters named below, and each of those underwriters has severally agreed
to purchase, the initial certificate balance of the certificates set forth
below opposite its name.
Certificate
Balance of
Certificate Underwriters Certificates
Total..........................
The seller has been advised by the underwriters of the certificates
that they propose initially to offer the certificates to the public at the
price set forth on the cover page of this prospectus supplement. After the
initial public offering of the certificates, the public offering price may
change.
The underwriting discounts and commissions, the selling concessions
that the underwriters of the notes and the certificates may allow to certain
dealers, and the discounts that such dealers may reallow to certain other
dealers, expressed as a percentage of the principal amount of each class of
notes or as a percentage of the certificate balance of the certificates and as
an aggregate dollar amount, shall be as follows:
<TABLE>
<CAPTION>
Underwriting Net Proceeds Selling
Discount and to the Concessions Reallowance
Commissions Seller(1) not to exceed not to exceed
<S> <C> <C> <C> <C>
Class A-1 Notes.................
Class A-2 Notes.................
Class A-3 Notes.................
Certificates....................
Total for the
notes and certificates....
</TABLE>
(1) Plus accrued interest, if any, from __________________ and
before deducting other expenses estimated at $____________.
Until the distribution of the notes and the certificates is
completed, rules of the SEC may limit the ability of the underwriters and
certain selling group members to bid for and purchase the notes and the
certificates. As an exception to these rules, the underwriters are permitted
to engage in certain transactions that stabilize the price of the notes and
the certificates. Such transactions consist of bids or purchases for the
purpose of pegging, fixing or maintaining the price of the notes and the
certificates.
If the underwriters create a short position in the notes or the
certificates in connection with this offering (i.e., they sell more notes or
certificates than are set forth on the cover page of this prospectus
supplement), the underwriters may reduce that short position by purchasing
notes or certificates, as the case may be, in the open market.
The underwriters may also impose a penalty bid on certain
underwriters and selling group members. This means that if the underwriters
purchase notes or certificates in the open market to reduce the underwriters'
short position or to stabilize the price of such notes or certificates, they
may reclaim the amount of the selling concession from any underwriter or
selling group member who sold those notes or certificates, as the case may be,
as part of the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither the seller nor any of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the notes or
the certificates. In addition, neither the seller nor any of the underwriters
makes any representation that the underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The notes and the certificates are new issues of securities and there
currently is no secondary market for the notes or the certificates. The
underwriters for the notes and the certificates expect to make a market in
such securities but will not be obligated to do so. We cannot assure you that
a secondary market for the notes or the certificates will develop. If a
secondary market for the notes or the certificates does develop, it might end
at any time or it might not be sufficiently liquid to enable you to resell any
of your notes or certificates.
The indenture trustee may, from time to time, invest the funds in the
Collection Account and the Reserve Account in investments acquired from or
issued by the underwriters.
In the ordinary course of business, the underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the seller and its affiliates.
The seller has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the underwriters may be required
to make in respect thereof.
The closings of the sale of each class of the notes and the
certificates are conditioned on the closing of the sale of each other class of
notes and those certificates.
Upon receipt of a request by an investor who has received an
electronic prospectus from an underwriter or a request by such investor's
representative within the period during which there is an obligation to
deliver a prospectus, the seller or the underwriter will promptly deliver,
without charge, a paper copy of this prospectus supplement and the prospectus.
LEGAL OPINIONS
Certain legal matters and federal income tax matters relating to the
notes and the certificates will be passed upon for the seller and the servicer
by Brown & Wood LLP. Certain legal matters relating to the certificates will
be passed upon for the seller and servicer by Richards Layton & Finger.
Certain legal matters relating to the notes and the certificates will be
passed upon for the underwriters by Simpson Thacher & Bartlett.
GLOSSARY OF TERMS
Additional defined terms used in this prospectus supplement are
defined under "Glossary of Terms" in the prospectus.
"ABS" means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under "The Receivables
Pool--Weighted Average Life of the Securities".
"ABS Table" means the table captioned "Percent of Initial Note
Principal Amount or Initial Certificate Balance at Various ABS Percentages"
beginning on page S-__ of this prospectus supplement.
"Available Collections" for a payment date will be the sum of the
following amounts with respect to the Collection Period preceding that payment
date (subject to the exclusions set forth below such amounts):
o all payments collected on the receivables;
o all liquidation proceeds in respect of receivables which
were designated as defaulted receivables in prior Collection
Periods;
o all Advances made by the servicer of interest due on the
receivables;
o the Purchase Amount of each receivable that was repurchased
by the seller or purchased by the servicer under an obligation
which arose during the related Collection Period; and
o partial prepayments of any refunded item included in the
principal balance of a receivable, such as extended warranty
protection plan costs, or physical damage, credit life,
disability insurance premiums, or any partial prepayment which
causes a reduction in the obligor's periodic payment to an
amount below the scheduled payment as of the Cut-off Date.
Available Collections on any payment date will exclude the following:
o amounts received on any receivable to the extent that the
servicer has previously made an unreimbursed Advance with
respect to such receivable and the amount received exceeds the
accrued and unpaid interest on such receivable;
o amounts received on any of the receivables to the extent
that the servicer has previously made an unreimbursed Advance on
a receivable which is not recoverable from collections on the
particular receivable;
o all payments and proceeds (including liquidation proceeds)
of any receivables the Purchase Amount of which has been included
in the Available Funds in a prior Collection Period;
o liquidation proceeds with respect to accrued and unpaid
interest on any receivable but only to the extent of any
unreimbursed Advances on that receivable; and
o amounts constituting the Supplemental Servicing Fee.
"Available Funds" for a payment date shall be the sum of the
Available Collections and the Reserve Account Excess Amount.
"Business Day" is a day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in the State of New York or the
State of Texas are authorized by law, regulation or executive order to be
closed.
"certificate balance" means, with respect to the certificates,
initially, $ ________________ and, thereafter, means the initial certificate
balance of the certificates, reduced by all amounts allocable to principal
previously distributed to the certificateholders.
"Clearstream" means Clearstream, Luxembourg, a professional
depository under the laws of Luxembourg.
"closing date" means _____________________.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Account" means an account established pursuant to the
sale and servicing agreement, held in the name of the indenture trustee, into
which the servicer is required to deposit collections on the receivables and
other amounts.
"Collection Period" means, with respect to the first payment date,
the calendar month ending on ________________________ , and with respect to
each subsequent payment date, the calendar month preceding the calendar month
in which such payment date occurs.
"Contract Rate" means the per annum interest borne by a receivable.
"Cut-off Date" means the date as of which the seller will transfer
the receivables to the trust, which is _________.
"defaulted receivable" means a receivable (i) that the servicer
determines is unlikely to be paid in full or (ii) with respect to which at
least 5% of a scheduled payment is 120 or more days delinquent as of the end
of a calendar month.
"DTC" means The Depository Trust Company and any successor depository
selected by the trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation.
"Federal Tax Counsel" means Brown & Wood LLP.
"Final Scheduled Payment Date" for each class of notes and
certificates means the respective dates set forth on the cover page of this
prospectus supplement or, if such date is not a Business Day, the next
succeeding Business Day.
"indenture trustee" means _________________, a ________________, as
indenture trustee under the indenture.
"liquidation proceeds" means with respect to any receivable (a)
insurance proceeds received by the servicer and (b) the monies collected by
the servicer from whatever source, including but not limited to proceeds of a
financed vehicle sold after repossession, on a defaulted receivable net of any
payments required by law to be remitted to the obligor.
"owner trustee" means _______________, a Delaware ____________, as
owner trustee under the trust agreement under which the trust is formed.
"payment date" means the date on which the trust will pay interest
and principal on the notes and certificates, which will be the
________________ day of each month or, if any such day is not a Business Day,
on the next Business Day, commencing ________________________ .
"Record Date" with respect to any payment date means the day
immediately preceding the payment date or, if the securities are issued as
Definitive Securities, the last day of the preceding month.
"Reserve Account" means the account which the servicer will establish
pursuant to the sale and servicing agreement in the name of the indenture
trustee into which the trust will deposit the Reserve Initial Deposit and into
which the indenture trustee will make the other deposits and withdrawals
specified in this prospectus supplement.
"Reserve Account Excess Amount", with respect to any payment date,
means the amount equal to the excess, if any, of --
o the amount of cash or other immediately available funds in
the Reserve Account on that payment date, prior to giving effect
to any withdrawals from the Reserve Account relating to that
payment date, over
o the Specified Reserve Balance with respect to that payment
date.
"Reserve Initial Deposit" means the $ initially deposited into the
Reserve Account.
"SEC" means the Securities and Exchange Commission.
"Servicing Fee" means a fee payable to the servicer on each payment
date for servicing the receivables which is equal to the product of 1/12 of
___% and the aggregate principal balance of the receivables as of the first
day of the related Collection Period.
"Specified Reserve Balance" means the lesser of (a) ___% of the
outstanding principal balance of the receivables and (b) ___% of the principal
balance of the receivables as of the Cut-off Date.
"Supplemental Servicing Fee" means, for each Collection Period, the
amount of any late fees and other administrative fees and expenses collected
during that Collection Period, plus any interest earned during the Collection
Period on amounts on deposit in the Collection Account during the Collection
Period. The servicer does not currently collect such fees and expenses from
obligors, but may do so in the future.
"Total Required Payment", with respect to any payment date, means
the sum of--
(13) the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
(14) all interest payable on the notes, including any accrued
interest and interest on accrued interest;
(15) all interest distributable on the certificates, including
any accrued interest and interest on accrued interest;
(16) the sum of (i) all principal collected on the receivables
during the related Collection Period and (ii) the aggregate
principal balance (net of liquidation proceeds received during
that Collection Period applied to principal) of all receivables
that were designated as defaulted receivables during that
Collection Period; and
(17) if that payment date is a Final Scheduled Payment Date for
a class of securities, the amount, if any, required to reduce the
principal balance of that class of securities to zero after
giving effect to the amount in clause (4).
However, following the acceleration of the notes after the occurrence of an
Event of Default due to a failure to pay an amount due on the notes or certain
insolvency events in respect of the trust, the Total Required Payment will
equal the sum of --
o the Servicing Fee and all unpaid Servicing Fees from prior
Collection Periods;
o all interest payable on the notes, including any accrued
interest thereon; and
o the amount necessary to reduce the outstanding principal
amount of the notes to zero.
Information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities, and it is not soliciting,
in affect, to buy these securities in any state where the offer of the sale is
not permitted
Subject to completion, dated March 24, 2000.
Prospectus Supplement to Prospectus Dated _____________, 200_
$-------------------
USAA Auto Grantor Trust _______
[USAA LOGO]
USAA Federal Savings Bank
Seller and Servicer
The underwriters are offering the following
certificates by this prospectus supplement:
Class A Class B
Certificates Certificates
Certificate Balance.................... $ $
Per Annum Interest Rate................ % %
Final Scheduled Payment Date...........
Initial Public Offering Price(1)....... $ % $ %
Underwriting Discount.................. $ % $ %
Proceeds to Seller(1)(2)............... $ % $ %
---------------
(1) The price of the certificates will include interest accrued on the
certificates, if any, from _________________.
(2) Before deducting expenses payable by the seller estimated to be
$____________.
o The trust will distribute interest and principal on the
certificates on the ___th day of each month. The first payment date
will be ________________.
o The Class B Certificates are subordinated to the Class A
Certificates.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus supplement or the attached prospectus.
Any representation to the contrary is a criminal offense.
[Underwriters]
The date of this prospectus supplement is _____________.
Before you purchase any of these certificates, be sure you read this
prospectus supplement and the attached prospectus, especially the risk factors
beginnong on page S-__ of this prospectus supplement and on page __ of the
prospectus.
A security is not a deposit and neither the certificates nor the
underlyingmotor vehicle loans are insured or guaranteed by the FDIC or any
other governmental authority.
These certificates are issued by the trust. The certificates are not
obligations of USAA Federal Savings Bank or any of its affiliates.
No one may use this prospectus supplement to offer and sell these
certificates unless it is accompanied by the prospectus.
<PAGE>
TABLE OF CONTENTS
<PAGE>
READING THESE DOCUMENTS..................S-3 LEGAL OPINIONS...........S-30
SUMMARY OF TERMS OF THE CERTIFICATES.....S-4 GLOSSARY OF TERMS........S-30
RISK FACTORS.............................S-9
THE TRUST...............................S-10
THE RECEIVABLES POOL....................S-10
Criteria Applicable to Selection of
Receivables.........................S-11
The Bank's Delinquency, Loan Loss
and Recovery Information............S-15
HOW YOU CAN COMPUTE YOUR PORTION OF
THE AMOUNT OUTSTANDING ON THE
CERTIFICATES...........................S-16
The Factors Described Above Will
Decline as the Trust Makes
Payments on the
Certificates.......................S-16
MATURITY AND PREPAYMENT CONSIDERATIONS..S-16
Weighted Average Life of the
Certificates.......................S-17
DESCRIPTION OF THE CERTIFICATES.........S-21
General..............................S-21
Distributions on Certificates........S-21
Statements to Certificateholders.....S-24
Subordination of Class B CertificatesS-24
Optional Redemption..................S-24
Accounts.............................S-25
Servicing Compensation and Expenses..S-25
Rights Upon Event of Servicing
Termination........................S-25
Waiver of Past Events of Servicing
Termination........................S-25
Reserve Account......................S-25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.S-26
CERTAIN STATE TAX CONSEQUENCES..........S-27
ERISA CONSIDERATIONS....................S-27
Class A Certificates.................S-27
Class B Certificates.................S-27
UNDERWRITING............................S-28
<PAGE>
READING THESE DOCUMENTS
We provide information on the certificates in two documents that offer
varying levels of detail:
1. Prospectus - provides general information, some of which may not apply
to the certificates.
2. Prospectus Supplement - provides a summary of the specific terms of
the certificates.
We suggest you read this prospectus supplement and the prospectus in
their entirety. The prospectus supplement pages begin with "S". If the terms
of the offered certificates described in this prospectus supplement vary with
the accompanying prospectus, you should rely on the information in this
prospectus supplement.
We include cross-references to sections in these documents where you can
find further related discussions. Refer to the table of contents on page S-3
in this document and on page 4 in the prospectus to locate the referenced
sections.
The Glossary of Terms on page S-__ of this prospectus supplement and the
Glossary of Terms on page __ in the prospectus list definitions of certain
terms used in this prospectus supplement or the prospectus.
You should rely only on information on the certificates provided in this
prospectus supplement and the attached prospectus. We have not authorized
anyone to provide you with different information.
In this prospectus supplement, the terms "we," "us" and "our" refer to
USAA Federal Savings Bank.
<PAGE>
SUMMARY OF TERMS OF THE CERTIFICATES
The following summary is a short description of the main terms of the
offering of the certificates. For that reason, this summary does not contain
all of the information that may be important to you. To fully understand the
terms of the offering of the certificates, you will need to read both this
prospectus supplement and the attached prospectus in their entirety.
<PAGE>
Issuer
USAA Auto Grantor Trust ____ will acquire, in exchange for the issuance of its
certificates, a pool of motor vehicle installment loans, which constitute the
receivables. The trust will rely upon collections on the receivables and the
funds on deposit in certain accounts to make payments on the certificates. The
trust will be solely liable for the payment of the certificates.
Offered Certificates
The following certificates are being offered by this prospectus supplement:
$____________ Class A ____% Asset Backed Certificates
$____________ Class B ____% Asset Backed Certificates
Closing Date
The trust expects to issue the certificates on __________________.
Seller and Servicer
USAA Federal Savings Bank.
Trustee
_________________.
Payment Dates
On the ___th day of each month (or if the ___th day is not a business day, the
next business day), the trust will distribute interest and principal on the
certificates.
First Payment Date
The first payment date will be _________________.
Record Dates
On each payment date, the trust will distribute interest and principal to the
holders of the certificates as of the related record date. The record date for
the certificates will be the day immediately preceding the payment date. If
definitive certificates are issued for the certificates, the record date will
be the last day of the month immediately preceding the payment date.
Interest Rates
The trust will distribute interest on each class of certificates at the per
annum rates specified on the cover of this prospectus supplement.
Interest Accrual
"30/360", accrued from the __th day of the previous month (or the closing date
in the case of the first payment date) to the __th day of the current month.
This means that, if there are no outstanding shortfalls in the payment of
interest, the interest due on a class of certificates on each payment date
will be the product of:
1. the outstanding certificate balance of that class;
2. the interest rate for that class; and
3. 30 (or in the case of the first payment date, _____) divided by 360.
For a more detailed description of the payment of interest, refer to the
sections of this prospectus supplement entitled "Description of the
Certificates -- Distributions."
Priority of Distributions
From collections on the receivables received during the prior calendar month
and amounts withdrawn from the reserve account, the trust will distribute the
following amounts on each payment date in the following order of priority,
after reimbursement of advances made in prior months by the servicer for
interest payments due from obligors but not received:
(1) Servicing Fee-- the servicing fee payable to the servicer;
(2) ____ Class A Certificate Interest -- accrued and unpaid interest
on the Class A Certificates distributable to the holders of
those certificates;
(3) ____ Class B Certificate Interest -- accrued and unpaid interest
on the Class B Certificates distributable to the holders of
those certificates;
(4) Class A Principal - principal in the amount described in this
prospectus supplement to the Class A Certificateholders;
(5) Class B Principal - principal in the amount described in this
prospectus supplement to the Class B Certificateholders;
(6) any remaining amount will be deposited in the reserve account
until the amount on deposit in the reserve account equals the
required amount; and
(7) any remaining amount will be distributed to the seller.
For a more detailed description of the funds available to the trust to make
distributions, the priority of distributions and the allocation of funds on
each payment date, you should refer to "Description of the Certificates" in
this prospectus supplement.
Credit Enhancement
The credit enhancement for the certificates will be as follows:
Subordination of Principal and Interest
Payments of interest on the Class B Certificates will be subordinated to
payments of interest on the Class A Certificates. Payments of principal on the
Class B Certificates will be subordinated to payments of interest and
principal on the Class A Certificates.
Reserve Account
On the closing date, the seller will deposit $______________ to the reserve
account for the trust.
On each payment date, if collections on the receivables are insufficient to
distribute the first five items listed in "Priority of Distributions" above,
the trustee will withdraw funds from the reserve account, to the extent
available, to distribute such amounts in full.
The balance required to be on deposit in the reserve account will be the
lesser of (a) _______ % of the outstanding principal balance of the
receivables and (b) __% of the principal balance of the receivables as of
_________.
On each payment date, the trust will distribute funds on deposit in the
reserve account in excess of the required balance to the seller.
For a more detailed description of the deposits to and withdrawals from the
reserve account, you should refer to "Description of the Certificates --
Reserve Account" in this prospectus supplement.
Optional Prepayment
The servicer has the option to purchase the receivables on any payment date on
which the aggregate principal balance of the receivables is __% or less of the
aggregate principal balance of the receivables as of _________. The purchase
price will equal the outstanding principal balance of the receivables plus
accrued and unpaid interest thereon at the weighted average interest rate for
the certificates. The trust will apply such payment to the payment of the
certificates in full.
Final Scheduled Payment Dates
The trust is required to distribute the entire principal amount of each class
of certificates, to the extent not previously paid, on the respective Final
Scheduled Payment Dates specified on the cover page of this prospectus
supplement.
Property of the Trust
The property of the trust will include the following:
the receivables and the collections on the receivables on or after
___________;
security interests in the vehicles financed by the receivables;
bank accounts (other than the reserve account); and
rights to proceeds under insurance policies that cover the obligors under
the receivables or the vehicles financed by the receivables.
Composition of the Receivables
The composition of the receivables as of ________________ is as follows:
o Aggregate Principal
Balance................ $
o Number of
Receivables............
o Average Principal
Balance................ $
(Range)............ $ to $
o Average Original
Amount Financed........ $
(Range)............ $ to $
o Weighted Average
Contract Interest
Rate................... %
(Range)............ % to
%
o Weighted Average
Original Term.......... months
(Range)............ months to
months
o Weighted Average
Remaining Term......... Months
(Range)............ month to
months
Servicer of the Receivables
The trust will pay the servicer a servicing fee on each payment date equal to
1/12 of ___% of the principal balance of the receivables at the beginning of
the previous month. In addition to the servicing fee, the trust will also pay
the servicer a supplemental servicing fee equal to any late fees and other
administrative fees and expenses collected during each month and any
reinvestment earnings on any payments received on the receivables and
deposited into the collection account.
Ratings
It is a condition to the issuance of the certificates that:
the Class A Certificates be rated in the [highest] long-term rating
category by at least two nationally recognized rating agencies; and
[the Class B Certificates] be rated "____" or its equivalent by at least
[two] nationally recognized rating agencies.
A rating is not a recommendation to purchase, hold or sell the certificates,
inasmuch as such rating does not comment as to market price or suitability for
a particular investor. The ratings of the certificates address the likelihood
of the payment of principal and interest on the certificates according to
their terms. A rating agency rating the certificates may lower or withdraw its
rating in the future, in its discretion, as to any class of the certificates.
Minimum Denominations
$1,000 and integral multiples thereof
Registration, Clearance and Settlement
Book-entry through DTC/Clearstream/
Euroclear
Tax Status
Opinions of Counsel
Brown & Wood LLP will deliver its opinion that for federal income tax purposes
the trust will be characterized as a grantor trust and not as an association
(or a publicly traded partnership) taxable as a corporation.
ERISA CONSIDERATIONS
Class A
Certificates The Class A Certificates are generally eligible for purchase
by employee benefit plans, subject to the considerations
discussed under "ERISA Considerations" in this prospectus
supplement and the prospectus.
Class B
Certificates The Class B Certificates may not be acquired by an employee
benefit plan or by an individual retirement account.
However, an insurance company using its general account may
acquire the Class B Certificates subject to the
considerations discussed under "ERISA Considerations" in
this prospectus supplement and in the prospectus.
Investor Information -- Mailing Address and Telephone Number
The mailing address of the principal executive offices of USAA Federal Savings
Bank is 10750 McDermott Freeway, San Antonio, Texas 78288. Its telephone
number is (210) 498-2265.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these certificates.
Class B Certificates are
Subject to Greater Credit
Risk Because the Class B
Certificates are Subordinate
to the Class A Certificates The Class B Certificates bear greater credit
risk than the Class A Certificates because
payments of interest and principal on the
Class B Certificates are subordinated to
payments of interest and principal on the
Class A Certificates.
Geographic Concentration May
Result in More Risk to You The servicer's records indicate that the
billing addresses of the obligors of the
receivables as of __________ were in the
following states:
Percentage of
Aggregate
Principal
Balance
[ ]............... %
[ ]............... %
[ ]............... %
[ ]............... %
No other state, by those billing addresses,
constituted more than 5% of the balance of
the receivables as of _____________.
Economic conditions or other factors
affecting these states in particular could
adversely affect the delinquency, credit
loss or repossession experience of the
trust.
<PAGE>
THE TRUST
The seller will establish the USAA Auto Grantor Trust _____ by assigning
the receivables to the trust in exchange for the % Automobile Loan
Pass-Through Certificates, Class A (the "Class A Certificates") and the %
Automobile Loan Pass-Through Certificates, Class B (the "Class B
Certificates"). Each certificate will represent a fractional undivided
interest in the trust. The trust property will include a pool of [fixed rate
simple interest] motor vehicle installment loans for the purchase of new and
used automobiles and light-duty trucks. The trust property will also include:
o all monies received on the receivables on or after _____ (the
"Cut-off Date");
o security interests in the financed vehicles;
o the rights to proceeds, if any, from claims on certain theft,
physical damage, credit life or credit disability insurance policies,
if any, covering the financed vehicles or the obligors;
o the seller's rights to certain documents and instruments relating
to the receivables;
o such amounts as from time to time may be held in the accounts
maintained for the trust;
o certain payments and proceeds with respect to the receivables held
by the servicer;
o certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the receivables; and
o any proceeds of the above items.
The trust will be formed for this transaction pursuant to the pooling and
servicing agreement and prior to formation will have had no assets or
obligations. After formation, the trust will not engage in any activity other
than acquiring and holding the receivables, issuing the certificates,
distributing payments thereon and as otherwise described herein and as
provided in the pooling and servicing agreement. The trust will not acquire
any contracts or assets other than the trust property described above.
THE RECEIVABLES POOL
The trust will own a pool of receivables consisting of motor vehicle
installment loans secured by security interests in the motor vehicles financed
by those contracts. The pool will consist of the receivables which the seller
transfers to the trust on the closing date. The receivables will include
payments on the receivables which are made on or after the Cut-off Date.
Criteria Applicable to Selection of Receivables.
The receivables were selected from the seller's portfolio for inclusion
in the pool by several criteria, some of which are set forth in the prospectus
under "The Receivables Pools." These criteria include the requirement that
each receivable:
o has a remaining maturity, as of the Cut-off Date, of at least ____
months and not more than ___ months;
o with respect to loans secured by new financed vehicles, had an
original maturity of at least ____ months and not more than ____
months; with respect to loans secured by used financed vehicles, had
an original maturity of at least _____ months and not more than ____
months;
o is a fully-amortizing, fixed rate simple interest loan which provides
for level scheduled monthly payments (except for the last payment,
which may be minimally different from the level payments) over its
remaining term and has a [simple interest] contract rate (a "Contract
Rate") that equals or exceeds ____% per annum, is not secured by any
interest in real estate, and has not been identified on the computer
files of the seller as relating to an obligor who had requested a
reduction in the periodic finance charges, as of the Cut-off Date, by
application of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended;
o is secured by a financed vehicle that, as of the Cut-off Date, had
not been repossessed without reinstatement;
o has not been identified on the computer files of the seller as
relating to an obligor who was in bankruptcy proceedings as of the
Cut-off Date;
o has no payment more than ____ days past due as of the Cut-off Date;
and
o has a remaining principal balance, as of the Cut-off Date, of at
least $___________.
No selection procedures believed by the seller to be adverse to the
certificateholders were utilized in selecting the receivables. No receivable
has a scheduled maturity later than ____________________ .
The composition of the receivables as of the Cut-off Date is as follows:
o Aggregate Principal
Balance................ $
o Number of
Receivables............
o Average Principal
Balance................ $
(Range)............ $ to $
o Average Original
Amount Financed........ $
(Range)............ $ to $
o Weighted Average
Contract Rates......... %
(Range)............ % to
%
o Weighted Average
Original Term.......... months
(Range)............ months to
months
o Weighted Average
Remaining Term......... Months
(Range)............ month to
months
The geographical distribution and distribution by Contract Rate of the
receivables pool as of the Cut-off Date are set forth in the following tables.
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cut-off Date
Percentage
Percentage of of
Aggregate Aggregate
Number of Principal Principal Number of Principal Principal
State (1) Receivables Balance Balance (2) State (1) Receivables Balance Balance (2)
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama........ Montana.......
Alaska......... Nebraska......
Arizona........ Nevada........
Arkansas....... New Hampshire.
California..... New Jersey....
Colorado....... New Mexico....
Connecticut.... New York......
Delaware....... North Carolina
District of
Columbia....... North Dakota..
Florida........ Ohio..........
Georgia........ Oklahoma......
Hawaii......... Oregon........
Idaho.......... Pennsylvania..
Illinois....... Rhode Island..
Indiana........ South Carolina
Iowa........... South Dakota..
Kansas......... Tennessee.....
Kentucky....... Texas.........
Louisiana...... Utah..........
Maine.......... Vermont.......
Maryland....... Virginia......
Massachusetts.. Washington....
Michigan....... West Virginia.
Minnesota...... Wisconsin.....
Mississippi.... Wyoming.......
Missouri.......
- --------------
(1) Based on the billing addresses of the obligors as of the Cut-off Date.
(2) May not add to 100% due to rounding.
</TABLE>
<PAGE>
Distribution by Contract Rate of the Receivables
as of the Cut-off Date
Percentage of
Aggregate
Number of Principal
Contract Rate Receivables Principal Balance Balance (1)
1.90 to 1.99%..............
2.00 to 2.49...............
2.50 to 2.99...............
3.00 to 3.49...............
3.50 to 3.99...............
4.00 to 4.49...............
4.50 to 4.99...............
5.00 to 5.49...............
5.50 to 5.99...............
6.00 to 6.49...............
6.50 to 6.99...............
7.00 to 7.49...............
7.50 to 7.99...............
8.00 to 8.49...............
8.50 to 8.99...............
9.00 to 9.49...............
9.50 to 9.99...............
10.00 to 10.49.............
10.50 to 10.99.............
11.00 to 11.49.............
11.50 to 11.99.............
12.00 to 12.49.............
12.50 to 12.99.............
13.00 to 13.49.............
13.50 to 13.99.............
14.00 to 14.49.............
14.50 to 14.99.............
15.00 to 15.49.............
15.50 to 15.99.............
16.00 to 16.49.............
16.50 to 16.99.............
17.00 to 17.49.............
17.50 to 17.99.............
18.00 to 18.49.............
18.50 to 18.99.............
19.00 to 19.49.............
19.50 to 19.99.............
20.00......................
Totals.....................
- --------------
(1) May not add to 100.00% due to rounding.
<PAGE>
The Bank's Delinquency, Loan Loss and Recovery Information
The following tables set forth information with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries for each of
the periods shown for the portfolio of motor vehicle loans originated and
serviced by the Bank. The portfolio of motor vehicle loans originated and
serviced by the Bank during the periods shown includes both fixed rate motor
vehicle loans and variable rate motor vehicle loans. The Bank does not
maintain separate records with respect to fixed rate motor vehicle loans and
variable rate motor vehicle loans regarding delinquency, loan loss and
recovery experience. The receivables include only fixed rate motor vehicle
loans. The following tables also include information with respect to certain
consumer loans which are not motor vehicle loans. These other consumer loans
did not exceed 10% of outstandings as of any of the dates shown in the
following tables. The Bank believes that the inclusion of variable rate motor
vehicle loans and the consumer loans has an immaterial effect on the
information set forth in the following tables with respect to the Bank's
experience relating to delinquencies, loan losses and recoveries on its fixed
rate motor vehicle loans.
<TABLE>
<CAPTION>
Delinquency Experience
At December 31,
_____________________________________________________________________________________________________________
1999 1998 1997 1996 1995
__________________ ___________________ ___________________ ____________________ __________________
Dollars Number Dollars Number Dollars Number Dollars Number Dollars Number
(in 000s) of Loans (in 000s) of Loans (in 000s) of Loans (in 000s) of Loans (in 000s) of Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Outstandings. $3,661,825 283,810 $2,802,144 234,281 $2,076,318 186,560 $1,687,922 159,812 $1,454,843 145,246
Delinquencies
over 30
days(1)(2) $16,927 1,689 $12,297 1,366 $7,028 871 $8,634 1,082 $580 2,338
Delinquencies
over 30
days (%)(3) 0.46% 0.60% 0.44% 0.58% 0.34% 0.47% 0.51% 0.68% 0.34% 0.40%
</TABLE>
(1) Delinquencies include principal amounts only.
(2) The period of delinquency is based on the number of days payments are
contractually past due.
(3) As a percent of outstandings.
<TABLE>
<CAPTION>
Loan Loss Experience
Year Ended December 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Dollars in 000s)
<S> <C> <C> <C> <C> <C>
Number of Loans(1) .................. 283,810 234,281 186,560 159,812 145,246
Period Ending Outstandings........... $3,661,825 $2,802,144 $2,076,318 $1,687,922 $1,454,843
Average Outstandings(2) ............. $3,281,001 $2,375,294 $1,867,280 $1,527,686 $1,298,116
Number of Gross Charge-Offs ......... 1,438 874 797 805 422
Gross Charge-Offs(3)................. $16,066 $9,311 $6,157 $4,131 $2,244
Gross Charge-Offs as a % of Period End
Outstandings............................. 0.44% 0.33% 0.30% 0.24% 0.15%
Gross Charge-Offs as a % of Average
Outstandings............................. 0.49% 0.39% 0.33% 0.27% 0.17%
Recoveries(4)........................ $7,296 $4,856 $2,158 $1,068 $683
Net Charge-Offs(5)................... $8,770 $4,455 $3,999 $3,063 $1,561
Net Charge-Offs as a % of Period End
Outstandings............................. 0.24% 0.16% 0.19% 0.11% 0.11%
Net Charge-Offs as a % of Average
Outstandings............................. 0.27% 0.19% 0.21% 0.20% 0.12%
</TABLE>
- --------------
(1) Number of loans as of period end.
(2) Averages were computed by taking an average of daily outstandings for the
loans owned by the Bank combined with an average of month-end
outstandings for the loans sold and still serviced by the Bank for each
period presented.
(3) Prior to July 1997, the amount charged off is the remaining principal
balance less proceeds from the sale of repossessed vehicles or, in the
case of repossessed vehicles which have not yet been sold, the remaining
principal balance less estimated proceeds from the sale of such
repossessed vehicles. As of July 1997, amounts charged off represent the
remaining principal balance.
(4) Recoveries are not net of expenses and generally include amounts received
with respect to loans previously charged off. Prior to July 1997, the
proceeds realized in connection with the sale of the financed vehicles
are not included in recoveries.
(5) Net charge-offs means gross charge-offs minus recoveries of loans
previously charged off.
The data presented in the foregoing tables are for illustrative
purposes only. Delinquency and loan loss experience may be influenced by a
variety of economic, social and other factors. The mix of the credit quality
of the obligations will vary from time to time and will affect losses and
delinquencies. We cannot assure you that the delinquency and loan loss
experience of the trust with respect to its receivables will be similar to
that set forth above.
HOW YOU CAN COMPUTE YOUR PORTION OF THE AMOUNT
OUTSTANDING ON THE CERTIFICATES
The servicer will provide to you in each report which it delivers to
you a factor which you can use to compute your portion of the certificate
balance outstanding on your class of certificates.
How the Servicer Computes the Factor for Your Class of Certificates.
The servicer will compute a separate factor for each class of certificates.
The factor for a class of certificates will be a seven-digit decimal which the
servicer will compute prior to each distribution with respect to that class of
certificates indicating the remaining certificate balance of that class of
certificates, as of the applicable payment date. The factor will be calculated
after giving effect to distributions to be made on such payment date, as a
fraction (expressed as a decimal) of the initial certificate balance of that
class of certificates.
Your Portion of the Outstanding Certificate Balance of Your Certificates.
For each certificate you own, your portion of your class certificates is the
product of--
o the original denomination of your certificate; and
o the factor relating to your class certificates computed by the servicer
in the manner described above.
The Factors Described Above Will Decline as the Trust Makes Payments on the
Certificates
The factor for each class of certificates above will initially be
1.0000000. They will then decline to reflect reductions, as applicable, in the
outstanding certificate balance of the applicable class of certificates. These
amounts will be reduced over time as a result of scheduled payments,
prepayments, purchases of the receivables by the seller or the servicer and
liquidations of the receivables.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations
with respect to the certificates is set forth under "Maturity and Prepayment
Considerations" in the prospectus. In addition, on each payment date, no
principal payments will be made on the Class B Certificates until the amount
of interest and principal due on the Class A Certificates has been paid.
Since the rate of payment of principal of each class of certificates
depends on the rate of payment (including prepayments) of the principal
balance of the receivables, final payment of either class of certificates
could occur significantly earlier than the Final Scheduled Payment Date.
We Cannot Assure You That Your Certificates Will Be Repaid on the
Final Scheduled Payment Date. We expect that final payment of each class of
certificates will occur on or prior to the Final Scheduled Payment Date.
However, we cannot assure you that sufficient funds will be available to pay
each class of certificates in full on or prior to the Final Scheduled Payment
Date. If sufficient funds are not available, the final distribution in respect
of each class of certificates could occur later than such date.
The Level of Prepayments of the Receivables and Required Purchases by
the Seller and the Servicer are Unpredictable and May Affect Payments on the
Certificates. The rate of prepayments of the receivables may be influenced by
a variety of economic, social and other factors. In addition, under
circumstances relating to breaches of representations, warranties or
covenants, the seller and/or the servicer may be obligated to purchase
receivables from the trust. See "The Receivables Pool" in this prospectus
supplement and "Description of the Receivables Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" in the prospectus. A higher
than anticipated rate of prepayments will reduce the aggregate principal
balance of the receivables and thus the outstanding certificate balances of
the certificates more quickly than expected and thereby reduce anticipated
aggregate interest payments on the certificates. The certificateholders alone
will bear any reinvestment risks resulting from a faster or slower incidence
of prepayment of receivables. Such reinvestment risks include the risk that
interest rates may be lower at the time such holders received payments from
the trust than interest rates would otherwise have been had such prepayments
not been made or had such prepayments been made at a different time.
Risks of slower or faster repayments. You should consider--
o in the case of certificates purchased at a discount, the risk that a
slower than anticipated rate of principal payments on the receivables
could result in an actual yield that is less than the anticipated
yield; and
o in the case of certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments on the receivables
could result in an actual yield that is less than the anticipated
yield.
Weighted Average Life of the Certificates
The following information is given solely to illustrate the effect of
prepayments of the receivables on the weighted average life of the
certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the receivables.
Prepayments on motor vehicle receivables can be measured relative to a
prepayment 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 are the same size
and amortize at the same rate and that each receivable in each month of its
life will either be paid as scheduled or be prepaid in full. For example, in a
pool of receivables originally containing 10,000 receivables, a 1% ABS rate
means that 100 receivables prepay each month. ABS does not purport to be a
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of assets, including the
receivables.
The rate of payment of principal of each class of certificates will
depend on the rate of payment (including prepayments) of the principal balance
of the receivables. For this reason, final payment on the certificates could
occur significantly earlier than the Final Scheduled Payment Date. The
certificateholders will exclusively bear any reinvestment risk associated with
early payment of their certificates.
The table (the "ABS Table") captioned "Percent of Initial Certificate
Balance" at Various ABS Percentages" has been prepared on the basis of the
characteristics of the receivables. The ABS Table assumes that --
o the receivables prepay in full at the specified constant
percentage of ABS monthly, with no defaults, losses or
repurchases;
o each scheduled monthly payment on the receivables is made on
the last day of each month and each month has 30 days;
o payments on the certificates are made on each payment date (and
each payment date is assumed to be the ____day of the
applicable month);
o the balance in the Reserve Account on each payment date is
equal to the Specified Reserve Account Balance; and
o the servicer does not exercise its option to purchase the
receivables.
The ABS Table indicates the projected weighted average life of each
class of certificates and sets forth the percent of the initial certificate
balance of each class of certificates that is projected to be outstanding
after each of the payment dates shown at various constant ABS percentages.
The ABS Table also assumes 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 its aggregate principal
balance, contract rate of interest, original term to maturity and remaining
term to maturity as of the Cut-off Date) will be such that each pool will be
fully amortized by the end of its remaining term to maturity. The pools have
an assumed cut-off date of ________________.
<PAGE>
Contract Original Term Remaining Term
Aggregate Rate of to Maturity to Maturity
Pool Principal Balance Interest (In Months) (In Months)
1.............
2.............
3.............
4.............
5.............
6.............
7.............
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9.............
10............
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16............
17............
18............
The actual characteristics and performance of the receivables will
differ from the assumptions used in constructing the ABS Table. 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 lives of each
class of certificates.
<PAGE>
Percent of Initial Certificate Balance at Various ABS Percentages
Class A Certificates and
Class B Certificates
Payment Date % % % %
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Weight Average Life(1)
Weight Average Life
to Optional
Repurchase (1)(2)
- --------------
(1) The weighted average life of a certificate is determined by (a)
multiplying the amount of each principal payment on a certificate by the
number of years from the date of the issuance of the certificate to the
related payment date, (b) adding the results and (c) dividing the sum by
the related initial certificate balance of the certificate.
(2) This calculation assumes the servicer purchases the receivables on the
first payment date on which it is permitted to do so.
The ABS Table has been prepared based on the assumptions described
above (including the assumptions regarding the characteristics and performance
of the receivables which will differ from the actual characteristics and
performance thereof) and should be read in conjunction therewith.
DESCRIPTION OF THE CERTIFICATES
We have filed a form of the pooling and servicing agreement as an
exhibit to the registration statement of which the prospectus is a part. A
copy of the pooling and servicing agreement will be filed with the SEC after
the trust issues the certificates. We summarize below some of the most
important terms of the certificates. This summary is not a complete
description of all the provisions of the pooling and servicing agreement and
the certificates. The following summary is a supplement to the description of
the general terms and provisions of the certificates of any series and the
related pooling and servicing agreement provided under the headings "Certain
Information Regarding the Securities" and "Description of the Receivables
Transfer and Servicing Agreements" in the prospectus. We refer you to those
sections.
General
The certificates will be Book-Entry Securities. Definitive
Certificates for the certificates will be issued only in the limited
circumstances specified under "Certain Information Regarding the
Securities--Definitive Securities" in the prospectus. Distributions on the
certificates on a payment date will be made to persons who were the holders of
record on the Record Date. You may purchase certificates in denominations of
$1,000 and integral multiples thereof.
Distributions on Certificates
Deposits to Collection Account. The servicer will establish the
Collection Account as described under "Description of the Receivables Transfer
and Servicing Agreements--Accounts" in the prospectus. In general, the
servicer will be permitted to retain collections on the receivables until the
Business Day preceding any payment date. However, the servicer will be
required to remit collections received with respect to the receivables not
later than the second Business Day after receipt to the Collection Account (1)
if there is an Event of Servicing Termination, (2) if the Bank is no longer
the servicer or (3) if one of the other conditions set forth in the pooling
and servicing agreement is not met.
On or before the __th day of each month or, if such __th day is not a
Business Day, the preceding Business Day, the servicer will inform the trustee
of the following amounts with respect to the preceding Collection Period:
(1) the amount of aggregate collections on the receivables, including
all liquidation proceeds and recoveries;
(2) the aggregate amount of Advances to be remitted by the servicer;
(3) the aggregate Purchase Amount for the receivables to be repurchased
by the seller or purchased by the servicer;
(4) the aggregate amount to be withdrawn from the Reserve Account;
(5) the aggregate amount to be distributed as principal and interest on
the certificates; and
(6) the Servicing Fee.
On or before the Business Day preceding each payment date:
(a) the servicer will cause all collections on the receivables,
liquidation proceeds and recoveries to be deposited into the
Collection Account and will deposit into the Collection Account all
Purchase Amounts for the receivables to be purchased by the servicer
on that date;
(b) the seller will deposit into the Collection Account all Purchase
Amounts of receivables to be repurchased by the seller on that date;
and
(c) the servicer will deposit all Advances for the payment date into the
Collection Account.
On each payment date the servicer will allocate collections and
Advances for the preceding calendar month (the "Collection Period") to
Available Interest and Available Principal. The amounts represented by those
terms are more precisely described in the section "Glossary of Terms" in this
prospectus supplement. In general, Available Interest for a Collection Period
includes interest collections on the receivables (including the interest
portion of Purchased Amounts and liquidation proceeds on receivables
designated as defaulted receivables in that Collection Period) and recoveries
on receivables that were designated as defaulted receivables prior to that
Collection Period, minus reimbursements to the servicer of its outstanding
Advances. Available Principal for a Collection Period includes principal
collections on the receivables (including the principal portion of Purchased
Amounts and liquidation proceeds on receivables designated as defaulted
receivables in that Collection Period). A receivable will be designated as a
"defaulted receivable" when the servicer determines that it is unlikely to be
paid in full or when at least 5% of a scheduled payment is 120 or more days
delinquent at the end of a Collection Period.
The servicer will be entitled to receive reimbursements of its
outstanding Advances as described under the section entitled "Description of
the Receivables Transfer and Servicing Agreements--Advances" in the
prospectus. We refer you to that section.
Distributions. On each payment date the trustee will make the
following deposits and distributions, to the extent of Available Interest and
any available funds in the Reserve Account (net of investment earnings)
remaining after such reimbursements (and, to the extent indicated in clause
(2) below, the Class B Percentage of Available Principal), in the following
order of priority:
(1) to the servicer, first from Available Interest and then, if
necessary, from any such funds in the Reserve Account, any unpaid
Servicing Fee for the related Collection Period and all unpaid
Servicing Fees from prior Collection Periods;
(2) to the distribution account for the Class A Certificateholders,
first from Available Interest, then, if necessary, from any such
funds in the Reserve Account, and finally, if necessary, from the
Class B Percentage of Available Principal, interest distributable on
the Class A Certificates for such payment date; and
(3) to the distribution account for the Class B Certificateholders,
first from Available Interest and then, if necessary, from any such
funds in the Reserve Account, the interest distributable on the
Class B Certificates for such payment date.
The interest distributable on a class of certificates on a payment
date will accrue on its certificate balance at the applicable per annum rate
set forth on the cover of this prospectus supplement from and including the
prior payment date (or the closing date in the case of the first payment date)
to but excluding the current payment date. Interest will be calculated on the
basis of a 360-day year consisting of twelve 30-day months. Interest accrued
as of any payment date but not paid on such payment date will be due on the
next payment date, together with interest on such amount at the applicable
interest rate (to the extent lawful).
On each payment date, the trustee will make the following deposits and
distributions, to the extent of the portion of Available Principal, Available
Interest and any such funds in the Reserve Account (to be applied in that
order of priority) remaining after the application of clauses (1), (2) and (3)
above, in the following order of priority:
(4) to the distribution account for the Class A Certificateholders, the
Class A Principal Distribution for such payment date;
(5) to the distribution account for the Class B Certificateholders, the
Class B Principal Distribution for such payment date;
(6) to the Reserve Account, any amounts remaining, until the amount on
deposit in the Reserve Account equals the Specified Reserve Account
Balance; and
(7) to the seller, any amounts remaining.
On each payment date, the trustee will distribute (i) to the Class A
Certificateholders, all amounts on deposit in the distribution account for the
Class A Certificateholders and (ii) to the Class B Certificateholders, all
amounts on deposit in the distribution account for the Class B
Certificateholders.
The Class A Principal Distribution for a payment date will equal the
sum of (i) the Class A Percentage of the Available Principal plus the Class A
Percentage of Realized Losses, (ii) the Class A Percentage of the Available
Principal for any prior payment date and the Class A Percentage of Realized
Losses for any prior payment date, in each case only to the extent, if any,
that they have not already been distributed to the Class A Certificateholders
and (iii) if that payment date is the Final Scheduled Payment Date, the
additional amount, if any, needed to reduce the certificate balance of the
Class A Certificates to zero.
The Class B Principal Distribution for a payment date will equal the
sum of (i) the Class B Percentage of the Available Principal plus the Class B
Percentage of Realized Losses, (ii) the Class B Percentage of the Available
Principal for any prior payment date and the Class B Percentage of Realized
Losses for any prior payment date, in each case only to the extent, if any,
that they have not already been distributed to the Class B Certificateholders
and (iii) if that payment date is the Final Scheduled Payment Date, the
additional amount, if any, needed to reduce the certificate balance of the
Class B Certificates to zero.
The Class B Percentage is ___% and the Class A Percentage is _____%.
Realized Losses for any Collection Period will be the excess of the
aggregate principal balance of those receivables that were designated as
defaulted receivables during that Collection Period over liquidation proceeds
received with respect to such receivables during such Collection Period and
allocable to principal.
Statements to Certificateholders
On each payment date, the trustee will include with each distribution
to each certificateholder a statement setting forth the applicable information
under the heading "Certain Information Regarding the Securities--Reports to
Securityholders" in the prospectus.
The statements for each Collection Period will be delivered to DTC for
further distribution to beneficial owners of the certificates in accordance
with DTC procedures. Copies of such statements may be obtained by beneficial
owners of certificates by a request in writing addressed to the trustee at its
corporate trust office at _____________.
Subordination of Class B Certificates
The rights of the Class B Certificateholders to receive distributions
of interest are subordinated to the rights of Class A Certificateholders to
receive payments of interest and principal. In addition, on each payment date
the Class B Certificateholders will not receive a distribution of principal
until the Class A Certificateholders have received their distribution of
principal. This subordination is effected by the allocation of funds set forth
under "--Distributions on Certificates" above.
Optional Redemption
If the servicer exercises its option to purchase the receivables when
the aggregate principal balance of the receivables declines to 10% or less of
the aggregate principal balance of the receivables as of the Cut-off Date, you
will receive an amount in respect of your certificates equal to the sum of:
o the outstanding certificate balance of your certificates
together with accrued and unpaid interest at the rate of
interest for your certificates; and
o interest on any past due interest at the rate of interest for
your certificates, to the extent lawful.
See "Description of the Receivables Transfer and Servicing Agreements
- -- Termination" in the prospectus.
Accounts
In addition to the Collection Account,
o the trustee will establish a distribution account for the
benefit of the Class A Certificateholders;
o the trustee will establish a distribution account for the
benefit of the Class B Certificateholders; and
o the seller will establish and will maintain the Reserve Account
at an Eligible Institution in the name of _______________ (the
"Collateral Agent") on behalf of the certificateholders.
The Reserve Account and the funds in the Reserve Account will not be
property of the trust, but will be pledged to the Collateral Agent for the
benefit of certificateholders.
Servicing Compensation and Expenses
On each payment date the servicer is entitled to receive the Servicing
Fee, together with any portion of the Servicing Fee that remains unpaid from
prior payment dates. The Servicing Fee will be paid only to the extent of
Available Interest for such payment date, plus funds, if any, deposited into
the Collection Account from the Reserve Account. The servicer also is entitled
to receive the Supplemental Servicing Fee. See "Description of the Receivables
Transfer and Servicing Agreements -- Servicing Compensation and Expenses" in
the prospectus.
Rights Upon Event of Servicing Termination
If an Event of Servicing Termination occurs, the trustee or holders of
certificates evidencing not less than 25% of the aggregate principal balance
of the receivables may remove the servicer without the consent of any of the
other certificateholders.
Waiver of Past Events of Servicing Termination
If an Event of Servicing Termination occurs, holders of certificates
evidencing at least a majority of the aggregate principal balance of the
receivables, subject to the exceptions provided in the pooling and servicing
agreement, may waive any Event of Servicing Termination except for a failure
to make any required deposits to or payments from any account, without the
consent of any of the other certificateholders.
Reserve Account
Deposits to the Reserve Account. The Reserve Account will be funded by
a deposit by the seller on the closing date in the amount of $______________.
The amount on deposit in the Reserve Account may increase from time to time up
to the Specified Reserve Account Balance by deposits of funds withdrawn from
the Collection Account to the extent available as described under
"--Distribution on the Certificates -- Distributions" above. The "Specified
Reserve Account Balance" will equal the lesser of (a) ____% of the outstanding
principal balance of the receivables and (b) ____% of the principal balance of
the receivables as of the Cut-off Date.
Withdrawals From the Reserve Account. On each payment date, the amount
available in the Reserve Account will equal the lesser of (a) the amount on
deposit in the Reserve Account and (b) the Specified Reserve Account Balance.
The funds on deposit in the Reserve Account may be deposited into the
Collection Account to the extent described under "-- Distributions on the
Certificates -- Distributions" above. Funds on deposit in the Reserve Account
in excess of the Specified Reserve Account Balance will be paid to the seller.
Investment. Amounts on deposit in the Reserve Account will be invested
by the Collateral Agent at the direction of the seller in Permitted
Investments and investment earnings (net of losses and investment expenses)
therefrom will be deposited into the Reserve Account. Permitted Investments
are generally limited to obligations or securities that mature on or before
the next payment date. However, to the extent each Rating Agency rating the
certificates confirms that such actions will not adversely affect its ratings
of the certificates, funds in the Reserve Account may be invested in
obligations that will not mature prior to the next payment date and will not
be sold to meet any shortfalls.
Funds in the Reserve Account Will be Limited. Amounts on deposit in
the Reserve Account from time to time are available to--
o enhance the likelihood that you will receive the amounts due on
your certificates; and
o decrease the likelihood that you will experience losses on your
certificates.
However, the amounts on deposit in the Reserve Account are limited to
the Specified Reserve Account Balance. If the amount required to cover
shortfalls in funds on deposit in the Collection Account exceeds the amount
available to be withdrawn from the Reserve Account, a shortfall in the amounts
distributed to the certificateholders could result. Depletion of the Reserve
Account ultimately could result in losses on your certificates.
After the payment in full, or the provision for such payment of all
accrued and unpaid interest on the certificates and the outstanding
certificate balance of the certificates, any funds remaining on deposit in the
Reserve Account, subject to certain limitations, will be paid to the seller.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Brown & Wood LLP, counsel for the Bank and Federal
Tax Counsel for the trust, for federal income tax purposes, the trust will be
a grantor trust and will not be treated as an association (or a publicly
traded partnership) taxable as a corporation. See "Certain Federal Income Tax
Consequences -- Trusts Treated as Grantor Trusts" in the prospectus.
CERTAIN STATE TAX CONSEQUENCES
The tax discussion in the prospectus does not address the tax
treatment of the trust, the certificates or the certificateholders under any
state tax laws. You are urged to consult with your own tax advisors regarding
the state tax treatment of the trust as well as any state tax consequences to
you, particularly in the case of financial institutions, of purchasing,
holding and disposing of your certificates.
ERISA CONSIDERATIONS
For a general discussion of ERISA considerations in respect of the
certificates, we refer you to the section entitled "ERISA Considerations" in
the prospectus.
Class A Certificates
The U.S. Department of Labor has granted an individual administrative
exemption to [name of lead underwriter] (Prohibited Transaction Exemption
____, as amended, Exemption Application No. ________, 55 Fed. Reg. ___ (1990))
(the "Exemption") from some of the prohibited transaction rules of ERISA and
the related excise tax provisions of Section 4975 of the Code with respect to
the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of specified receivables,
loans and other obligations that meet the conditions and requirements of the
Exemption. The Exemption applies to motor vehicle installment loans such as
the receivables owned by the trust. A "Plan" is an employee benefit or other
plan or arrangement (such as an individual retirement plan or Keogh plan) that
is subject to ERISA, Section 4975 of the Code or a Similar Law.
For a general description of the Exemption and the conditions that
must be satisfied for the Exemption to apply, see "ERISA Considerations --
Senior Certificates Issued by Trusts" in the prospectus.
Before purchasing a Class A Certificate, a fiduciary of a Plan must
satisfy itself that (i) the Class A Certificates are "certificates" for
purposes of the Exemption and (ii) the general and specific conditions and
requirements in the Exemption would be met in the case of the Class A
Certificates.
Prospective Plan investors are encouraged to consult with their legal
advisors concerning the impact of ERISA and the Code and the applicability of
the Exemption, and the potential consequences in their specific circumstances,
before making an investment in any of the certificates. Moreover, each Plan
fiduciary is encouraged to determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Class B Certificates
Because the characteristics of the Class B Certificates will not meet
the requirements of the Exemption and may not meet any other exemption issued
under ERISA, a Plan may be engaging in a prohibited transaction or may incur
excise taxes or civil penalties if it purchases and holds Class B
Certificates. Consequently, transfers of the Class B Certificates will not be
registered by the trustee unless the trustee receives a deemed representation
from the transferee of the Class B Certificate that:
o the transferee is not a Plan or a person acting on behalf of a
Plan or using a Plan's assets to effect the transfer; or
o if the purchaser is an insurance company, the purchaser is an
insurance company which is purchasing the certificates with
funds contained in an "insurance company general account" (as
defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTE 95-60")) and that the purchase and
holding of the certificates are covered under Sections I and
III of PTE 95-60.
This representation will be deemed to have been made to the trustee by
the transferee's acceptance of a Class B Certificate. If the representation is
not true, the attempted transfer or acquisition shall be void ab initio.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement, the seller has agreed to sell to each of the underwriters named
below, and each of those underwriters has severally agreed to purchase, the
initial certificate balances of Class A Certificates and Class B Certificates
set forth opposite its name below:
Certificate Certificate
Balance of Balance of
Class A Class B
Underwriters Certificates Certificates
................................
................................
................................
................................
Total.......................
The seller has been advised by the underwriters that they propose to
offer the certificates to the public initially at the applicable prices set
forth on the cover page of this prospectus supplement. After the initial
public offering of the Class A Certificates and Class B Certificates, the
public offering prices may change.
The underwriting discounts and commissions, the selling concessions
that the underwriters may allow to certain dealers, and the discounts that
such dealers may reallow to certain other dealers, expressed as a percentage
of the certificate balance of each class of certificates and as an aggregate
dollar amount, shall be as follows:
<TABLE>
<CAPTION>
Underwriting Selling
Discount and Net Proceeds Concessions Reallowance
Commissions to Seller(1) not to exceed not to exceed
<S> <C> <C> <C> <C>
Class A Certificates......
Class B Certificates......
Total..................
</TABLE>
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(1) Plus interest accrued on the certificates, if any, from ________ and
before deducting other expenses estimated at $___________.
Until the distribution of the certificates is completed, rules of the
SEC may limit the ability of the underwriters and certain selling group
members to bid for and purchase the certificates. As an exception to these
rules, the underwriters are permitted to engage in certain transactions that
stabilize the price of the certificates. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
certificates.
If the underwriters create a short position in the certificates in
connection with this offering (i.e., they sell more certificates than are set
forth on the cover page of this prospectus supplement), the underwriters may
reduce that short position by purchasing certificates, as the case may be, in
the open market.
The underwriters may also impose a penalty bid on certain underwriters
and selling group members. This means that if the underwriters purchase
certificates in the open market to reduce the underwriters' short position or
to stabilize the price of such certificates, they may reclaim the amount of
the selling concession from any underwriter or selling group member who sold
those certificates, as the case may be, as part of the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of a
penalty bid might also have an effect on the price of a security to the extent
that it were to discourage resales of the security.
Neither the seller nor any of the underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of the
certificates. In addition, neither the seller nor any of the underwriters
makes any representation that the underwriters will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The certificates are new issues of securities and there currently is
no secondary market for the certificates. The underwriters for the
certificates expect to make a market in such securities but will not be
obligated to do so. We cannot assure you that a secondary market for the Class
A Certificates or the Class B Certificates will develop. If a secondary market
for the Class A Certificates or the Class B Certificates does develop, it
might end at any time or it might not be sufficiently liquid to enable you to
resell any of your certificates.
The trustee and the Collateral Agent may, from time to time, invest
the funds in the Collection Account and the Reserve Account, as applicable, in
investments acquired from or issued by the underwriters.
In the ordinary course of business, the underwriters and their
affiliates have engaged and may engage in investment banking and commercial
banking transactions with the seller and its affiliates.
The seller has agreed to indemnify the underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the underwriters may be required
to make in respect thereof.
The closing of the sale of each class of the certificates is
conditioned on the closing of the sale of the other class of certificates.
Upon receipt of a request by an investor who has received an
electronic prospectus from an underwriter or a request by such investor's
representative within the period during which there is an obligation to
deliver a prospectus, the seller or the underwriter will promptly deliver,
without charge, a paper copy of this prospectus supplement and the prospectus.
LEGAL OPINIONS
Certain legal matters and federal income tax matters relating to the
certificates will be passed upon for the seller and the servicer by Brown &
Wood LLP. Certain legal matters relating to the certificates will be passed
upon for the underwriters by Simpson Thacher & Bartlett.
GLOSSARY OF TERMS
Additional defined terms used in this prospectus supplement are
defined under "Glossary of Terms" in the prospectus.
"ABS" means the Absolute Prepayment Model which we use to measure
prepayments on receivables and we describe under "The Receivables
Pool--Weighted Average Life of the Certificates".
"ABS Table" means the table captioned "Percent of Initial Certificate
Balance at Various ABS Percentages" beginning on page S-__ of this prospectus
supplement.
"Available Interest" means, with respect to any payment date, the
excess of (a) the sum of:
o Interest Collections for such payment date; and
o all Advances made by the servicer for such payment date,
over (b) the amount of Outstanding Advances to be reimbursed on or with
respect to such payment date.
"Available Principal" means, with respect to any payment date, the sum
of the following amounts with respect to the preceding Collection Period:
o that portion of all collections on the receivables allocable to
principal in accordance with the terms of the receivables and
the servicer's customary servicing procedures;
o to the extent attributable to principal, the Purchase Amount
received with respect to each receivable repurchased by the
seller or purchased by the servicer under an obligation which
arose during that Collection Period; and
o all liquidation proceeds, to the extent allocable to principal,
received during such Collection Period.
Available Principal on any payment date will exclude all payments and proceeds
of any receivables the Purchase Amount of which has been distributed on a
prior payment date.
"Book-Entry Securities" means securities that are held in the U.S.
through DTC and in Europe through Clearstream or Euroclear.
"Business Day" is a day other than a Saturday, a Sunday or a day on
which banking institutions or trust companies in the State of New York or the
State of Texas are authorized by law, regulation or executive order to be
closed.
"certificates" means, collectively, the Class A Certificates and the
Class B Certificates.
"certificate balance" means, with respect to a class of certificates,
the original certificate balance for that class as reduced by all prior
distributions of principal to the holders of record of that class of
certificates. The original certificate balance of each class of certificates
is set forth on the cover of this prospectus supplement.
"Class A Certificateholders" means the holders of record of Class A
Certificates.
"Class A Certificates" means the __% Automobile Loan Pass-Through
Certificates, Class A.
"Class A Percentage" means _____%.
"Class A Principal Distribution" means, with respect to any payment
date, the sum of (i) the Class A Percentage of the Available Principal plus
the Class A Percentage of Realized Losses, (ii) the Class A Percentage of the
Available Principal for any prior payment date and the Class A Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class A
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment Date, the additional amount, if any, needed to reduce the certificate
balance of the Class A Certificates to zero.
"Class B Certificateholders" means the holders of record of Class B
Certificates.
"Class B Certificates" means the __% Automobile Loan Pass-Through
Certificates, Class B.
"Class B Percentage" means _____%.
"Class B Principal Distribution" means, with respect to any payment
date, the sum of (i) the Class B Percentage of the Available Principal plus
the Class B Percentage of Realized Losses, (ii) the Class B Percentage of the
Available Principal for any prior payment date and the Class B Percentage of
Realized Losses for any prior payment date, in each case only to the extent,
if any, that they have not already been distributed to the Class B
Certificateholders and (iii) if that payment date is the Final Scheduled
Payment Date, the additional amount, if any, needed to reduce the certificate
balance of the Class B Certificates to zero.
"Clearstream" means Clearstream Bank, societe anonyme, a professional
depository under the laws of Luxembourg.
"closing date" means ____________________.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means _______________________________________ and
its successors and assigns as the collateral agent to which the funds and
investments in the Reserve Account have been pledged for the benefit of the
certificateholders.
"Collection Account" means an account established pursuant to the
pooling and servicing agreement, held in the name of the trustee, into which
the servicer is required to deposit collections on the receivables and other
amounts.
"Collection Period" means, with respect to a payment date, the
calendar month preceding that payment date, or in the case of the initial
payment date, the period from the Cut-off Date to ____________________________ .
"Contract Rate" means the per annum interest rate borne by a
receivable.
"Cut-off Date" means the date as of which the seller will transfer the
receivables to the trust, which is ________________________ .
"defaulted receivable" means a receivable (i) that the servicer
determines is unlikely to be paid in full or (ii) with respect to which at
least 5% of a scheduled payment is 120 or more days delinquent as of the end
of a calendar month.
"Definitive Certificates" means with respect to any class of
certificates, such certificates issued in fully registered, certificated form
to certificateholders or their respective nominees, rather than to DTC or its
nominee.
"DTC" means The Depository Trust Company and any successor depository
selected by the trustee.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation.
"Federal Tax Counsel" means Brown & Wood LLP.
"Final Scheduled Payment Date" means _________________________________.
"Interest Collections" means, with respect to any payment date, the sum
of the following amounts with respect to the preceding Collection Period:
(1) that portion of all collections on the receivables allocable to
interest in accordance with the terms of the receivables and
the servicer's customary servicing procedures;
(2) all liquidation proceeds, to the extent allocable to interest,
received during such Collection Period;
(3) all recoveries received during such Collection Period; and
(4) to the extent attributable to interest, the Purchase Amount
with respect to each receivable repurchased by the seller or
purchased by the servicer under an obligation which arose
during such Collection Period.
Interest Collections for any payment date shall exclude all payments and
proceeds of any receivables the Purchase Amount of which has been distributed
on a prior payment date.
"liquidation proceeds" means with respect to any receivable (a)
insurance proceeds received by the servicer and (b) the monies collected by
the servicer from whatever source, including but not limited to proceeds of a
financed vehicle sold after repossession, on a defaulted receivable net of any
payments required by law to be remitted to the obligor.
"payment date" means the date on which the trust will distribute
interest and principal on the certificates, which will be the
_________________ day of each month or, if any such day is not a Business Day,
on the next Business Day, commencing ____________________.
"Plan" means an employee benefit or other plan or arrangement (such as
an individual plan or Keogh plan) that is subject to ERISA, Section 4975 of
the Code or a Similar Law.
"Realized Losses" means, for any Collection Period, the excess of the
aggregate principal balance of those receivables that were designated as
defaulted receivables during that Collection Period over liquidation proceeds
received with respect to those receivables during that Collection Period, to
the extent allocable to principal.
"Record Date" with respect to any payment date means the day
immediately preceding the payment date or, if the certificates are issued as
Definitive Certificates, the last day of the preceding month.
"recoveries" means, with respect to any Collection Period after a
Collection Period in which a receivable becomes a defaulted receivable, all
monies received by the servicer with respect to such defaulted receivable
during that Collection Period, net of any fees, costs and expenses incurred by
and reimbursed to the servicer in connection with the collection of such
defaulted receivable and any payments required by law to be remitted to the
obligor.
"Reserve Account" means the account which the seller will establish in
the name of the Collateral Agent into which the seller will deposit the
Reserve Initial Deposit. The trustee will make the other deposits into and
withdrawals from the Reserve Account as specified in this prospectus
supplement.
"Reserve Initial Deposit" means the $_____________ initially deposited
into the Reserve Account.
"SEC" means the Securities and Exchange Commission.
"Servicing Fee" means a fee payable to the servicer on each payment
date for servicing the receivables which is equal to the product of 1/12 of
__% and the aggregate principal balance of the receivables as of the first day
of the related Collection Period.
"Specified Reserve Account Balance" means the lesser of--
o __% of the outstanding principal balance of the receivables;
and
o __% of the principal balance of the receivables as of the
Cut-off Date.
"Supplemental Servicing Fee" means, for each Collection Period, the
amount of any late fees and other administrative fees and expenses collected
during that Collection Period, plus any interest earned during the Collection
Period on amounts on deposit in the Collection Account during the Collection
Period. The servicer does not currently collect such fees and expenses but may
do so in the future.
Information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. 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.
Subject to completion, dated March 24, 2000
(LOGO)
USAA Auto Trusts
Asset Backed Notes
Asset Backed Certificates
USAA Federal Savings Bank
Seller and Servicer
- ------------------------------
BEFORE YOU PURCHASE ANY OF
THESE SECURITIES, BE SURE TO
READ THE RISK FACTORS
BEGINNING ON PAGE OF THIS
PROSPECTUS AND THE RISK
FACTORS SET FORTH IN THE
RELATED PROSPECTUS SUPPLEMENT.
A security is not a deposit
and neither the securities nor
the underlying motor vehicle
installment loans are insured
or guaranteed by the FDIC or
any other governmental
authority.
The notes and the certificates
will represent obligations of
or interests in the trust only
and will not represent
obligations of or interests in
USAA Federal Savings Bank or
any of its affiliates.
- ------------------------------
Each trust--
o will issue asset-backed notes and/or
certificates in one or more classes,
rated in one of the four highest
rating categories by at least one
nationally recognized statistical
rating organization;
o will own--
-- a portfolio of motor vehicle
installment loans;
-- collections on those loans;
-- security interests in the
vehicles financed by those loans;
and
-- funds in the accounts of the
trust; and
o may have the benefit of some form of
credit or payment enhancement.
The main sources of funds for making
payments on a trust's securities will be
collections on its motor vehicle
installment loans and any enhancement that
the trust may have.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus or any related prospectus supplement.
Any representation to the contrary is a criminal offense.
--------------------
The date of this prospectus is March 24, 2000
<PAGE>
TABLE OF CONTENTS
<PAGE>
READING THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT..............................3
WHERE YOU CAN FIND ADDITIONAL INFORMATION...........3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.....4
Copies of the Documents.........................4
SUMMARY.............................................5
RISK FACTORS.......................................10
THE TRUSTS.........................................18
The Receivables................................18
The Trustee....................................19
USAA FEDERAL SAVINGS BANK..........................19
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS........20
THE RECEIVABLES POOLS..............................25
We Will Provide More Specific
Information About the Receivables
in the Prospectus Supplement...................26
MATURITY AND PREPAYMENT CONSIDERATIONS.............26
USE OF PROCEEDS....................................27
PRINCIPAL DOCUMENTS................................27
PAYMENTS ON THE SECURITIES.........................29
CERTAIN INFORMATION REGARDING THE SECURITIES.......30
Fixed Rate Securities..........................30
Floating Rate Securities.......................30
Book-Entry Registration........................31
Definitive Securities..........................37
Reports to Securityholders.....................37
THE INDENTURE......................................39
The Indenture Trustee..........................45
DESCRIPTION OF THE RECEIVABLES TRANSFER
AND SERVICING AGREEMENTS.........................46
Sale and Assignment of Receivables.............46
Accounts.......................................48
Servicing Procedures...........................49
Collections....................................49
Advances.......................................50
Servicing Compensation and Expenses............50
Distributions..................................51
Credit and Payment Enhancement.................51
Net Deposits...................................52
Statements to Trustees and Trusts..............52
Evidence as to Compliance......................52
Certain Matters Regarding the Servicer.........53
Events of Servicing Termination................54
Rights Upon Event of Servicing Termination.....55
Waiver of Past Events of Servicing Termination.55
Amendment......................................55
Payment of Notes...............................56
Termination....................................56
List of Certificateholders.....................57
Administration Agreement.......................57
Duties of Trustee..............................57
The Trustee....................................58
SOME IMPORTANT LEGAL ISSUES RELATING
TO THE RECEIVABLES...............................58
Security Interest in the Receivables...........58
Security Interests in the Financed Vehicles....59
Enforcement of Security Interests
in Financed Vehicles..........................60
Other Matters..................................61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............61
TRUSTS FOR WHICH A PARTNERSHIP
ELECTION IS MADE.............................62
Tax Characterization of the Trust
as a Partnership.............................62
Tax Consequences to Holders of the Notes.......62
Tax Consequences to Holders of the
Certificates.................................65
TRUSTS IN WHICH ALL CERTIFICATES ARE
RETAINED BY THE SELLER OR AN
AFFILIATE OF THE SELLER......................70
Tax Characterization of the Trust..............70
TRUSTS TREATED AS GRANTOR TRUSTS...............71
Tax Characterization of the Trust as
a Grantor Trust..............................71
FASIT PROVISIONS...............................76
CERTAIN STATE TAX CONSEQUENCES.....................80
ERISA CONSIDERATIONS...............................81
Senior Certificates Issued by Trusts...........83
Special Considerations Applicable
to Insurance Company General Accounts........86
PLAN OF DISTRIBUTION...............................87
LEGAL OPINIONS.....................................87
GLOSSARY OF TERMS FOR THE PROSPECTUS...............88
<PAGE>
READING THIS PROSPECTUS AND THE ACCOMPANYING
PROSPECTUS SUPPLEMENT
We provide information on your securities in two separate documents
that offer varying levels of detail:
o this prospectus provides general information, some of which may
not apply to a particular series of securities, including your
securities, and
o the accompanying prospectus supplement will provide a summary
of the specific terms of your securities.
If the terms of the securities described in this prospectus vary with
the accompanying prospectus supplement, you should rely on the information in
the prospectus supplement.
We include cross-references to sections in these documents where you
can find further related discussions. Refer to the table of contents in the
front of each document to locate the referenced sections.
You will find a glossary of defined terms used in this prospectus on
page __.
You should rely only on the information contained in this prospectus
and the accompanying prospectus supplement, including any information
incorporated by reference. We have not authorized anyone to provide you with
different information. The information in this prospectus or the accompanying
prospectus supplement is only accurate as of the dates on their respective
covers.
In this prospectus, the terms "we," "us" and "our" refer to USAA
Federal Savings Bank.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
USAA Federal Savings Bank, as the originator of each trust, has filed
a registration statement with the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended. This prospectus is part of the
registration statement but the registration statement includes additional
information.
You may inspect and copy the registration statement at:
o the public reference facilities maintained by the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 (telephone
1-800-732-0330),
o the SEC's regional office at Citicorp Center, 500 West Madison
Street, 14th Floor, Chicago, Illinois 60661, and
o the SEC's regional office at Seven World Trade Center, New
York, New York 10048.
Also, the SEC maintains a Web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus. Information that we file later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the related prospectus supplement. We
incorporate by reference any future annual, monthly or special SEC reports and
proxy materials filed by or on behalf of a trust until we terminate our
offering of the securities by that trust.
Copies of the Documents
You may receive a free copy of any or all of the documents
incorporated by reference in this prospectus or incorporated by reference into
the accompanying prospectus supplement if:
o you received this prospectus and
o you request such copies from USAA Federal Savings Bank, 10750
McDermott Freeway, San Antonio, Texas 78288 (Telephone:
210-___-____).
This offer only includes the exhibits to such documents if such exhibits are
specifically incorporated by reference in such documents. You may also read
and copy these materials at the public reference facilities of the SEC in
Washington, D.C. referred to above.
<PAGE>
SUMMARY
The following summary is a short description of the main structural
features that a trust's securities may have. For that reason, this summary
does not contain all of the information that may be important to you or that
describes all of the terms of a security. To fully understand the terms of a
trust's securities, you will need to read both this prospectus and the related
prospectus supplement, in their entirety.
The Trusts
A separate trust will be formed to issue each series of securities. Each trust
will be created by an agreement between the seller and the trustee.
The Seller and the Servicer
USAA Federal Savings Bank.
Trustee
The prospectus supplement will name the trustee for the trust.
Indenture Trustee
If a trust issues notes, the prospectus supplement will name the indenture
trustee.
Securities
A trust's securities may include one or more classes of notes and/or
certificates. You will find the following information about each class of
securities in the prospectus supplement:
o its principal amount;
o its interest rate, which may be fixed or variable or a
combination;
o the timing, amount and priority or subordination of payments of
principal and interest;
o the method for calculating the amount of principal payments;
o its final payment date;
o whether and when it may be redeemed prior to its final payment
date; and
o how losses on the receivables are allocated among the classes
of securities.
Some classes of securities may be entitled to:
o principal payments with disproportionate, nominal or no
interest payments or
o interest payments with disproportionate, nominal or no
principal payments.
The prospectus supplement will identify any class of securities that is not
being offered to the public.
Optional Prepayment
Generally, the servicer will have the option to purchase the receivables of
each trust on any payment date when the aggregate principal balance of the
receivables sold to the trust has declined to 10% (or such other percentage
specified in the prospectus supplement) or less of the initial principal
balance. Upon such a purchase, the securities of that trust will be prepaid in
full.
The Receivables and Other Trust Property
The receivables of each trust will consist of a pool of motor vehicle
installment loans made by the seller and secured by new and used automobiles
and light-duty trucks and other property, including:
o the rights to receive payments made on the receivables after
the cut-off date specified in the related prospectus
supplement;
o security interests in the vehicles financed by the receivables;
and
o any proceeds from claims on various related insurance policies.
You will find a description of the characteristics of the trust's receivables
in the prospectus supplement.
For a more detailed description of the receivables, including the criteria
they must meet in order to be included in a trust, and the other property
supporting the securities, see "The Receivables Pools" in this prospectus.
Other Property of the Trust
In addition to the receivables, each trust will own amounts on deposit in
various trust accounts, which may include:
o an account into which collections are deposited;
o an account to fund post-closing purchases of additional
receivables; or
o a reserve account or other account relating to credit
enhancement.
Purchase of Receivables After the Closing Date
If a trust has not purchased all of its receivables at the time you purchase
your securities, it will purchase the remainder of its receivables from the
seller over a period specified in the prospectus supplement.
Credit or Payment Enhancement
The prospectus supplement will specify the credit or payment enhancement, if
any, for each trust. Credit or payment enhancement may consist of one or more
of the following:
o subordination of one or more classes of securities;
o a reserve account;
o overcollateralization (i.e., the amount by which the principal
amount of the receivables exceeds the principal amount of all
of the trust's securities);
o excess interest collections (i.e., the excess of anticipated
interest collections on the receivables over servicing fees,
interest on the trust's securities and any amounts required to
be deposited in a reserve account, if any);
o letter of credit or other credit facility;
o surety bond;
o liquidity arrangements;
o swaps (including currency swaps) and other derivative
instruments and interest rate protection agreements;
o repurchase or put obligations;
o yield supplement accounts or agreements;
o guaranteed investment contracts;
o guaranteed rate agreements; or
o other agreements with respect to third party payments or other
support.
Limitations or exclusions from coverage could apply to any form of credit or
payment enhancement. The prospectus supplement will describe the credit or
payment enhancement and related limitations and exclusions applicable for
securities issued by a trust. Enhancements cannot guarantee that losses will
not be incurred on the securities.
Reserve Account
If there is a reserve account, the seller will initially deposit in it cash or
securities having a value equal to the amount specified in the prospectus
supplement.
Amounts on deposit in a reserve account will be available to cover shortfalls
in the payments on the securities as described in the prospectus supplement.
The prospectus supplement may also specify (1) a minimum balance to be
maintained in the reserve account and what funds are available for deposit to
reinstate that balance, and (2) when and to whom any amount will be
distributed if the balance exceeds this minimum amount.
For more information about credit enhancement, see "Description of the
Receivables Transfer and Servicing Agreements -- Credit and Payment
Enhancement" in this prospectus.
Transfer and Servicing of the Receivables
The seller will transfer receivables to a trust under an agreement. The
servicer will agree with the trust to be responsible for servicing, managing,
maintaining custody of and making collections on the receivables.
For more information about the sale and servicing of the receivables, see
"Description of the Receivables Transfer and Servicing Agreements -- Sale and
Assignment of Receivables" in this prospectus.
Servicing Fees
Each trust will pay the servicer a servicing fee based on the outstanding
balance of the receivables. The amount of the servicing fee will be specified
in the prospectus supplement. The servicer will also be entitled to retain as
supplemental servicing compensation certain fees and charges paid by obligors
and net investment income from reinvestment of collections on the receivables.
Servicer Advances of Certain Late Interest Payments
When interest collections received on the receivables are less than the
scheduled interest collections in a collection period, the servicer will
advance to the trust that portion of the shortfalls that the servicer, in its
sole discretion, expects to be paid in the future by the related obligors.
The servicer will be entitled to reimbursement from other collections of the
trust for these advances that are not repaid out of collections of the related
late payments.
Repurchase May Be Required For Modified Receivables
In the course of its normal servicing procedures, the servicer may defer or
modify the payment schedule of a receivable. Some of these arrangements may
obligate the servicer to repurchase the receivable.
For a discussion of the servicer's repurchase obligations, see "Description of
the Receivables Transfer and Servicing Agreements -- Servicing Procedures" in
this prospectus.
Repurchase May Be Required For Breaches of Representation or Warranty
The seller will make representations and warranties relating to the
receivables when it sells them to the trust.
The seller will be required to repurchase a receivable from the trust if (1)
one of the seller's representations or warranties is breached with respect to
that receivable and (2) the receivable is materially and adversely affected by
the breach.
For a discussion of the representations and warranties given by the seller and
its related repurchase obligations, see "Description of the Receivables
Transfer and Servicing Agreements -- Sale and Assignment of Receivables" in
this prospectus.
Tax Status
If the trust issues notes and the trust does not elect to be characterized as
a Financial Asset Securitization Investment Trust, federal tax counsel to the
trust will deliver an opinion when the notes are issued that for federal
income tax purposes:
o the notes will be characterized as debt unless otherwise stated
in the prospectus supplement and
o the trust will not be characterized as an association (or a
publicly traded partnership) taxable as a corporation.
If the trust is a grantor trust or elects to be treated as a Financial Asset
Securitization Investment Trust, you will find a discussion of the federal
income tax characterization of its certificates and the trust in this
prospectus and the prospectus supplement.
See "Certain Federal Income Tax Consequences" and "Certain State Tax
Consequences" in this prospectus for additional information concerning the
application of federal and state tax laws to the securities.
ERISA Considerations
If you are an employee benefit plan, you should review the matters discussed
under "ERISA Considerations" in this prospectus before investing in the
securities.
Form, Denomination and Record Date
Generally, you may purchase securities only in book-entry form and will not
receive your securities in definitive form. You may purchase securities in the
denominations set forth in the prospectus supplement. The record date for a
payment date will be the business day immediately preceding the payment date
or, if definitive securities are issued, the last day of the preceding
calendar month.
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of the securities.
Interests of other persons in
the receivables could reduce
the funds available to make
payments on your securities Financing statements under the
Uniform Commercial Code will be
filed reflecting the sale of the
receivables by us to the trust. Our
accounting records and computer
systems will also be marked to
reflect a sale of the receivables
to the trust. However, because the
servicer will maintain possession
of the receivables and not
segregate or mark the receivables
as belonging to the trust, another
person could acquire an interest in
a receivable that is superior to
the trust's interest by obtaining
physical possession of the loan
document representing that
receivable without knowledge of the
assignment of the receivable to the
trust. If another person acquires
an interest in a receivable that is
superior to the trust's interest in
the receivable, some or all of the
collections on that receivable may
not be available to make payment on
the securities.
If another person acquires a
security or other interest in a
financed vehicle that is superior
to the trust's security interest in
the vehicle, some or all of the
proceeds from the sale of the
vehicle may not be available to
make payments on the securities.
The trust's security interest in
the financed vehicles could be
impaired for one or more of the
following reasons:
o we might fail to perfect our
security interest in a financed
vehicle;
o another person may acquire an
interest in a financed vehicle
that is superior to the trust's
security interest through fraud,
forgery, negligence or error
because the servicer will not
amend the certificate of title
or ownership to identify the
trust as the new secured party;
o the trust may not have a
security interest in the
financed vehicles in certain
states because the certificates
of title to the financed
vehicles will not be amended to
reflect assignment of a security
interest therein to the trust;
o holders of some types of liens,
such as tax liens or mechanics
liens, may have priority over
the trust's security interest;
and
o the trust may lose its security
interest in vehicles confiscated
by the government.
Neither the seller nor the
servicer will be required to
repurchase a receivable if the
security interest in a related
vehicle or the receivable becomes
impaired after the receivable is
sold to the trust.
Consumer protection laws
may cause a trust to experience
losses on its receivables Federal and state consumer
protection laws impose requirements
upon creditors in connection with
extensions of credit and
collections on retail installment
loans. Some of these laws make an
assignee of the loan (such as a
trust) liable to the obligor for
any violation by the lender. Any
liabilities of the trust under
these laws could reduce the funds
that the trust would otherwise have
to make payments on your
securities.
Only the assets of the trust
are available to pay your
securities Neither the seller nor any of its
affiliates is obligated to make any
payments relating to (1) the
securities of a trust or (2) the
receivables owned by a trust.
Therefore, you must rely solely on
the assets of the trust for
repayment of your securities. If
these assets are insufficient, you
may suffer losses on your
securities.
The assets of a trust will consist
solely of its receivables and, to
the extent specified in the
prospectus supplement, various
deposit accounts and any credit or
payment enhancement.
Amounts on deposit in any reserve
account will be limited and subject
to depletion. The amount required
to be on deposit in any reserve
account will be limited. If the
amounts in the reserve account are
depleted as amounts are paid out to
cover shortfalls in distributions
of principal and interest on your
securities, the trust will depend
solely on collections on the
receivables and any other credit or
payment enhancement to make
payments on your securities. In
addition, the minimum required
balance in a reserve account may
decrease as the outstanding balance
of the receivables decreases.
You may suffer losses upon a
liquidation of the receivables if
the proceeds of the liquidation are
less than the amounts due on the
outstanding securities. Under
certain circumstances described
herein, the receivables of a trust
may be sold after the occurrence of
an event of default. The related
securityholders will suffer losses
if the trust sells the receivables
for less than the total amount due
on its securities. We cannot assure
you that sufficient funds would be
available to repay those
securityholders in full.
Delays in collecting payments
could occur if USAA Federal
Savings Bank ceases to be the
servicer If we were to cease acting as
servicer, the processing of
payments on the receivables and
information relating to collections
could be delayed, which could delay
payments to securityholders. We can
be removed as servicer if we
default on our servicing
obligations as described in this
prospectus. See "Description of the
Receivables Transfer and Servicing
Agreements -- Events of Servicing
Termination." We may resign as
servicer under certain
circumstances described in this
Prospectus. See "Description of the
Receivables Transfer and Servicing
Agreements -- Certain Matters
Regarding the Servicer."
The insolvency of the seller
may delay payments on your
securities or cause you to incur
a loss The seller intends that each
transfer of receivables by it to a
trust under a sale and servicing
agreement or a pooling and
servicing agreement constitutes a
sale. In the event that the seller
were to become insolvent, the
Federal Deposit Insurance Act
("FDIA"), as amended by the
Financial Institutions Reform,
Recovery and Enforcement Act of
1989 ("FIRREA"), sets forth certain
powers that the Federal Deposit
Insurance Corporation may exercise
if it were appointed receiver of
the seller. To the extent that the
seller has granted a security
interest in the receivables to a
trust and that security interest
was validly perfected before the
seller's insolvency and was not
taken in contemplation of
insolvency or with the intent to
hinder, delay or defraud the seller
or its creditors, that security
interest would not be subject to
avoidance by the Federal Deposit
Insurance Corporation as receiver
of the seller. Positions taken by
the staff of the Federal Deposit
Insurance Corporation prior to the
passage of FIRREA do not suggest
that the Federal Deposit Insurance
Corporation, if appointed receiver
of the seller, would interfere with
the timely transfer to the trust of
payments collected on the related
receivables If, however, the
Federal Deposit Insurance
Corporation were to assert a
contrary position, or were to
require the trustee or the
indenture trustee to establish its
rights to those payments by
submitting to and completing the
administrative claims procedure
established under the FDIA, or the
conservator or receiver were to
request a stay of proceedings with
respect to the seller as provided
under the FDIA, delays in payments
on the related securities and
possible reductions in the amount
of those payments could occur.
Subordination may cause some
classes of securities to bear
additional credit risk The rights of the holders of any
class of securities to receive
payments of interest and principal
may be subordinated to one or more
other classes of securities.
Holders of subordinated classes of
securities will bear more credit
risk than more senior classes.
Subordination may take the
following forms:
o interest payments on any date on
which interest is due may first
be allocated to the more senior
classes;
o principal payments on the
subordinated classes might not
begin until principal of the
more senior classes is repaid in
full;
o principal payments on the more
senior classes may be made on a
payment date before interest
payments on the subordinated
classes are made;
o subordinated classes bear the
risk of losses on the
receivables and the resulting
cash shortfalls before the more
senior classes do; and
o if the trustee sells the
receivables after an event of
default, the net proceeds of
that sale may be allocated first
to pay principal and interest on
the more senior classes.
The timing and priority of payment,
seniority, allocations of losses
and method of determining payments
on the respective classes of
securities of any trust will be
described in the prospectus
supplement.
Prepayments on the
receivables may
adversely affect
the average life of
and rate of return on
your securities Faster than expected prepayments on
the receivables will cause the
trust to make payments on its
securities earlier than expected.
You may not be able to reinvest the
principal repaid to you at a rate
of return that is equal to or
greater than the rate of return on
your securities. We cannot predict
the effect of prepayments on the
average life of your securities.
All the receivables by their terms
may be prepaid at any time.
Prepayments include:
o prepayments in whole or in part
by the obligor;
o liquidations due to default;
o partial payments with proceeds
from physical damage, credit
life and disability insurance
policies;
o required purchases of
receivables by the servicer or
repurchases of receivables by
the seller for specified
breaches of their
representations or covenants;
and
o an optional repurchase of a
trust's receivables by the
servicer when their aggregate
principal balance is 10% (or
such other percentage specified
in the prospectus supplement) or
less of the initial aggregate
principal balance.
A variety of economic, social and
other factors will influence the
rate of optional prepayments on the
receivables and defaults.
The final payment of each class of
securities is expected to occur
prior to its final scheduled
payment date because of the
prepayment and purchase
considerations set forth above. If
sufficient funds are not available
to pay any class of notes in full
on its final payment date, an event
of default will occur and final
payment of such class of notes will
occur later than such date.
For more information regarding the
timing of repayments of the
securities, see "Maturity and
Prepayment Considerations" in the
prospectus supplement and in this
prospectus.
You may suffer losses on your
securities because the
servicer will hold collections
and commingle them with its
own funds
The servicer will generally be
permitted to hold with its own
funds (1) collections it receives
from obligors on the receivables
and (2) the purchase price of
receivables required to be
repurchased from the trust until
the day prior to the next date on
which distributions are made on the
securities. During this time, the
servicer may invest those amounts
at its own risk and for its own
benefit and need not segregate them
from its own funds. If the servicer
is unable for any reason to pay
these amounts to the trust on the
payment date, you might incur a
loss on your securities.
For more information about the
servicer's obligations regarding
payments on the receivables, see
"Description of the Receivables
Transfer and Servicing Agreements
-- Collections" in this prospectus.
The senior class of securities
controls removal of the
servicer upon a default on its
servicing obligations Generally, the holders of a
majority of a trust's senior class
of securities (or the applicable
trustee acting on their behalf) can
remove the servicer if the servicer
--
o does not deliver to the
applicable trustee the available
funds for application to a
required payment after a grace
period after notice or
discovery;
o defaults on a servicing
obligation which materially and
adversely affects the trust
after a grace period after
notice; or
o becomes the subject of certain
insolvency proceedings.
Those holders may also waive a
default by the servicer. The
holders of any subordinate class of
securities do not have any rights
to participate in such
determinations for so long as any
of the more senior classes are
outstanding, and the subordinate
classes of securities may be
adversely affected by
determinations made by the more
senior classes. See "Description of
the Receivables Transfer and
Servicing Agreements -- Events of
Servicing Termination."
You may not be able to resell
your securities There may be no secondary market
for the securities. Underwriters
may participate in making a
secondary market in the securities,
but are under no obligation to do
so. We cannot assure you that a
secondary market will develop. If a
secondary market does develop, we
cannot assure you that it will
continue or that you will be able
to resell your securities.
Geographic concentration of a
a trust's auto loans may adversely
affect your securities Adverse economic conditions or
other factors particularly
affecting any state or region where
there is a high concentration of a
trust's auto loans could adversely
affect the securities of that
trust. We are unable to forecast,
with respect to any state or
region, whether any such conditions
may occur, or to what extent such
conditions may affect auto loans or
the repayment of your securities.
The location of a trust's auto
loans by state, based upon
borrowers' addresses at the time
the auto loans were made, will be
set out in the prospectus
supplement.
Ratings of the securities At the initial issuance of the
securities of a trust, at least one
nationally recognized statistical
rating organization will rate the
offered securities in one of the
four highest rating categories. A
rating is not a recommendation to
purchase, hold or sell securities,
and it does not comment as to
market price or suitability for a
particular investor. The ratings of
the securities address the
likelihood of the payment of
principal and interest on the
securities according to their
terms. We cannot assure you that a
rating will remain for any given
period of time or that a rating
agency will not lower or withdraw
its rating if, in its judgment,
circumstances in the future so
warrant. A reduction or withdrawal
of a security's rating will
adversely affect its market value.
If book-entry registration
is used, you will be able
to exercise your rights
as a securityholder only
through the clearing agency
and your ability to
transfer your securities
may be limited The securities will be delivered to
you in book-entry form through the
facilities of The Depository Trust
Company ("DTC") or Clearstream
(formerly Cedelbank) or Euroclear.
Consequently, your securities will
not be registered in your name and
you will not be recognized as a
securityholder by the trustee or
any applicable indenture trustee.
You will only be able to exercise
the rights of a securityholder
indirectly through DTC and its
participating organizations.
Specifically, you may be limited in
your ability to resell the
securities to a person or entity
that does not participate in the
DTC system or Clearstream or
Euroclear. Physical certificates
will only be issued in the limited
circumstances described in the
prospectus. See "Certain
Information Regarding the
Securities-- Definitive Securities"
in this prospectus.
Potential delays in payments on
your securities due to potential
computer program problems
because of the year 2000 issue The year 2000 issue results from
the custom of writing computer
programs using two digits to define
a year. Computer programs that have
time-sensitive software may
recognize a date using "00" as the
year 1900 rather than the year
2000. Thus far, the servicer has
not encountered any material year
2000 problems arising from its own
operations or from those of its
suppliers, customers or agents. We
cannot assure you that such
problems will not arise in the
future.
In the event that the servicer, or
any of its suppliers, customers or
agents encounter substantial
problems because of the year 2000
issue, the servicer's performance
of its obligations under the
agreements to which it is a party
could be adversely affected. This
could result in delays in
processing payments on the auto
loans and could cause a delay in
payments to you.
<PAGE>
THE TRUSTS
The seller will establish a separate trust as either a Delaware
business trust or a common law trust to issue each series of notes and/or
certificates. Each trust will be established for the transactions described in
this prospectus and in the related prospectus supplement. If a trust is a
grantor trust for federal income tax purposes, the prospectus supplement will
so state.
The Receivables
Certain information concerning the seller's experience with respect
to its portfolio of Motor Vehicle Loans (including previously sold Motor
Vehicle Loans which the seller continues to service) will be set forth in each
prospectus supplement. We cannot assure you that the delinquency, repossession
and net loss experience on any pool of receivables owned by a trust will be
comparable to that information.
On the closing date for a trust, the seller will sell and transfer
receivables to the trust in an amount specified in the related prospectus
supplement. Generally, the trust will have the right to receive all payments
on those receivables that are received on or after the date (a "cut-off date")
specified in the prospectus supplement. To the extent on or provided in the
prospectus supplement, the seller will convey additional receivables
("Subsequent Receivables") to the trust as frequently as daily during the
period (the "Funding Period") specified in the prospectus supplement. A trust
will purchase any Subsequent Receivables with amounts deposited in a
pre-funding account on the closing date. Up to 50% of the net proceeds from
the sale of the securities issued by a trust may be deposited into a
pre-funding account for the purchase of Subsequent Receivables. Any Subsequent
Receivables will also be assets of the trust.
The property of each trust will also include:
o security interests in the financed vehicles;
o the rights to proceeds, if any, from claims on certain theft,
physical damage, credit life or credit disability insurance
policies, if any, covering the financed vehicles or the obligors;
o the seller's rights to certain documents and instruments relating
to the receivables;
o such amounts as from time to time may be held in one or more
accounts maintained for the trust;
o any credit or payment enhancement specified in the prospectus
supplement;
o certain payments and proceeds with respect to the receivables held
by the servicer;
o certain rebates of premiums and other amounts relating to certain
insurance policies and other items financed under the receivables;
and
o any and all proceeds of the above items.
If the trust issues notes, the trust's rights and benefits with
respect to the property of the trust will be assigned to the indenture trustee
for the benefit of the noteholders.
The Trustee
The trustee for each trust will be specified in the related
prospectus supplement. The trustee's liability in connection with the issuance
and sale of the securities is limited solely to the express obligations of the
trustee set forth in the trust agreement or the pooling and servicing
agreement. The trustee may resign at any time, in which event the
administrator, in the case of a trust agreement, or the servicer, in case of a
pooling and servicing agreement, will be obligated to appoint a successor
trustee. The administrator or the servicer may also remove the trustee if:
o the trustee ceases to be eligible to continue as trustee under the
trust agreement or the pooling and servicing agreement, as
applicable, or
o the trustee becomes insolvent.
In either of these circumstances, the administrator or servicer must
appoint a successor trustee. If the trustee resigns or is removed, the
resignation or removal and appointment of a successor trustee will not become
effective until the successor trustee accepts its appointment.
You will find the addresses of the principal offices of the trust and
the trustee in the prospectus supplement.
USAA FEDERAL SAVINGS BANK
USAA Federal Savings Bank (the "Bank") is a federally chartered
savings association and a member of the Federal Home Loan Bank System. The
Bank is subject to the primary supervision of the Office of Thrift
Supervision, and its deposits are insured by the Federal Deposit Insurance
Corporation. The Bank is an indirect wholly-owned subsidiary of the United
Services Automobile Association ("USAA") and is engaged in providing consumer
banking products and services primarily to the USAA membership, concentrating
its efforts in marketing consumer loan products as well as deposit products.
As of December 31, 1999, its total assets and total common and preferred
stockholders' equity were $8.9 billion and $806 million, respectively.
The Bank's executive offices are located at 10750 McDermott Freeway,
San Antonio, Texas 78288 and its telephone number is (210) 498-2265.
USAA is a reciprocal interinsurance exchange formed in 1922. As of
December 31, 1999, USAA and its various property and casualty insurance
subsidiaries had approximately 3.2 million policyholders. In addition,
approximately 370,000 customers of USAA's financial services subsidiaries are
eligible to become insured by the USAA group of property and casualty
insurance companies.
USAA and its various property and casualty insurance subsidiaries
provide personal line insurance, which includes automobile, homeowners, and
renters insurance, to their policyholders. In addition, through its various
wholly-owned subsidiaries and affiliates, USAA offers personal financial
service products, including life insurance, mutual funds, banking services and
financial planning services. USAA is the seventh largest private passenger
automobile and the sixth largest homeowners insurer in the United States,
based on 1998 direct written premiums. USAA markets its products and services
principally through a direct mail and telecommunication program. USAA's
insurance financial strength has been rated "Aaa" and "AAA" by Moody's
Investors Service, Inc. and Standard & Poor's Ratings Services, respectively.
USAA is headquartered in San Antonio, Texas and employs approximately 23,000
people.
THE BANK'S PORTFOLIO OF MOTOR VEHICLE LOANS
Origination of Motor Vehicle Loans
The Bank directly originates motor vehicle installment loans secured
by new and used automobiles and light-duty trucks (the "Motor Vehicle Loans").
Applications for Motor Vehicle Loans are made by individuals to the Bank's
office in San Antonio, Texas and are reviewed by the Bank in accordance with
the Bank's underwriting procedures. Applications are generally accepted by
telephone but may also be accepted in person or by mail. The Bank's primary
source of applicants is the membership and associate membership of USAA, which
consist of officers and former officers of the U.S. military, their dependents
and former dependents and, more recently, enlisted personnel in the U.S.
military.
The Bank services all of its Motor Vehicle Loans. The servicing
functions performed by the Bank include customer service, document file
keeping, computerized account record keeping, vehicle title processing and
collections. The Bank may change its servicing and origination policies and
practices over time in accordance with the Bank's business judgment.
Underwriting of Motor Vehicle Loans
The Bank makes credit decisions with respect to Motor Vehicle Loans
in two alternative ways: on a pre-approved basis or on a judgmental basis,
which, since September 1992, has included a credit scoring process.
Pre-Approval Process. The Bank has a program of pre-approving
potential customers for Motor Vehicle Loans. The Bank obtains names of
potential customers from its existing Motor Vehicle Loan database, credit card
database, database of requests for automobile pricing lists, and various other
sources.
All potential pre-approved customer names are screened against the
database maintained by the Bank's parent company USAA. USAA's database must
show that the potential customer:
o is an active USAA insurance policyholder or is eligible to be one;
and
o is not identified in USAA's database as a customer who should not
receive advertising from USAA or its subsidiary companies.
The Bank then screens those potential customer names against its
database of credit card accounts, although an existing credit card account is
not a prerequisite for pre-approval. If the potential customer has a credit
card account, the Bank's credit card database must show that the account:
o is current and has been active more than twelve months;
o has not been more than 30 days delinquent on more than two
occasions in the most recent 12 month period;
o has had no record of bankruptcy, closed account or collection
problems; and
o has no lost or stolen account or fraudulent activity record.
A potential customer who is pre-approved using the credit card
account screening process is offered a Motor Vehicle Loan in an amount
determined by the credit limit amount of the individual's credit card accounts
with the Bank and the individual's credit score. The Bank offers those
pre-approved potential customers Motor Vehicle Loans in amounts of $15,000 to
$30,000.
A potential customer without a credit card account with the Bank is
eligible for a pre-approved Motor Vehicle Loan in an amount of $15,000 to
$30,000 if the individual has no record of bankruptcy or collection problems
on any Bank loan products and has an existing Motor Vehicle Loan with the Bank
that:
o has not been more than 30 days delinquent;
o has a term greater than one year and has been outstanding for more
than one year; and
o had an original principal balance in excess of $ 7,500.
The Bank notifies potential customers that they have been
pre-approved for a Motor Vehicle Loan by direct mail under certain
circumstances and, if a pre-approved individual calls the Bank to inquire
about a Motor Vehicle Loan, by telephone. A potential customer who has been
pre-approved need only identify the make, model, year and price of the
financed vehicle and, because of the information known by the Bank through
USAA's database and the Bank's credit card database, is not required to
provide additional credit related information.
Judgmental Process. If an applicant is not pre-approved for a Motor
Vehicle Loan as described above, the Bank requires the applicant to complete
an application, generally over the telephone, which sets forth the applicant's
income, liabilities, credit and employment history, and other personal
information as well as a description of the financed vehicle which is intended
to secure a Motor Vehicle Loan. The Bank reviews each application for
completeness and for compliance with the Bank's guidelines and applicable
consumer regulations.
The Bank evaluates each applicant using uniform underwriting
standards developed by the Bank. These underwriting standards are intended to
assess the applicant's ability to repay such Motor Vehicle Loan and the
adequacy of the financed vehicle as collateral, based upon a review of the
information contained in the applicant's loan application and the credit
bureau reports referred to below.
Automated Review. The Bank first performs the evaluation on an
automated basis. If the automated review of the application shows that the
applicant meets certain criteria in the Bank's underwriting guidelines
described below at specified levels and has at least a specified credit score
in the Bank's credit scoring process referred to below, then the application
is approved. If the application is not approved in the automated review and
has not been submitted by a pre-approved customer, a credit analyst performs a
judgmental review using the same criteria and standards.
Credit Criteria. Among the criteria considered in evaluating each
application are:
o stability of the applicant with specific regard to the
applicant's occupation and length of employment;
o the applicant's payment history based on information known
directly by the Bank or as provided by various credit reporting
agencies with respect to present and past debt;
o a debt service to gross monthly income ratio test; and
o a loan to value ratio test taking into account the age, type
and market value of the financed vehicle.
The Bank's general policy has been not to allow an applicant's debt
service to gross monthly income ratio to exceed 55%.
The Bank uses an empirically based credit scoring process that uses
credit scores provided by credit bureaus to objectively assess an applicant's
creditworthiness. This credit scoring process was created using historical
information from the database of Motor Vehicle Loans owned or serviced by the
Bank. Through credit scoring, the Bank evaluates credit profiles to quantify
credit risk. The credit scoring process entails the use of statistics to
correlate common characteristics with credit risk. The Bank's credit scoring
process is periodically reviewed and, if necessary, updated to reflect current
statistical data. The Bank's credit scoring process is intended to provide a
basis for lending decisions, not to supersede the judgment of the credit
analyst.
The Bank has approved applications that do not meet its standard
credit guidelines, both before and after implementation of the credit scoring
process. Generally, those approvals require concurrent approval of a second,
designated senior credit analyst or credit manager of the Bank. Applications
that do not comply with all the Bank's guidelines must have compensating
factors which indicate a strong capacity to repay the loan. In such cases, the
reason for approving the Motor Vehicle Loan is often because the applicant has
made a down payment and the amount financed is lower than the maximum
permitted by the Bank's guidelines.
Amount Advanced. The amount advanced by the Bank under any Motor
Vehicle Loan, including Motor Vehicle Loans offered pursuant to the
pre-approved program, generally has not exceeded the lesser of the purchase
price and:
o for a new financed vehicle, the manufacturer's suggested retail
price plus taxes and title and license fees on the financed
vehicle or
o for a used financed vehicle the "retail" value stated in the
most recently published National Auto Research Black Book used
vehicle guide, adjusted for high or low mileage and before
credit for any optional equipment, plus taxes and title and
license fees.
However, the maximum amount advanced for Motor Vehicle Loans is often
less than such amounts depending on a number of factors, including the length
of the Motor Vehicle Loan term and the model and year of the financed vehicle.
These adjustments are made to assure that the financed vehicle constitutes
adequate collateral to secure the Motor Vehicle Loan. In addition, whether a
financed vehicle is new or used, the Bank will also finance service warranties
under a Motor Vehicle Loan.
Periodically, the Bank makes a detailed analysis of its portfolio to
evaluate the effectiveness of the Bank's credit guidelines and scoring
process. If external economic factors, credit delinquencies or credit losses
change, the Bank adjusts its credit guidelines to maintain the asset quality
deemed acceptable by the Bank's management. The Bank reviews, on an annual
basis, the quality of its Motor Vehicle Loans by conducting internal audits of
certain randomly selected Motor Vehicle Loans to ensure compliance with
established policies and procedures.
Insurance
Each Motor Vehicle Loan requires the obligor to obtain comprehensive
and collision insurance with respect to the financed vehicle. After the
funding of the Motor Vehicle Loan, the Bank does not monitor the obligor's
compliance with such requirement. Most obligors obtain the required
comprehensive and collision insurance from USAA or an affiliate thereof.
If an obligor fails to maintain the required insurance, the Bank may,
but is not obligated to, purchase limited comprehensive and collision
insurance to protect the interests of the Bank and those of the obligor and
charge the obligor for the cost of such insurance (the "Force Placed
Insurance"). The Bank currently does not obtain Force Placed Insurance if an
obligor fails to maintain the required insurance.
Collection Procedures
The Bank performs collection activities with respect to delinquent
Motor Vehicle Loans including the prompt investigation and evaluation of the
causes of any delinquency. An obligor is considered delinquent when he or she
makes any payment that is less than 95% of a scheduled monthly payment.
The Bank maintains an on-line collection system for use in collection
efforts. The collection system provides relevant obligor information (for
example, current addresses, phone numbers and loan information) and records of
all contact of the Bank with obligors. The system also records an obligor's
promise to pay, affords supervisors the ability to review collection personnel
activity and modify priorities with respect to obligor contacts and provides
reports concerning Motor Vehicle Loan delinquencies. Under the Bank's current
practices, contact by mail is initiated with an obligor whose Motor Vehicle
Loan has become ten days delinquent. An additional mail contact is initiated
with an obligor when his or her Motor Vehicle Loan has become 20 days
delinquent. In the event that such contacts fail to result in a payment
sufficient to bring scheduled payments current under the Motor Vehicle Loan,
telephone contact with the obligor is attempted on or about the 22nd day of
delinquency. Generally, after a Motor Vehicle Loan continues to be delinquent
for 35 days, the Bank sends a demand letter. After 50 days of delinquency, the
Bank accelerates the Motor Vehicle Loan. Repossession procedures generally
will be initiated after a Motor Vehicle Loan continues to be delinquent for 60
to 90 days, depending on factors such as payments made and credit score.
However, if a Motor Vehicle Loan is deemed uncollectible, if the financed
vehicle is deemed by collection personnel to be in danger of being damaged,
destroyed or made unavailable for repossession, or if the obligor voluntarily
surrenders the financed vehicle, a repossession may occur without regard to
the length or existence of payment delinquency. Repossessions are conducted by
third parties engaged in the business of repossessing vehicles for secured
parties. After repossession, the obligor generally has an additional 15 days
to redeem the financed vehicle before the financed vehicle is resold.
Losses may occur in connection with delinquent Motor Vehicle Loans
and can arise in several ways, including inability to locate the financed
vehicle or the obligor, or because of a discharge of the obligor in a
bankruptcy proceeding. The current policy of the Bank is to recognize losses
when it determines that the Motor Vehicle Loan is uncollectible, or during the
month the Motor Vehicle Loan becomes 120 days delinquent, whichever occurs
first.
Upon repossession and sale of the financed vehicle, the Bank pursues
any deficiency remaining to the extent deemed practical by the Bank and to the
extent permitted by law. The loss recognition and collection policies and
practices of the Bank may change over time in accordance with the Bank's
business judgment.
The Bank offers certain obligors credit-related extensions.
Generally, these extensions are offered only when:
o the Bank believes that the obligor's financial difficulty has
been resolved or will no longer impair the obligor's ability to
make future payments;
o the extension will result in the obligor's payments being
brought current;
o the total number of credit-related extensions granted on the
Motor Vehicle Loan will not exceed two and the total
credit-related extensions granted on the Motor Vehicle Loan
will not exceed four months in the aggregate; and
o there have been no credit-related extensions granted on the
Motor Vehicle loan in the immediately preceding twelve months.
Any deviation from this policy requires the concurrence of the Bank's
collection manager and a representative of the Bank's senior officers credit
committee. See "Description of the Receivables Transfer and Servicing
Agreements--Servicing Procedures" for certain additional conditions on
credit-related extensions which must be satisfied with respect to receivables
owned by a trust.
THE RECEIVABLES POOLS
Criteria for Selecting the Receivables. The receivables to be held by
each trust will be selected from the Bank's portfolio of Motor Vehicle Loans
on the basis of several criteria, including that each receivable:
o is secured by a new or used automobile or light-duty truck;
o was originated in the U.S.;
o has a fixed or variable interest rate;
o provides for level monthly payments that fully amortize the amount
financed over its original term to maturity or provides for a
different type of amortization described in the prospectus
supplement; and
o satisfies the other criteria, if any, set forth in the prospectus
supplement.
The Bank will select the receivables from the Motor Vehicle Loans in
its portfolio that satisfy the above criteria. No selection procedures which
the Bank believes to be adverse to the securityholders of the trust will be
used in selecting the receivable for the trust.
Simple Interest Receivables. The receivables may provide for the
application of payments on the simple interest method. If an obligor on a
simple interest receivable pays a fixed monthly installment before its
scheduled due date--
o the portion of the payment allocable to interest for the period
since the preceding payment was made will be less than it would have
been had the payment been made as scheduled; and
o the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater.
Conversely, if an obligor pays a fixed monthly installment after its
scheduled due date--
o the portion of the payment allocable to interest for the period
since the preceding payment was made will be greater than it would
have been had the payment been made as scheduled; and
o the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly less.
In either case, the obligor pays a fixed monthly installment until
the final scheduled payment date, at which time the amount of the final
installment is increased or decreased as necessary to repay the then
outstanding principal balance. If a simple interest receivable is prepaid, the
obligor is required to pay interest only to the date of prepayment.
Receivables Other Than Simple Interest Receivables. If the
receivables are not simple interest receivables, the prospectus supplement
will describe the method of applying payments on the receivables.
We Will Provide More Specific Information About the Receivables
in the Prospectus Supplement
We will provide information about the receivables to be held by each
trust in the related prospectus supplement, including, to the extent
appropriate:
o the portion of the receivables secured by new vehicles and by used
vehicles;
o the aggregate principal balance of all of the receivables;
o the average principal balance of the receivables and the range of
principal balances;
o the number of receivables;
o the average original amount financed and the range of original
amounts financed;
o the weighted average contract rate of interest and the range of
such rates;
o the weighted average original term and the range of original
terms;
o the weighted average remaining term and the range of remaining
terms;
o the scheduled weighted average life; and
o the distribution by contract rate of interest and by the states of
origination.
MATURITY AND PREPAYMENT CONSIDERATIONS
The weighted average life of the securities of any trust will
generally be influenced by the rate at which the principal balances of its
receivables are paid, which payment may be in the form of scheduled
amortization or prepayments. "Prepayments" for these purposes includes the
following circumstances:
o Prepayments by obligors, who may repay at any time without
penalty.
o The seller may be required to repurchase a receivable from the
trust if certain breaches of representations and warranties occur
and the receivable is materially and adversely affected by the
breach.
o The servicer may be obligated to purchase a receivable from the
trust if certain breaches of covenants occur or if the servicer
extends or modifies the terms of a receivable beyond the Collection
Period preceding the final payment date for the securities specified
in the prospectus supplement.
o Partial prepayments, including those related to rebates of
extended warranty contract costs and insurance premiums.
o Liquidations of the receivables due to default.
o Partial prepayments from proceeds from physical damage, credit
life and disability insurance policies.
In light of the above considerations, we cannot assure you as to the
amount of principal payments to be made on the securities of a trust on each
payment date since that amount will depend, in part, on the amount of
principal collected on the trust's receivables during the applicable
Collection Period. Any reinvestment risks resulting from a faster or slower
incidence of prepayment of receivables will be borne entirely by the
securityholders. The related prospectus supplement may set forth certain
additional information with respect to the maturity and prepayment
considerations applicable to the receivables and the securities of the trust.
The rate of prepayments on the receivables may be influenced by a
variety of economic, social and other factors, including the fact that an
obligor may not sell or transfer the financed vehicle without the seller's
consent. These factors may also include unemployment, servicing decisions,
seasoning of loans, destruction of vehicles by accident, sales of vehicles and
market interest rates. A predominant factor affecting the prepayment of a
large group of loans is the difference between the interest rates on the loans
and prevailing market interest rates. If the prevailing market interest rates
were to fall significantly below the interest rates borne by the loans, the
rate of prepayment and refinancings would be expected to increase. Conversely,
if prevailing market interest rates were to increase significantly above those
interest rates, the rate of prepayments and refinancings would be expected to
decrease.
USE OF PROCEEDS
The net proceeds from the sale of the securities of a trust will be
applied by the trust or the seller, as indicated in the prospectus supplement
- --
o if by the trust, to the purchase of the receivables from the
seller;
o if the trust has a pre-funding account, to make the deposit into
that account;
o if the trust has a yield supplement account, to make the deposit
into that account;
o if the trust has a reserve account, to make the initial deposit
into that account; and
o for any other purposes specified in the prospectus supplement.
The seller will add the funds received by it to its general funds.
The trust may also issue certain classes of securities to the seller in
partial payment for the receivables.
PRINCIPAL DOCUMENTS
In general, the operations of a trust will be governed by the
following documents:
If the trust issues notes:
Document Parties Primary Purposes
Trust Agreement Trustee and Bank, as depositor o Creates the trust
o Provides for issuance
of certificates and
payments to certificate-
holders
o Establishes rights and
duties of trustee
o Establishes rights of
certificateholders
Indenture Trust, as issuer of the notes, o Provides for issuance
and indenture trustee of the notes, the terms of
the notes and payments to
noteholders
o Establishes rights and
duties of indenture
trustee
o Establishes rights of
noteholders
Sale and
Servicing
Agreement Bank, as seller and servicer, o Effects sale of
and a trust as purchaser receivables to the trust
o Contains representations
and warranties of seller
concerning the receivables
o Contains servicing
obligations of servicer
o Provides for
compensation to servicer
o Directs how cash flow
will be applied to
expenses of the
trust and payments on
its securities
If the trust is a grantor trust (as specified in the prospectus supplement):
Document Parties Primary Purposes
Pooling and
Servicing Agreement Trustee and Bank, as o Creates the trust
seller and servicer
o Effects sale of
receivables to the trust
o Contains representations
and warranties of seller
concerning the receivables
o Contains servicing
obligations of servicer
o Provides for compensation
to servicer
o Provides for issuance
of certificates and
payments to certificate-
holders
o Directs how cash flow
will be applied to
expenses of the trust
and payments to certifi-
cateholders
o Establishes rights and
duties of trustee
o Establishes rights of
certificateholders
Various provisions of these documents are described throughout this
prospectus and in the related prospectus supplement. The prospectus supplement
for a series will describe any material provisions of these documents as used
in that series that differ in a material way from the provisions described in
this prospectus.
A form of each of these principal documents has been filed as an
exhibit to the registration statement of which this prospectus forms a part.
The summaries of the principal documents in this prospectus do not purport to
be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of those principal documents.
PAYMENTS ON THE SECURITIES
The prospectus supplement will describe
o the timing, amount and priority of payments of principal
and interest on each class of the securities,
o their interest rates or the formula for determining their
interest rates,
o the method of determining the amount of their principal
payments,
o the priority of the application of the trust's available
funds to its expenses and payments on its securities, and
o the allocation of losses on the receivables among the
classes of securities.
The rights of any class of securities to receive payments may be
senior or subordinate to other classes of securities. A security may be
entitled to
o principal payments with disproportionate, nominal or no
interest payments or
o interest payments with disproportionate, nominal or no
principal payments or
o residual cash flow remaining after all other classes have
been paid.
Interest rates may be fixed or floating. If a class of securities is
redeemable, the prospectus supplement will describe when they may be redeemed
and at what price. The aggregate initial principal amount of the securities
issued by a trust may be greater than, equal to or less than the aggregate
initial principal amount of the receivables held by that trust.
Payments of principal and interest on any class of securities will be
made on a pro rata basis among all the security holders of such class. If the
amount of funds available to make a payment on a class is less than the
required payment, the holders of the securities of that class will receive
their pro rata share of the amount available for the class. A series may
provide for a liquidity facility or similar arrangement that permits one or
more classes of securities to be paid in planned amounts on scheduled payment
dates.
CERTAIN INFORMATION REGARDING THE SECURITIES
Each class of securities entitled to receive interest payments may
bear interest at a fixed rate of interest or a floating rate of interest as
more fully described below and in the related prospectus supplement.
Fixed Rate Securities
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 related prospectus supplement. Interest on each class of
fixed rate securities may be computed on the basis of a 360-day year of twelve
30-day months or on such other day count basis as is specified in the related
prospectus supplement.
Floating Rate Securities
Each class of floating rate securities will bear interest for each
applicable interest accrual period described in the prospectus supplement at a
rate determined (i) by reference to a base rate of interest, plus or minus the
number of basis points specified in the prospectus supplement, if any, or
multiplied by the percentage specified in the prospectus supplement, if any or
(ii) as otherwise specified in the related prospectus supplement. Interest on
each class of floating rate securities will be computed on the day count basis
specified in the prospectus supplement.
The base rate of interest for any floating rate securities will be
based on a London interbank offered rate, commercial paper rates, Federal
funds rates, U.S. government treasury securities rates, negotiable
certificates of deposit rates or another rate set forth in the related
prospectus supplement.
A class of floating rate securities may also have either or both of
the following (in each case expressed as a rate per annum):
o a maximum limitation, or ceiling, on the rate at which
interest may accrue during any interest accrual 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; and
o a minimum limitation, or floor, on the rate at which interest
may accrue during any interest accrual period.
Each trust issuing floating rate securities may appoint a calculation
agent to calculate interest rates on each class of its floating rate
securities. The prospectus supplement will identify the calculation agent, if
any, for each such class of floating rate securities, which may be either the
trustee or indenture trustee with respect to such trust. All determinations of
interest by a calculation agent shall, in the absence of manifest error, be
conclusive for all purposes and binding on the holders of the floating rate
securities. All percentages resulting from any calculation of the rate of
interest on a floating rate security will be rounded, if necessary, to the
nearest 1/100,000 of 1% (.0000001), with five one-millionths of a percentage
point rounded upward.
Book-Entry Registration
The Trusts May Use Book-Entry Registration Instead of Issuing
Definitive Securities. Except for the securities, if any, of a trust retained
by the seller or its affiliates, each class of securities offered through this
prospectus and the related prospectus supplement may initially be represented
by one or more certificates registered in the name of DTC's nominee, except as
set forth below. The securities will be available for purchase in the
denominations specified in the related prospectus supplement and may be
available for purchase in book-entry form only. Accordingly, such nominee is
expected to be the holder of record of any class of securities issued in
book-entry form. If a class of securities is issued in book-entry form, unless
and until Definitive Securities are issued under the limited circumstances
described in this prospectus or in the related prospectus supplement, you, as
an owner of securities will not be entitled to receive a physical certificate
representing your interest in the securities of such class.
If a class of securities is issued in book-entry form, all references
in this prospectus and in the related prospectus supplement to actions by
holders of such class of securities refer to actions taken by DTC upon
instructions from its participating organizations and all references in this
prospectus and in the related prospectus supplement to distributions, notices,
reports and statements to certificateholders of such class of certificates
refer to distributions, notices, reports and statements to DTC or its nominee,
as the case may be, as the registered holder of such class of certificates,
for distribution to certificateholders of such class of certificates in
accordance with DTC's procedures with respect thereto.
Any securities of a given trust owned by the seller or its affiliates
will be entitled to equal and proportionate benefits under the applicable
indenture, trust agreement or pooling and servicing agreement, except that,
unless the seller and its affiliates own the entire class, such securities
will be deemed not to be outstanding for the purpose of determining whether
the requisite percentage of securityholders have given any request, demand,
authorization, direction, notice, consent or other action under those
documents.
The prospectus supplement will specify whether the holders of the
notes or certificates of the trust may hold their respective securities as
Book-Entry Securities.
You may hold your securities through DTC in the U.S., Clearstream or
the Euroclear System in Europe or in any manner described in the related
prospectus supplement. The global securities will be tradeable 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.
Initial Settlement of the Global Securities. 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 and Euroclear will hold
positions on behalf of their customers or participants through their
respective depositaries, which in turn will hold such positions in accounts as
DTC participants.
Investors electing to hold their global securities through DTC will
follow the settlement practices that apply to U.S. corporate debt obligations.
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 or Euroclear accounts will follow the settlement procedures that
apply to conventional eurobonds, except that there will be no temporary global
security and no "lock-up" or restricted period. Global securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
Except as required by law, none of the administrator, if any, the
applicable trustee or the applicable indenture trustee, if any, will have any
liability for any aspect of the records relating to payments made on account
of beneficial ownership interests of the securities of any trust held by DTC's
nominee, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Secondary Market Trading of the Global Securities. 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 U.S.
corporate debt obligations in same-day funds.
Trading between Clearstream customers and/or Euroclear participants.
Secondary market trading between Clearstream customers or Euroclear
participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser.
When global securities are to be transferred from the account of a DTC
participant to the account of a Clearstream customer or a Euroclear
participant, the purchaser will send instructions to Clearstream or Euroclear
through a Clearstream customer or Euroclear participant at least one business
day prior to settlement. Clearstream 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. 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 customer'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 (that is, the trade fails), the Clearstream or Euroclear
cash debit will be valued instead as of the actual settlement date.
Clearstream customers 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 this 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 or
Euroclear. Under this approach, they may take on credit exposure to
Clearstream or Euroclear until the global securities are credited to their
accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream customers 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 customers or Euroclear
participants purchasing global securities would incur overdraft charges for
one day, assuming they cleared the overdraft when the global securities were
credited to their accounts. However, interest on the global securities would
accrue from the value date. Therefore, in many cases the investment income on
the global securities earned during that one-day period may substantially
reduce or offset the amount of such overdraft charges, although this result
will depend on each Clearstream customer's or Euroclear participant's
particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending global
securities to the respective depositary for the benefit of Clearstream
customers or Euroclear participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC participant a
cross-market transaction will settle no differently than a trade between two
DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser.
Due to time zone differences in their favor, Clearstream customers 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 or Euroclear through a Clearstream
customer or Euroclear participant at least one business day prior to
settlement. In these cases, Clearstream or Euroclear will instruct the
respective depositary, as appropriate, to deliver the 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 date to
and excluding the settlement date. The payment will then be reflected in the
account of the Clearstream customer or Euroclear participant the following
day, and receipt of the cash proceeds in the Clearstream customer'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 customer or Euroclear participant have a line of credit with its
respective clearing system and elect to be in debit in anticipation of receipt
of the sale proceeds in its account, the back-valuation will extinguish any
overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (that is, the trade fails), receipt of
the cash proceeds in the Clearstream customer's or Euroclear participant's
account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that
purchase global securities from DTC participants for delivery to Clearstream
customers 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:
o borrowing through Clearstream or Euroclear for one day
(until the purchase side of the day trade is reflected in
their Clearstream or Euroclear accounts) in accordance
with the clearing system's customary procedures;
o 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 or Euroclear account in
order to settle the sale side of the trade; or
o 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 customer or Euroclear
participant.
The securityholders who are not participants, either directly or
indirectly, but who desire to purchase, sell or otherwise transfer ownership
of, or other interest in, securities may do so only through direct and
indirect participants. In addition, securityholders will receive all
distributions of principal and interest from the indenture trustee or the
applicable trustee through the participants who in turn will receive them from
DTC. Under a book-entry format, securityholders may experience some delay in
their receipt of payments, since such payments will be forwarded by the
applicable trustee to DTC's nominee. DTC will forward such payments to its
participants which thereafter will forward them to indirect participants or
securityholders. To the extent the related prospectus supplement provides that
Book-Entry Securities will be issued, the only "noteholder" or
"certificateholder," as applicable, will be DTC's nominee. Securityholders
will not be recognized by the indenture trustee or the trustee as
"noteholders" or "certificateholders" and securityholders will be permitted to
exercise the rights of securityholders only indirectly through DTC and its
participants.
Under the rules, regulations and procedures creating and affecting
DTC and its operations, DTC is required to make book-entry transfers of
securities among participants on whose behalf it acts with respect to the
securities and is required to receive and transmit distributions of principal
and interest on the securities. Participants and indirect participants with
which securityholders have accounts with respect to their respective
securities similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective securityholders.
Accordingly, although securityholders will not possess their respective
securities, the rules provide a mechanism by which participants will receive
payments and will be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act
on behalf of indirect participants and certain banks, the ability of a
securityholder to pledge securities to persons or entities that do not
participate in the DTC system, or otherwise take actions with respect to such
securities, may be limited due to the lack of a physical certificate for such
securities.
DTC will advise the related administrator or servicer of each trust
that it will take any action permitted to be taken by a securityholder under
the related indenture, trust agreement or pooling and servicing agreement only
at the direction of one or more participants to whose accounts with DTC such
securities are credited. DTC may take conflicting actions with respect to
other undivided interests to the extent that such actions are taken on behalf
of participants whose holdings include such undivided interests.
Non-U.S. holders of global securities will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or
their participants.
The Depositories. DTC is a limited-purpose trust company organized
under the laws of the State of New York, 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 under the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers (who may
include any of the underwriters of securities of the trust), banks, trust
companies and clearing corporations and may include certain other
organizations. 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 participant, either directly or
indirectly.
Clearstream Banking, societe anonyme ("Clearstream"), 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 January 10, 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 Clearstream) 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.
Following the merger, the Board of Directors of CI renamed the
companies in the group "Clearstream". With effect from January 14, 2000, New
CI has been renamed "Clearstream International, societe anonyme". On January
18, 2000, Cedelbank was renamed "Clearstream Banking, societe anonyme".
On January 17, 2000 DBC was renamed "Clearstream Banking AG".
Consequently, 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 holds securities for its customers and facilitates the
clearance and settlement of securities transactions between Clearstream
customers through electronic book-entry changes in accounts of Clearstream
customers, thereby eliminating the need for physical movement of certificates.
Transactions may be settled by Clearstream in any of 36 currencies, including
United States dollars. Clearstream provides to its Clearstream customers,
among other things, services for safekeeping, administration, clearance and
settlement of internationally traded securities and securities lending and
borrowing. Clearstream interfaces with domestic markets in several countries.
As a professional depository, Clearstream is subject in Luxembourg to
regulation by and supervision by the Commission for the Supervision of the
Financial Sector. Clearstream customers are recognized financial institutions
around the world, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations
and may include any of the underwriters of any trust securities. Indirect
access to Clearstream is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream customer, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
and to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby
eliminating the need for physical movement of certificates and the risk from
transfers of securities and cash that are not simultaneous.
The Euroclear system has subsequently been extended to clear and
settle transactions between Euroclear participants and counterparties both in
Clearstream and in many domestic securities markets. Transactions may be
settled in any of 34 currencies. In addition to safekeeping (custody) and
securities clearance and settlement, the Euroclear system includes securities
lending and borrowing and money transfer services. The Euroclear system is
operated by the Brussels, Belgium office of Morgan Guaranty Trust Company of
New York under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation that establishes policy on behalf of Euroclear
participants. The Euroclear operator is the Belgian branch of a New York
banking corporation which is a member bank of the Federal Reserve System. As
such, it is regulated and examined by the Board of Governors of the Federal
Reserve System and the New York State Banking Department, as well as the
Belgian Banking Commission.
All operations are conducted by the Euroclear operator and all
Euroclear securities clearance accounts and cash accounts are accounts with
the Euroclear operator. They are governed by the Terms and Conditions
Governing Use of Euroclear and the related Operating Procedures of the
Euroclear system and applicable Belgian law. These govern all transfers of
securities and cash, both within the Euroclear system, and receipts and
withdrawals of securities and cash. All securities in the Euroclear system are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts.
Euroclear participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include any of the underwriters of any trust securities. 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 acts under the Terms and
Conditions, the Operating Procedures of the Euroclear system and Belgian law
only on behalf of Euroclear participants and has no record of or relationship
with persons holding through Euroclear participants.
Definitive Securities
With respect to any class of notes and any class of certificates
issued in book-entry form, such notes or certificates will be issued as
Definitive Notes and Definitive Certificates, respectively, to noteholders or
certificateholders or their respective nominees, rather than to DTC or its
nominee, only if (1) the administrator of the trust or trustee of the trust
determines that DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to such securities and the
administrator or the seller, as the case may be, is unable to locate a
qualified successor and so notifies the indenture trustee or the trustee in
writing, (2) the administrator or the seller, as the case may be, at its
option, elects to terminate the book-entry system through DTC or (3) after the
occurrence of an Event of Default under the indenture or an Event of Servicing
Termination with respect to such securities, holders representing at least a
majority of the outstanding principal amount of the notes or the certificates,
as the case may be, of such class advise the indenture trustee or the trustee
through DTC in writing that the continuation of a book-entry system through
DTC (or a successor thereto) with respect to such notes or certificates is no
longer in the best interest of the holders of such securities.
Upon the occurrence of any event described in the immediately
preceding paragraph, the indenture trustee or the trustee will be required to
notify all applicable securityholders of a given class through 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 indenture trustee or the trustee will
reissue such securities as Definitive Securities to such securityholders.
Distributions of principal of, and interest on, such Definitive
Securities will thereafter be made by the indenture trustee or the trustee in
accordance with the procedures set forth in the related indenture or the
related trust agreement directly to holders of Definitive Securities in whose
names the Definitive Securities were registered at the close of business on
the record date specified for such securities in the related prospectus
supplement. Such distributions will be made by check mailed to the address of
such holder as it appears on the register maintained by the indenture trustee
or trustee. The final payment on any such Definitive Security, however, will
be made only upon presentation and surrender of such Definitive Security at
the office or agency specified in the notice of final distribution to the
applicable securityholders.
Definitive Securities will be transferable and exchangeable at the
offices of the indenture trustee or the 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 indenture
trustee or the trustee may require payment of a sum sufficient to cover any
tax or other governmental charge imposed in connection therewith.
Reports to Securityholders
On or prior to each payment date, the administrator or the servicer
will prepare and provide to the related indenture trustee and/or trustee a
statement to be delivered to the securityholders on such payment date. With
respect to securities of each trust, each such statement to be delivered to
securityholders will include (to the extent applicable to those
securityholders) the following information (and any other information so
specified in the prospectus supplement) with respect to such payment date or
the period since the previous payment date, as applicable:
(1) the amount of the distribution allocable to principal of each
class of such securities;
(2) the amount of the distribution allocable to interest on or with
respect to each class of securities;
(3) the amount of the distribution allocable to draws from any
reserve account or payments in respect of any other credit or
payment enhancement arrangement;
(4) the aggregate principal balance of the receivables as of the
close of business on the last day of the preceding Collection
Period;
(5) any overcollateralization amount or credit enhancement amount;
(6) the aggregate outstanding principal amount for each class of
such securities, each after giving effect to all payments
reported under clause (1) above on such date;
(7) the amount of the servicing fee paid to the servicer and the
amount of any unpaid servicing fee with respect to the related
Collection Period or Collection Periods, as the case may be;
(8) the amount of the aggregate amount of losses realized on the
receivables during that Collection Period calculated as
described in the related prospectus supplement;
(9) previously due and unpaid interest payments (plus interest
accrued on such unpaid interest), if any, on each class of
securities, and the change in such amounts from the preceding
statement;
(10) previously due and unpaid principal payments (plus interest
accrued on such unpaid principal), if any, on each class of
securities, and the change in such amounts from the preceding
statement;
(11) the aggregate amount to be paid in respect of receivables, if
any, repurchased in such Collection Period;
(12) the balance of any reserve account, if any, on such date, after
giving effect to changes therein on such date;
(13) the amount of Advances to be remitted by the servicer on such
date;
(14) for each such date during any Funding Period, the amount
remaining in the pre-funding account;
(15) for the first such date that is on or immediately following the
end of any Funding Period, the amount remaining in the
pre-funding account that has not been used to fund the purchase
of Subsequent Receivables and is being passed through as
payments of principal on the securities of such trust; and
(16) the amount of any cumulative shortfall between payments due in
respect of any credit or payment enhancement arrangement and
payments received in respect of such credit or payment
enhancement arrangement, and the change in any such shortfall
from the preceding statement.
Each amount set forth under clauses (1), (2), (7), (9) and (10) with
respect to the notes or the certificates of any trust will be expressed as a
dollar amount per $1,000 of the initial principal amount of such securities.
Within the prescribed period of time for federal income tax reporting
purposes after the end of each calendar year during the term of each trust,
the indenture trustee or the trustee will mail to each person who at any time
during such calendar year has been a securityholder with respect to the trust
and received any payment thereon a statement containing certain information
for the purposes of such securityholder's preparation of federal income tax
returns. See "Certain Federal Income Tax Consequences."
THE INDENTURE
One or more classes of notes of a trust will be issued under the
terms of an indenture between the trust and the indenture trustee specified in
the prospectus supplement, a form of which has been filed as an exhibit to the
registration statement of which this prospectus forms a part. This summary
describes the material provisions common to the notes of each trust that
issues notes; the attached prospectus supplement will give you additional
information specific to the notes which you are purchasing This 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.
Events of Default. With respect to the notes issued by a trust,
"Events of Default" under the related indenture will consist of:
o a default for five days (or such longer period specified in
the prospectus supplement) or more in the payment of any
interest on any notes;
o a default in the payment of the principal of or any
installment of the principal of any note when the same becomes
due and payable;
o a default in the observance or performance of any covenant or
agreement of the trust made in the related indenture other than
those dealt with specifically elsewhere as an Event of Default
which default materially and adversely affects the noteholders
and which default continues for a period of 60 days after
notice thereof is given to the trust by the applicable
indenture trustee or to the trust and such indenture trustee by
the holders of at least 25% in principal amount of the
Controlling Class of notes;
o certain events of bankruptcy, insolvency, receivership or
liquidation of the applicable trust or its property as
specified in the indenture; or
o such other events, if any, set forth in the related
prospectus supplement.
The "Controlling Class" of notes of a trust will be its Class A Notes
as long as they are outstanding. When they have been paid in full, the next
most senior class of the trust's notes, if any, will become the Controlling
Class so long as they are outstanding, and so on.
The amount of principal due and payable to holders of a class of
notes under the related indenture until its final scheduled payment date
generally will be limited to amounts available to pay principal thereon.
Therefore, the failure to pay principal on a class of notes generally will not
result in the occurrence of an Event of Default under the indenture until the
final scheduled payment date for such class of notes.
Rights upon Event of Default. If an Event of Default should occur and
be continuing with respect to the notes of any trust, the related indenture
trustee or holders of a majority in principal amount of the Controlling Class
may declare the principal of such notes to be immediately due and payable.
Such declaration may be rescinded by the holders of a majority in principal
amount of the Controlling Class then outstanding if both of the following
occur:
o the issuer has paid or deposited with the indenture trustee enough
money to pay:
-- all payments of principal of and interest on all notes and all
other amounts that would then be due if the Event of Default causing
the acceleration of maturity had not occurred; and
-- all sums paid or advanced by the indenture trustee and the
reasonable compensation, expenses, disbursements and advances of the
indenture trustee and its agents and counsel; and
o all Events of Default, other than the nonpayment of the principal
of the notes that has become due solely by the acceleration, have
been cured or waived.
If an Event of Default has occurred with respect to the notes issued
by any trust, the related indenture trustee may institute proceedings to
collect amounts due or foreclose on trust property, exercise remedies as a
secured party or sell the related receivables. Upon the occurrence of an Event
of Default resulting in acceleration of the notes, the indenture trustee may
sell the related receivables if:
o the holders of 100% of the notes issued by such trust consent
to such sale (excluding notes held by the seller, the servicer
or their affiliates),
o the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the notes of such
trust at the date of such sale, or
o there has been an Event of Default arising from the failure
to pay principal or interest and the indenture trustee
determines that the proceeds of the receivables would not be
sufficient on an ongoing basis to make all payments on the
notes of such trust as such payments would have become due if
such obligations had not been declared due and payable, and
such indenture trustee obtains the consent of the holders of 66
2/3% of the aggregate outstanding amount of the Controlling
Class of such trust.
In addition, if the Event of Default relates to a default by a trust
in observing or performing any covenant or agreement (other than an Event of
Default relating to non-payment of interest or principal, insolvency or any
other event which is otherwise specifically dealt with by the indenture), the
indenture trustee is prohibited from selling the receivables unless the
holders of all outstanding notes and certificates issued by that trust consent
to such sale or the proceeds of such sale are sufficient to pay in full the
principal of and the accrued interest on the outstanding notes and
certificates of that trust. The indenture trustee may also elect to have the
trust maintain possession of the receivables and apply collections as received
without obtaining the consent of securityholders.
Subject to the provisions of the applicable indenture relating to the
duties of the related indenture trustee, if an Event of Default under the
indenture occurs and is continuing with respect to notes of the trust, such
indenture trustee will be under no obligation to exercise any of the rights or
powers under such indenture at the request or direction of any of the holders
of such notes, if such indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with such request. Subject to the provisions
for indemnification and certain limitations contained in the related
indenture, the holders of a majority in principal amount of the Controlling
Class of a given trust 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 a majority in principal amount of the
Controlling Class may, in certain cases, waive any default with respect
thereto, except a default in the payment of principal or interest or a default
in respect of a covenant or provision of such indenture that cannot be
modified without the waiver or consent of the holders of all of the
outstanding notes of the related trust.
No holder of a note of any trust will have the right to institute any
proceeding with respect to the related indenture, unless --
o such holder previously has given to the applicable indenture
trustee written notice of a continuing Event of Default;
o the holders of not less than 25% in principal amount of the
Controlling Class of such trust have made written request to
such indenture trustee to institute such proceeding in its own
name as indenture trustee;
o such holder or holders have offered such indenture trustee
reasonable indemnity;
o such indenture trustee has for 60 days after such notice,
request and offer of indemnity failed to institute such
proceeding; and
o no direction inconsistent with such written request has been
given to such indenture trustee during such 60-day period by
the holders of a majority in principal amount of the
Controlling Class.
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 the trust nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will be personally liable for the payment of
the principal of or interest on the related notes or for the agreements of the
trust contained in the applicable indenture.
Each trust will be subject to covenants under the indenture. Each
trust will be subject to the covenants discussed below, as provided in the
related indenture.
o Restrictions on merger and consolidation. The related trust
may not consolidate with or merge into any other entity,
unless:
-- the entity formed by or surviving such consolidation or
merger is organized under the laws of the United States,
any state or the District of Columbia,
-- such entity expressly assumes the trust's obligation to
make due and punctual payments upon the notes of the
related trust and the performance or observance of every
agreement and covenant of the trust under the indenture,
-- no event that is (or with notice or lapse of time or both
would become) an Event of Default under the indenture
shall have occurred and be continuing immediately after
such merger or consolidation,
-- the trust has been advised that the rating of the notes
and the certificates of such trust then in effect would
not be reduced or withdrawn by the Rating Agencies as a
result of such merger or consolidation,
-- the trust has received an opinion of counsel to the effect
that such consolidation or merger would have no material
adverse tax consequence to the trust or to any related
noteholder or certificateholder,
-- any action as is necessary to maintain the lien and
security interest created by the related indenture shall
have been taken, and
-- the trust has received an opinion of counsel and officer's
certificate each stating that such consolidation or merger
satisfies all requirements under the related indenture.
o Other negative covenants. Each trust will not, among other
things--
-- except as expressly permitted by the applicable Basic
Documents, sell, transfer, exchange or otherwise dispose
of any of the assets of the trust,
-- claim any credit on or make any deduction from the
principal and interest payable in respect of the notes of
the related trust (other than amounts withheld under the
tax code or applicable state law) or assert any claim
against any present or former holder of such notes because
of the payment of taxes levied or assessed upon the trust
or its property,
-- dissolve or liquidate in whole or in part,
-- permit the lien of the related indenture to be
subordinated or otherwise impaired,
-- 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
such notes under such indenture except as may be expressly
permitted thereby, or
-- permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance to be created on or extend
to or otherwise arise upon or burden the assets of the
trust or any part thereof, or any interest therein or the
proceeds thereof, except for tax, mechanics' or certain
other liens and except as may be created by the terms of
the related indenture.
No trust may engage in any activity other than as specified under the
section of the related prospectus supplement titled "The Trust." No trust will
incur, assume or guarantee any indebtedness other than indebtedness incurred
under the related notes and indenture, the related certificates and as a
result of any Advances made to it by the servicer or otherwise in accordance
with the related sale and servicing agreement or other documents relating to
the trust.
List of Noteholders. With respect to the notes of any trust, three or
more holders of the notes of any trust or one or more holders of such notes
evidencing not less than 25% of the aggregate outstanding principal amount of
the Controlling Class may, by written request to the related indenture trustee
accompanied by a copy of the communication that the applicant proposes to
send, obtain access to the list of all noteholders maintained by such
indenture trustee for the purpose of communicating with other noteholders with
respect to their rights under the related indenture or under such notes. Such
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 the trust.
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 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 certain indebtedness
owing by the trust to the applicable indenture trustee in its individual
capacity, the property and funds physically held by such indenture trustee as
such and any action taken by it that materially affects the 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 such notes
or, with certain limitations, upon deposit with such indenture trustee of
funds sufficient for the payment in full of all such notes.
Modification of Indenture. Any trust, together with the related
indenture trustee, may, without the consent of the noteholders of the trust,
execute a supplemental indenture for the purpose of adding to the covenants of
the trust, curing any ambiguity, correcting or supplementing any provision
which may be inconsistent with any other provision or making any other
provision with respect to matters arising under the related indenture which
will not be inconsistent with other provisions of the indenture provided that
such action will not materially adversely affect the interests of the
noteholders.
The trust and the applicable indenture trustee may also enter into
supplemental indentures, without obtaining the consent of the noteholders of
the related trust, 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 modifying in any manner the rights of such
noteholders (except with respect to the matters listed in the next paragraph
which require the approval of the noteholders) provided that:
o such action will not, as evidenced by an opinion of counsel,
materially adversely affect the interest of any noteholder;
o such action will not, as confirmed by the Rating Agencies
rating the notes of the related trust, cause the then current
rating assigned to any class of such notes to be withdrawn or
reduced; and
o an opinion of counsel as to certain tax matters is delivered.
Without the consent of the holder of each such outstanding note
affected thereby (in addition to the satisfaction of each of the conditions
set forth in the preceding paragraph), however, no supplemental indenture
will:
o change the due date of any installment of principal of or
interest on any such note or reduce the principal amount
thereof, the interest rate thereon or the redemption price with
respect thereto, change the application of the proceeds of a
sale of the trust property to payment of principal and interest
on the notes or change any place of payment where, or the coin
or currency in which, any such note or any interest thereon is
payable;
o impair the right to institute suit for the enforcement of
certain provisions of the related indenture regarding payment;
o reduce the percentage of the aggregate amount of the
Controlling Class or of the notes, the consent of the holders
of which is required for any such supplemental indenture or the
consent of the holders of which is required for any waiver of
compliance with certain provisions of the related indenture or
of certain defaults or events of default thereunder and their
consequences as provided for in such indenture;
o modify or alter the provisions of the related indenture
regarding the voting of notes held by the applicable trust, any
other obligor on such notes, the seller or an affiliate of any
of them;
o reduce the percentage of the aggregate outstanding amount of
the Controlling Class, the consent of the holders of which is
required to direct the related indenture trustee to sell or
liquidate the receivables after an Event of Default if the
proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the
outstanding notes and certificates of such trust;
o decrease the percentage of the aggregate principal amount of
the Controlling Class or of the notes required to amend the
sections of the related indenture which specify the applicable
percentage of aggregate principal amount of the notes of such
trust necessary to amend such indenture or any of the other
Basic Documents;
o affect the calculation of the amount of interest or principal
payable on any note on any payment date (including the
calculation of any of the individual components of such
calculation);
o affect the rights of the noteholders to the benefit of any
provisions for the mandatory redemption of the notes provided
in the related indenture, or
o 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 such notes or, except as otherwise
permitted or contemplated in such indenture, terminate the lien
of such indenture on any such collateral or deprive the holder
of any such note of the security afforded by the lien of such
indenture.
The Indenture Trustee
The indenture trustee of notes for each trust will be specified in
the related prospectus supplement. The indenture trustee for any trust may
resign at any time, in which event the administrator of the trust, on behalf
of the trust, will be obligated to appoint a successor trustee. The
administrator of a trust, on behalf of the trust, will be obligated to remove
an indenture trustee if such indenture trustee ceases to be eligible to
continue as such under the related indenture or if such indenture trustee
becomes insolvent. In such circumstances, the administrator of the trust will
be obligated to appoint a successor trustee for the notes of the applicable
trust. In addition, a majority of the Controlling Class may remove the
indenture trustee without cause and may appoint a successor indenture trustee.
If a trust issues a class of notes that is subordinated to one or more other
classes of notes and an Event of Default occurs under the related indenture,
the indenture trustee may be deemed to have a conflict of interest under the
Trust Indenture Act of 1939 and may be required to resign as trustee for one
or more of the classes of notes. In any such case, the indenture will provide
for a successor indenture trustee to be appointed for those classes of notes.
Any resignation or removal of the indenture trustee and appointment of a
successor trustee for the notes of the trust does not become effective until
acceptance of the appointment by the successor trustee for such trust.
DESCRIPTION OF THE RECEIVABLES TRANSFER
AND SERVICING AGREEMENTS
The following summary describes certain terms of the documents
pursuant to which the seller sells receivables to a trust and the servicer
services the receivables on behalf of the trust. In the case of a trust that
is not a grantor trust, that document is the sale and servicing agreement. For
a grantor trust, it is the pooling and servicing agreement. This section also
describes certain provisions of the trust agreement for a trust that is not a
grantor trust. Forms of those documents have been filed as exhibits to the
Registration Statement of which this prospectus forms a part. This summary
describes the material provisions common to the securities of each trust; the
attached prospectus supplement will give you additional information specific
to the securities which you are purchasing. This summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
all the provisions of those documents.
Sale and Assignment of Receivables
Sale and Assignment by the Seller. When the trust issues securities,
the seller will sell and assign to the trust under a sale and servicing
agreement or a pooling and servicing agreement, without recourse, the seller's
entire interest in the Receivables, including its security interests in the
related financed vehicles. Each such receivable will be identified in a
schedule to the related sale and servicing agreement or a pooling and
servicing agreement. The trustee of the trust will not independently verify
the existence and eligibility of any receivables. The trustee of the trust
will, concurrently with such sale and assignment, execute and deliver the
related notes and/or certificates.
Sale and Assignment of Subsequent Receivables. The related prospectus
supplement for the trust will specify whether, and the terms, conditions and
manner under which, Subsequent Receivables will be sold by the seller to the
applicable trust from time to time during any Funding Period on each
Subsequent Transfer Date.
Representations and Warranties. In each sale and servicing agreement
or pooling and servicing agreement, the seller will represent and warrant to
the applicable trust, among other things, that at the date of issuance of the
related notes and/or certificates or at the applicable Subsequent Transfer
Date --
o each receivable (a) has been originated for the retail
financing of a financed vehicle by an obligor located in one of
the states of the United States or the District of Columbia and
(b) contains customary and enforceable provisions such that the
rights and remedies of the holder thereof shall be adequate for
realization against the collateral of the benefits of the
security;
o each receivable and the sale of the related financed vehicle
complies in all material respects with all requirements of
applicable federal, state, and local laws, and regulations
thereunder, including usury laws, and any consumer credit,
equal opportunity and disclosure laws applicable to such
receivable and sale;
o each receivable constitutes the legal, valid, and binding
payment obligation in writing of the obligor, enforceable by
the holder thereof in all material respects in accordance with
its terms, subject, as to enforcement, to applicable bankruptcy
and other similar laws and equitable principles relating to or
affecting the enforcement of creditors' rights;
o immediately prior to the sale and assignment thereof to the
trust, each receivable was secured by a validly perfected first
priority security interest in the financed vehicle in favor of
the seller as secured party or all necessary action with
respect to such receivable has been taken to perfect a first
priority security interest in the related financed vehicle in
favor of the seller as secured party, which security interest
is assignable and has been so assigned by the seller to the
trust;
o as of the cut-off date, there are no rights of rescission,
setoff, counterclaim, or defense, and the seller has no
knowledge of the same being asserted or threatened, with
respect to any receivable;
o as of the cut-off date, the seller had no knowledge of any
liens or claims that have been filed, including liens for work,
labor, materials or unpaid taxes relating to a financed
vehicle, that would be liens prior to, or equal or coordinate
with, the lien granted by the receivable;
o except for payment defaults continuing for a period of not
more than 30 days (or such other number of days specified in
the prospectus supplement) as of the cut-off date, the seller
has no knowledge that a default, breach, violation, or event
permitting acceleration under the terms of any receivable
exists; the seller has no knowledge that a continuing condition
that with notice or lapse of time would constitute a default,
breach, violation or event permitting acceleration under the
terms of any receivable exists, and the seller has not waived
any of the foregoing;
o each receivable requires that the obligor thereunder obtain
comprehensive and collision insurance covering the financed
vehicle; and
o each receivable satisfies the criteria for the selection of
receivables for the trust described in the prospectus
supplement.
Seller must repurchase the receivables relating to a breach of
representation or warranty. As of the last day of the first or second
Collection Period following the discovery by or notice to the seller of a
breach of any representation or warranty of the seller which materially and
adversely affects the interests of the related trust in any receivable, the
seller, unless the breach has been cured, will repurchase such receivable from
the trust. The repurchase price will equal the "Purchase Amount", which is the
unpaid principal balance of that receivable plus accrued interest thereon to
the date of purchase at the weighted average interest rate borne by the
trust's securities. The purchase obligation will constitute the sole remedy
available to the certificateholders or the trustee and any noteholders or
indenture trustee in respect of the related trust for any such uncured breach.
Servicing of the receivables. Under each sale and servicing agreement
or pooling and servicing agreement, the servicer will service and administer
the receivables held by each trust and, as custodian on behalf of the trust,
will maintain possession of the installment loan agreements and any other
documents relating to such receivables. To assure uniform quality in servicing
the receivables, as well as to facilitate servicing and save administrative
costs, the installment loan agreements and other documents relating thereto
will not be physically segregated from other similar documents that are in the
servicer's possession or otherwise stamped or marked to reflect the transfer
to the trust. The obligors under the receivables will not be notified of the
transfer. However, Uniform Commercial Code financing statements reflecting the
sale and assignment of the receivables by the seller to the trust will be
filed, and the servicer's accounting records and computer systems will be
marked to reflect such sale and assignment. Because those receivables will
remain in the servicer's possession and will not be stamped or otherwise
marked to reflect the assignment to the trust if a subsequent purchaser were
to obtain physical possession of such receivables without knowledge of the
assignment, the trust's interest in the receivables could be defeated. See
"Some Important Legal Issues Relating to the Receivables -- Security Interests
in Vehicles."
Accounts
For each trust, the servicer will establish and maintain one or more
collection accounts in the name of the indenture trustee on behalf of the
related securityholders or, if the trust does not issue notes, in the name of
the trustee for the related certificateholders. The servicer will deposit all
collections on the receivables into the collection account. If the trust
issues notes, the servicer or the indenture trustee may establish and maintain
a note distribution account (which may be a subaccount of the collection
account), in the name of the indenture trustee on behalf of such noteholders,
into which amounts released from the collection account and any other accounts
of the trust for payment to such noteholders will be deposited and from which
all distributions to such noteholders will be made. The servicer or the
trustee may establish and maintain one or more certificate distribution
accounts, in the name of the trustee on behalf of the certificateholders, into
which amounts released from the collection account and any other accounts of
the trust for distribution to the certificateholders will be deposited and
from which all distributions to the certificateholders will be made.
Any other accounts to be established with respect to securities of
the trust, including any pre-funding account, yield supplement account or
reserve account, will be described in the related prospectus supplement.
For any securities of the trust, funds in the trust accounts will be
invested as provided in the related sale and servicing agreement or pooling
and servicing agreement in Permitted Investments. Permitted Investments
satisfy criteria established by the Rating Agencies and are generally limited
to obligations or securities that mature on or before the date of the next
payment date. However, to the extent permitted by the Rating Agencies, funds
in any reserve account may be invested in securities that will not mature
prior to the date of the next distribution on the notes or certificates and
which will not be sold to meet any shortfalls. Thus, the amount of cash
available in any reserve account at any time may be less than the balance of
the reserve account. If the amount required to be withdrawn from any reserve
account to cover shortfalls in collections on the related receivables (as
provided in the related prospectus supplement) exceeds the amount of cash in
the reserve account, a temporary shortfall in the amounts distributed to the
related noteholders or certificateholders could result, which could, in turn,
increase the average life of the notes or the certificates of such trust. Net
investment earnings on funds deposited in the trust accounts shall be
deposited in the applicable collection account or distributed as provided in
the related prospectus supplement.
The trust accounts will be maintained as Eligible Deposit Accounts,
which are accounts at a depository institution satisfying certain requirements
of the Rating Agencies.
Servicing Procedures
The Bank will act as servicer and make reasonable efforts to collect
all payments due with respect to the receivables held by each trust and will
use the same collection procedures that it follows with respect to Motor
Vehicle Loans that it services for itself, in a manner consistent with the
related sale and servicing agreement or pooling and servicing agreement.
Consistent with its normal procedures, the servicer may, in its
discretion, arrange with the obligor on a receivable to defer or modify the
payment schedule. Some of such arrangements may require the servicer to
purchase the receivable while others may result in the servicer making
Advances with respect to the receivable. The servicer may be obligated to
purchase a receivable if, among other things, it extends the date for final
payment by the obligor of such receivable beyond the last day of the
Collection Period during which the latest maturing receivable matures, as set
forth in the related prospectus supplement, or changes the contract rate of
interest or the total amount or number of scheduled payments of such
receivable. If the servicer determines that eventual payment in full of a
receivable is unlikely, the servicer will follow its normal practices and
procedures to realize upon the receivable, including the repossession and
disposition of the financed vehicle securing the receivable at a public or
private sale, or the taking of any other action permitted by applicable law.
Collections
With respect to securities of each trust, so long as the Bank is the
servicer and provided that (1) there exists no Event of Servicing Termination
and (2) each other condition to making monthly deposits as may be required by
the related sale and servicing agreement or pooling and servicing agreement is
satisfied, the servicer may retain all payments on the related receivables
received from obligors and all proceeds of the related receivables collected
during a Collection Period until the business day preceding the applicable
payment date. However, if such conditions are not met, the servicer will be
required to deposit such amounts into the related collection account not later
than the second business day after receipt. The servicer or the seller, as the
case may be, will remit the aggregate Purchase Amount of any receivables to be
purchased from the trust to its collection account on or prior to the business
day preceding the applicable payment date. 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. To the extent
set forth in the related 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 of the related receivables and payment of the aggregate Purchase
Amount with respect to receivables purchased by the servicer.
Collections on a receivable made during a Collection Period which are
not late fees or certain other similar fees or charges shall be applied first
to any outstanding Advances made by the servicer with respect to such
receivable (to the extent described below under "-Advances"), second, to the
payment of accrued and unpaid interest and third, to the payment of principal.
Advances
The servicer will make a payment with respect to each receivable
(other than a receivable designated as a defaulted receivable) equal to the
excess, if any, of (a) the product of the principal balance of such receivable
as of the first day of the related Collection Period and one-twelfth of its
contract rate of interest, over (b) the interest actually received by the
servicer with respect to such receivable from the obligor or from the payment
of the Purchase Amount during or with respect to such Collection Period (any
such payment, an "Advance") unless the servicer, in its sole discretion,
determines that such Advance is not recoverable from subsequent payments on
such receivable or from funds on deposit in the reserve account, if any. In
the event that the servicer does not make an Advance, any payment deficiency
on the securities resulting therefrom will be funded by the application of
available amounts, if any, in the reserve account or any other available
credit enhancement.
To the extent that the amount set forth in clause (b) above with
respect to a receivable is greater than the amount set forth in clause (a)
above with respect thereto, such amount shall be paid to the servicer on the
related payment date to reimburse the servicer for previous unreimbursed
Advances (the "Outstanding Advances") with respect to such receivable. Any
such reimbursement will be from past due interest paid by the obligor under
such receivable. Also, the servicer will reimburse itself for an Outstanding
Advance for a receivable out of any funds of the trust when the receivable is
designated a defaulted receivable.
The servicer will deposit all Advances into the Collection Account on
the business day immediately preceding the related payment date.
Servicing Compensation and Expenses
The servicer will be entitled to receive a servicing fee for each
Collection Period equal to a per annum percentage (specified in the prospectus
supplement) of the aggregate principal balance of the receivables as of the
first day of such Collection Period. The servicer also will be entitled to
receive as a supplemental servicing fee for each Collection Period any late
fees and other administrative fees and expenses collected during such
Collection Period. The servicer does not currently charge such fees and
expenses, but may do so in the future. If specified in the related prospectus
supplement, the supplemental servicing fee will include net investment
earnings on funds deposited in the trust accounts and other accounts with
respect to the trust. The servicer will be paid the servicing fee and the
supplemental servicing fee for each Collection Period on the applicable
payment date.
The servicing fee and the supplemental servicing fee are intended to
compensate the servicer for performing the functions of a third party servicer
of the receivables as an agent for the trust, including collecting and posting
all payments, responding to inquiries of obligors on the receivables,
investigating delinquencies, sending payment coupons to obligors, reporting
federal income tax information to obligors, paying costs of collections and
repossessions, and policing the collateral. The fees will also compensate the
servicer for administering the particular receivables pool, including making
advances, accounting for collections, furnishing monthly and annual statements
to the related trustee and indenture trustee with respect to distributions,
and generating federal income tax information for the trust. The fees, if any,
also will reimburse the servicer for certain 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. The amount of the servicing fee was
determined in light of the foregoing duties of the servicer as well as with a
view toward providing the servicer with a reasonable profit. The servicing
fee, together with additional compensation consisting of investment earnings
described above, is comparable to fees that would be paid to parties
unaffiliated with the Bank.
Distributions
With respect to securities of each trust, beginning on the payment
date specified in the related prospectus supplement, distributions of
principal and interest (or, where applicable, of principal or interest only)
on each class of such securities entitled thereto will be made by the
applicable trustee or indenture trustee to the noteholders and the
certificateholders of such trust. The timing, calculation, allocation, order,
source, priorities of and requirements for all payments to each class of
securityholders of such trust will be set forth in the related prospectus
supplement.
Allocation of Collections on Receivables. On the business day before
each payment date, the servicer shall determine the amount in the collection
account available to make payments or distributions to securityholders on the
related payment date and will direct the indenture trustee, if any, and/or the
trustee to make the distributions as described in the related prospectus
supplement.
Credit and Payment Enhancement
Any form of credit enhancement may be limited and may only apply to
certain classes of securities. The presence of a reserve account and other
forms of credit or payment enhancement for the benefit of any class or
securities of the trust is intended to (1) enhance the likelihood of receipt
by the securityholders of such class of the full amount of principal and
interest due thereon and (2) decrease the likelihood that such securityholders
will experience losses. The various types of credit or payment enhancement
that a trust may have are listed under "Summary--Credit or Payment
Enhancement." The credit or payment enhancement for a class of securities may
not provide protection against all risks of loss and may not guarantee
repayment of the entire principal amount and interest thereon. If losses occur
which exceed the amount covered by any credit enhancement or which are not
covered by any credit enhancement, securityholders will bear their allocable
share of deficiencies, as described in the related prospectus supplement.
Seller may replace credit or payment enhancement with rating
confirmation. If so provided in the related prospectus supplement, the seller
may replace the credit enhancement for any class of securities with another
form of credit enhancement without the consent of securityholders, provided
the Rating Agencies confirm in writing that substitution will not result in
the reduction or withdrawal of the rating of any class of securities of the
related trust.
Reserve Account. If so provided in the related prospectus supplement,
the reserve account will be funded by an initial deposit by the trust or the
seller on the closing date in the amount set forth in the related prospectus
supplement and, if the related trust has a Funding Period, will also be funded
by the trust on each Subsequent Transfer Date to the extent described in the
related prospectus supplement. As further described in the related prospectus
supplement, the amount on deposit in a reserve account will be increased on
each payment date thereafter up to the specified reserve balance by the
deposit therein of the amount of collections on the related receivables
available therefor or as described in the prospectus supplement. The related
prospectus supplement will describe the circumstances and manner under which
distributions may be made out of a reserve account.
Seller may assign rights in reserve account subject to conditions.
The seller may at any time, without consent of the securityholders of a trust,
sell, transfer, convey or assign in any manner its rights to and interests in
distributions from a reserve account of that trust provided that --
o the Rating Agencies confirm in writing that such action will
not result in a reduction or withdrawal of the rating of any
class of securities issued by that trust;
o the seller provides to the applicable trustee and any
indenture trustee an opinion of counsel from independent
counsel that such action will not cause the trust to be
classified as an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes; and
o such transferee or assignee agrees in writing to take
positions for federal income tax purposes consistent with the
federal income tax positions previously taken by the seller.
Net Deposits
As an administrative convenience and for so long as certain
conditions are satisfied (see "Collections" above), the servicer will be
permitted to make the deposit of collections, aggregate Advances and payments
of Purchase Amounts for any trust for or with respect to the related
Collection Period, net of distributions to the servicer as reimbursement of
Advances or payment of fees to the servicer with respect to such Collection
Period. 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, distributions, and transfers were made
individually.
Statements to Trustees and Trusts
Prior to each payment date with respect to securities of each trust,
the servicer will provide to the applicable indenture trustee, if any, and the
applicable trustee as of the close of business on the last day of the
preceding Collection Period the report that is required to be provided to
securityholders of such trust described under "Certain Information Regarding
the Securities -- Reports to Securityholders."
Evidence as to Compliance
Each sale and servicing agreement and pooling and servicing agreement
will provide that a firm of independent certified public accountants will
furnish to the related trust and indenture trustee or trustee, as applicable,
annually a statement as to compliance by the servicer during the preceding
twelve months (or, in the case of the first such certificate, from the
applicable closing date) with certain 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 such
accountants' statement referred to above, of a certificate signed by an
officer of the servicer stating that the servicer has fulfilled its
obligations under that agreement throughout the preceding twelve months (or,
in the case of the first such certificate, from the closing date) or, if there
has been a default in the fulfillment of any such obligation, describing each
such default.
Copies of such statements and certificates may be obtained by
securityholders by a request in writing addressed to the applicable trustee.
Certain Matters Regarding the Servicer
Each sale and servicing agreement and pooling and servicing agreement
will provide that the Bank may not resign from its obligations and duties as
servicer thereunder, except (i) upon a determination that the Bank's
performance of such duties is no longer permissible under applicable law or
(ii) in the event of the appointment of a successor servicer without the
consent of any securityholder upon notification by each Rating Agency then
rating any of the related securities that the rating then assigned to the
securities will not be reduced or withdrawn by such Rating Agency. No such
resignation will become effective until the related indenture trustee or
trustee, as applicable, or a successor servicer has assumed the Bank's
servicing obligations and duties under such sale and servicing agreement or
pooling and servicing agreement. The servicer will also have the right to
delegate any of its duties under those agreements to a third party without the
consent of any securityholder or the confirmation of any rating.
Notwithstanding any such delegation, the servicer will remain responsible and
liable for its duties under those agreements as if it had made no delegations.
Each sale and servicing agreement and pooling and servicing agreement
will further provide that neither the servicer nor any of its directors,
officers, employees and 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 under such sale and servicing
agreement or pooling and servicing agreement or for errors in judgment; except
that neither the servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance,
bad faith or negligence in the performance of the servicer's duties thereunder
or by reason of reckless disregard of its obligations and duties thereunder,
except that employees of the servicer or its affiliates will be protected
against liability that would otherwise be imposed by reason of negligence.
Such agreement will further provide that the servicer, and its directors,
officers, employees and agents are entitled to indemnification by the trust
for, and will be held harmless against, any loss, liability or expense
incurred in connection with any legal action relating to the servicer's
performance of its duties under such agreement other than any loss, liability
or expense incurred by reason of the servicer's willful misfeasance, bad
faith, or negligence in the performance of duties or by reason of the
servicer's reckless disregard of obligations and duties thereunder. However,
such indemnification will be paid on a payment date only after all payments
required to be made to securityholders and the servicer have been made and all
amounts required to be deposited in enhancement accounts have been deposited.
In addition, each sale and servicing agreement and pooling and servicing
agreement will provide that the servicer is under no obligation to appear in,
prosecute or defend any legal action that is not incidental to the servicer's
servicing responsibilities under such 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 a particular sale
and servicing agreement or pooling and servicing agreement, the rights and
duties of the parties thereto, and the interests of the related
securityholders thereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom will be expenses, costs, and
liabilities of the trust, and the servicer will be entitled to be reimbursed
therefor.
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 the business of the servicer or, with respect to its obligations
as servicer, any corporation 50% or more of the voting stock of which is
owned, directly or indirectly, by USAA, which corporation or other entity in
each of the foregoing cases assumes the obligations of the servicer, will be
the successor of the servicer under such sale and servicing agreement or
pooling and servicing agreement.
Events of Servicing Termination
"Events of Servicing Termination" under each sale and servicing
agreement or pooling and servicing agreement will consist of:
o any failure by the servicer (or, so long as the seller is the
servicer, the seller) to deliver to the trustee or indenture
trustee for distribution to the securityholders of the related
trust or for deposit in any of the trust accounts or the
certificate distribution account any required payment, which
failure continues unremedied for five business days after
written notice from the trustee or indenture trustee is
received by the servicer or the seller, as the case may be, or
after discovery by an officer of the servicer or the seller, as
the case may be;
o any failure by the servicer (or, so long as the seller is the
servicer, the seller) duly to observe or perform in any
material respect any other covenant or agreement in such sale
and servicing agreement or pooling and servicing agreement,
which failure materially and adversely affects the rights of
the noteholders or the certificateholders of the related trust
and which continues unremedied for 90 days after the giving of
written notice of such failure (A) to the servicer or the
seller, as the case may be, by the trustee or the indenture
trustee or (B) to the servicer, the seller and the trustee or
the indenture trustee by holders of notes or certificates of
such trust, as applicable, of not less than 25% in principal
amount of the Controlling Class (or, if the trust has issued
notes and its notes are no longer outstanding, 25% by aggregate
certificate balance of the certificates);
o the occurrence of certain insolvency events specified in the
sale and servicing agreement or pooling and servicing agreement
with respect to the servicer; and
o such other events, if any, set forth in the related
prospectus supplement.
Rights Upon Event of Servicing Termination
As long as an Event of Servicing Termination under a sale and
servicing agreement or pooling and servicing agreement remains unremedied, the
related indenture trustee or holders of not less than a majority of the
Controlling Class or the class of notes specified in the prospectus supplement
(and after the notes have been paid in full or if the trust has not issued
notes, the trustee or the holders of not less than a majority of the
certificate balance) may terminate all the rights and obligations of the
servicer under such sale and servicing agreement or pooling and servicing
agreement, whereupon such indenture trustee or trustee or a successor servicer
appointed by such indenture trustee or trustee will succeed to all the
responsibilities, duties and liabilities of the servicer under such sale and
servicing agreement or pooling and servicing agreement and will be entitled to
similar compensation arrangements.
If, however, a receiver, bankruptcy trustee or similar official has
been appointed for the servicer, and no Event of Servicing Termination other
than such appointment has occurred, such receiver, bankruptcy trustee or
official may have the power to prevent such indenture trustee, such
noteholders, the trustee or such certificateholders from effecting a transfer
of servicing. In the event that such indenture trustee or trustee of the trust
is legally unable to act as servicer, it may appoint, or petition a court of
competent jurisdiction for the appointment of, a successor servicer. Such
indenture trustee or trustee may make such arrangements for compensation to be
paid, which in no event may be greater than the servicing compensation to the
servicer under such sale and servicing agreement or pooling and servicing
agreement.
Waiver of Past Events of Servicing Termination
The holders of not less than a majority of the Controlling Class or
the class of notes specified in the prospectus supplement (and after the notes
have been paid in full or if the trust has not issued notes, the trustee or
the holders of not less than a majority of the certificate balance) may, on
behalf of all such securityholders, waive any Event of Servicing Termination
under the related sale and servicing agreement or pooling and servicing
agreement and its consequences, except an Event of Servicing Termination
consisting of a failure to make any required deposits to or payments from any
of the trust accounts in accordance with such sale and servicing agreement or
pooling and servicing agreement.
Amendment
The parties to each of the Receivables Transfer and Servicing
Agreements may amend any of such agreements, without the consent of the
related securityholders, to add any provisions to or change or eliminate any
of the provisions of such Receivables Transfer and Servicing Agreements or
modify the rights of such securityholders; provided that such action will not
materially and adversely affect the interest of any such securityholder as
evidenced by either (i) an opinion of counsel to that effect or (ii)
notification by each Rating Agency then rating any of the related securities
that the rating then assigned to the securities will not be reduced or
withdrawn by such Rating Agency together with an officer's certificate of the
servicer to that effect. The Receivables Transfer and Servicing Agreements may
also be amended by the seller, the servicer, the related trustee and any
related indenture trustee with the consent of the holders of any notes of such
trust evidencing not less than a majority in principal amount of the notes,
and the holders of the certificates of such trust evidencing not less than a
majority of the certificate balance of the certificates then outstanding, to
add any provisions to or change or eliminate any of the provisions of such
Receivables Transfer and Servicing Agreements or modify the rights of the
securityholders; provided, however, that no such amendment may (1) 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 such securityholders or change any
interest rate on the securities or the amount required to be on deposit in the
reserve account, if any, or (2) reduce the percentage of the notes or
certificates of such trust the holders of which are required to consent to any
such amendment, without the consent of the holders of all the outstanding
notes and certificates of such trust.
Payment of Notes
The indenture trustee will agree in the related indenture that, upon
the payment in full of all outstanding notes of a given trust and the
satisfaction and discharge of the related indenture, to continue to carry out
its obligations under the sale and servicing agreement as agent for the
trustee of the trust.
Termination
With respect to each trust, the obligations of the servicer, the
seller, the related trustee and the related indenture trustee under the
Receivables Transfer and Servicing Agreements will terminate upon the earlier
of (1) the maturity or other liquidation of the last related receivable and
the disposition of any amounts received upon liquidation of any such remaining
receivables and (2) the payment to noteholders and certificateholders of the
related trust of all amounts required to be paid to them under the Receivables
Transfer and Servicing Agreements.
In order to avoid excessive administrative expense, the servicer will
be permitted at its option to purchase from each trust as of the end of any
applicable Collection Period, if the aggregate principal balance of the
receivables held by the trust is 10% (or such other percentage specified in
the prospectus supplement) or less of the aggregate principal balance of the
receivables as of the cut-off date, all remaining related receivables at a
price equal to the aggregate of the Purchase Amounts thereof as of the end of
such Collection Period, after giving effect to the receipt of any monies
collected on the receivable.
If and to the extent provided in the related prospectus supplement
with respect to the trust, the applicable trustee will, within ten days
following a payment date as of which the aggregate principal balance of the
receivables is equal to or less than the percentage of the initial aggregate
principal balance of the receivables as of the cut-off date specified in the
related prospectus supplement, solicit bids for the purchase of the
receivables remaining in the trust in the manner and subject to the terms and
conditions set forth in such prospectus supplement. If the applicable trustee
receives satisfactory bids as described in such prospectus supplement, then
the receivables remaining in the trust will be sold to the highest bidder.
As more fully described in the related prospectus supplement, any
outstanding notes of the related trust will be paid in full concurrently with
either of the events specified above and the subsequent distribution to the
related certificateholders of all amounts required to be distributed to them
under the applicable trust agreement will effect early retirement of the
certificates of such trust.
List of Certificateholders
With respect to the certificates of any trust, three or more holders
of the certificates of such trust or one or more holders of such certificates
evidencing not less than 25% of the certificate balance of such certificates
may, by written request to the related trustee accompanied by a copy of the
communication that the applicant proposes to send, obtain access to the list
of all certificateholders maintained by the 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 such
certificates.
Administration Agreement
The Bank will be the administrator of each trust that is not a
grantor trust and will agree, to the extent provided in an administration
agreement, to provide the notices and certain reports and to perform other
administrative obligations of the trust and the trustee required by the
related indenture. The administrator will be entitled to a periodic
administration fee which will be paid by the seller 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 may resign its duties under the administration
agreement upon at least 60 days' prior written notice. The trust may remove
the administrator without cause upon at least 60 days' prior written notice.
The trust may also remove the administrator upon (i) its default in any
material respect in its duties under the administration agreement that remains
uncured for ten days (or such longer period acceptable to the trust) or (ii)
certain insolvency events in respect of the administrator. No such resignation
or removal will be effective until a successor has agreed to be the
administrator and the applicable rating agencies have confirmed the ratings of
the securities of that trust.
Duties of Trustee
The trustee will not make any representations as to the validity or
sufficiency of any agreements, the securities (other than its execution and
authentication of the securities), or the receivables or any related
documents, and will not be accountable for the use or application by the
seller or the servicer of any funds paid to the seller or the servicer in
respect of the securities or the receivables, or any monies prior to the time
such monies are deposited into any account in its name. The trustee will not
independently verify any receivables. The trustee will be required to perform
only those duties specifically required of it under the trust agreement or the
pooling and servicing agreement. Generally, those duties will be limited to
the receipt of the various certificates, reports, or other instruments
required to be furnished to the trustee under the applicable 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 will not be under any obligation to exercise any of the
rights or powers vested in it by the trust agreement or the pooling and
servicing agreement or to make any investigation of matters arising thereunder
or to institute, conduct, or defend any litigation thereunder or in relation
thereto at the request, order, or direction of any of the certificateholders,
unless the certificateholders have offered to the trustee reasonable security
or indemnity against the costs, expenses, and liabilities which the trustee
may incur. No certificateholder will have any right under the trust agreement
or the pooling and servicing agreement to institute any proceeding with
respect to that agreement, unless such holder previously has given to the
trustee written notice of default and unless, with respect to a class of
certificates, the holders of certificates evidencing not less than a majority
of the certificate balance of that class of certificates have made written
request upon the trustee to institute such proceeding in its own name as
trustee thereunder and have offered to the trustee reasonable indemnity and
the trustee for 30 days has neglected or refused to institute any such
proceedings.
The Trustee
The trustee will be named in the prospectus supplement. The trustee
may resign at any time by giving written notice to the seller or the servicer,
in which event the trustee, in the case of a pooling and servicing agreement,
or the seller or the administrator, in the case of a trust agreement, will be
obligated to appoint a successor trustee. The trustee will be obligated to
resign if the trustee ceases to be eligible to continue as such under the
trust agreement or the pooling and servicing agreement, becomes legally unable
to act, or becomes insolvent. In such circumstances, the trustee, in the case
of a pooling and servicing agreement, or the seller or the administrator, in
the case of a trust agreement, will be obligated to appoint a successor
trustee. Any resignation or removal of the trustee and appointment of a
successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
The trust agreement or the pooling and servicing agreement will
provide that the servicer will pay the trustee's fees. That agreement will
further provide that the trustee will be entitled to indemnification by the
servicer for, and will be held harmless against, any loss, liability, 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). If the
servicer fails to indemnify the trustee, the trustee will be entitled to be
indemnified by the trust. Any such indemnification will be paid on a payment
date only after all amounts required to be paid to the securityholders have
been paid and certain other distributions have been made and, with respect to
a successor servicer, if any, after the servicing fee has been paid.
The seller, the servicer and their respective affiliates may have
normal banking relationships with the trustee and its affiliates.
SOME IMPORTANT LEGAL ISSUES RELATING TO THE RECEIVABLES
Security Interest in the Receivables
The receivables are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the States of Texas and New York.
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar
to perfection of a security interest in chattel paper. In order to protect a
trust's ownership interest in its receivables, the seller will file UCC-1
financing statements with the appropriate governmental authorities in the
State of Texas to give notice of the trust's ownership of its receivables and
their proceeds. Under the sale and servicing agreement or the pooling and
servicing agreement, the seller will be obligated to maintain the perfection
of the trust's ownership interest in the receivables. However, a purchaser of
chattel paper who gives new value and takes possession of it in the ordinary
course of such purchaser's business has priority over a security interest in
the chattel paper which is perfected by filing UCC-1 financing statements, and
not by possession by the original secured party, if such purchaser acts in
good faith without knowledge that the specific chattel paper is subject to a
security interest. Any such purchaser would not be deemed to have such
knowledge by virtue of the UCC filings and would not learn of the sale of the
receivables from a review of the documents evidencing the receivables since
they would not be marked to show such sale, although the seller's master
computer records will indicate such sale.
Security Interests in the Financed Vehicles
The receivables consist of motor vehicle installment loans made
pursuant to contracts with obligors for the purchase of automobiles and
light-duty trucks and also constitute personal property security agreements
that include grants of security interests in the financed vehicles under the
UCC in the applicable jurisdiction. Perfection of security interests in the
financed vehicles generally is governed by the motor vehicle registration laws
of the state in which the financed vehicle is located. In all states in which
the receivables have been originated, a security interest in a vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of title or actual possession by the secured party of such certificate of
title, depending upon applicable state law. The practice of the seller is to
effect such notation or to obtain possession of the certificate of title, as
appropriate under the laws of the state in which a vehicle securing a motor
vehicle installment loan originated by the seller is registered. The
receivables prohibit the sale or transfer of the financed vehicle without the
seller's consent.
The seller will assign its security interest in the individual
financed vehicles to the trust purchasing the related receivables. However,
because of the administrative burden and expense and since the seller remains
as servicer of the receivables, neither the seller nor any other person will
amend the certificates of title to identify the trust as the new secured party
and, accordingly, the seller will continue to be named as the secured party on
the certificates of title relating to the financed vehicles. In most states,
such assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificates of title and the new
secured party succeeds to the seller's rights as the secured party as against
creditors of the obligor. In some states, in the absence of such endorsement
and delivery, neither the indenture trustee, the trust nor the trustee may
have a perfected security interest in the financed vehicle. In such event or
in the event that the seller did not have a perfected first priority security
interest in the financed vehicle, the only recourse of the trust vis-a-vis
third parties would be against an obligor on an unsecured basis or, if the
seller did not have a perfected security interest, against the seller pursuant
to the seller's repurchase obligation. See "Description of Transfer and
Servicing Agreements--Sale and Assignment of Receivables." If there are any
financed vehicles as to which the seller has failed to perfect the security
interest assigned to the trust, (a) that security interest would be
subordinate to, among others, holders of perfected security interests and (b)
subsequent purchasers of such financed vehicles would take possession free and
clear of that security interest.
Except as described above, in the absence of fraud or forgery by a
vehicle owner or administrative error by state recording officials, the
notation of the lien of the seller on the certificate of title will be
sufficient to protect the trust against the rights of subsequent purchasers of
a financed vehicle or subsequent lenders who take a security interest in the
financed vehicle. There also exists a risk in not identifying the trust as the
new secured party on the certificate of title that, through fraud or
negligence, the security interest of the trust could be released.
If the owner of a financed vehicle moves to a state other than the
state in which such financed vehicle initially is registered, under the laws
of most states the perfected security interest in the financed vehicle would
continue for four months after such relocation and thereafter until the owner
re-registers the financed vehicle in such state. A majority of states
generally require surrender of a certificate of title to re-register a
vehicle. Accordingly, the seller must surrender possession if it holds the
certificate of title to such financed vehicle or, in the case of financed
vehicles originally registered in a state which provides for notation of lien
but not possession of the certificate of title by the holder of the security
interest in the related motor vehicle, the seller would receive notice of
surrender if the security interest in the financed vehicle is noted on the
certificate of title. Accordingly, the seller would have the opportunity to
re-perfect its security interest in the financed vehicle in the state of
relocation. In states which do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In
the ordinary course of servicing its portfolio of motor vehicle installment
loans, the seller takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the obligor as to relocation.
Similarly, when an obligor under a receivable sells a financed vehicle, the
seller must surrender possession of the certificate of title or will receive
notice as a result of its lien note thereon and accordingly will have an
opportunity to require satisfaction of the related receivable before release
of the lien. Under the sale and servicing agreement or the pooling and
servicing agreement, the servicer will be obligated to take such steps, at the
servicer's expense, as are necessary to maintain perfection of security
interests in the financed vehicles.
Under the laws of many states, certain possessory liens for repairs
performed on a motor vehicle and storage, as well as certain rights arising
from the use of a motor vehicle in connection with illegal activities, may
take priority even over a perfected security interest. Certain federal tax
liens may have priority over the lien of a secured party. The seller will
represent in the sale and servicing agreement or the pooling and servicing
agreement that as of the cut-off date it has no knowledge of any such liens
with respect to any financed vehicle. However, such liens could arise at any
time during the term of a receivable. No notice will be given to the indenture
trustee or the trustee if such a lien arises.
Enforcement of Security Interests in Financed Vehicles
The servicer on behalf of each trust may take action to enforce its
security interest by repossession and resale of the financed vehicles securing
the trust's receivables. The actual repossession may be contracted out to
third party contractors. Under the UCC and laws applicable in most states, a
creditor can repossess a motor vehicle securing a loan by voluntary surrender,
"self-help" repossession that is "peaceful" or, in the absence of voluntary
surrender and the ability to repossess without breach of the peace, by
judicial process. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. In the event of
such repossession and resale of a financed vehicle, the trust would be
entitled to be paid out of the sale proceeds before such proceeds could be
applied to the payment of the claims of unsecured creditors or the holders of
subsequently perfected security interests or, thereafter, to the defaulting
obligor.
Under the UCC and laws applicable in most states, a creditor is
entitled to obtain a deficiency judgment from a debtor for any deficiency on
repossession and resale of the motor vehicle securing such debtor's loan.
However, some states impose prohibitions or limitations on deficiency
judgments. Moreover, a defaulting obligor may not have sufficient assets to
make the pursuit of a deficiency judgment worthwhile.
Certain other statutory provisions, including federal and state bankruptcy and
insolvency laws, and general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Other Matters
Numerous federal and state consumer protection laws may impose
requirements applicable to the origination and lending pursuant to the
contracts, including the Truth-in-Lending Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Magnuson-Moss Warranty Act, and the
Federal Trade Commission Act.
The sale and servicing agreement or the pooling and servicing
agreement will set forth criteria that must be satisfied by each receivable,
and such criteria will provide, among other things, 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 such
claim materially and adversely affects the trust's interest in a receivable,
such violation would result in the failure to satisfy a criterion in the sale
and servicing agreement or the pooling and servicing agreement and would
create an obligation of the seller to repurchase the receivable unless such
failed criterion is cured.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, 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. Prospective investors are urged to consult
their own tax advisors in determining the federal, state, local, foreign and
any other tax consequences to them of the purchase, ownership and disposition
of the notes 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 thereunder 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 special federal tax counsel to each trust
specified in the related prospectus supplement ("Federal Tax Counsel"),
regarding certain federal income tax matters discussed below. An opinion of
Federal 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, unless otherwise specified herein, to each trust and the notes,
certificates and related terms, parties and documents applicable to such
trust.
The federal income tax consequences to certificateholders will vary
depending on whether (i) an election is made to treat the trust as a
partnership under the Code, (ii) all the certificates are retained by the
seller or an affiliate thereof, or (iii) whether the trust will be treated as
a grantor trust. The prospectus supplement for each series of certificates
will specify whether a partnership election will be made or the trust will be
treated as a grantor trust.
TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE
Tax Characterization of the Trust as a Partnership
Federal Tax Counsel will deliver its opinion that a trust for which a
partnership election is made 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 trust agreement
and related documents will be complied with, and on counsel's conclusions that
the nature of the income of the trust will exempt it from the rule that
certain publicly traded partnerships are taxable as corporations.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The seller will agree, and
the noteholders will agree by their purchase of notes, to treat the notes as
debt for federal income tax purposes. Federal Tax Counsel will, except as
otherwise provided in the related prospectus supplement, advise the trust 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, that the notes are not
indexed securities or strip notes, and that principal and interest is payable
on the notes. 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 their term), all within the meaning of the OID
regulations. If these conditions are not satisfied with respect to a series of
notes, additional tax considerations with respect to such 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 thereon will be taxable to a noteholder
as ordinary interest income when received or accrued in accordance with such
noteholder's method of tax accounting. Under the OID regulations, a holder of
a note issued with a de minimis amount of OID must include such OID in income,
on a pro rata basis, as principal payments are made on the note. It is
believed that any prepayment premium paid as a result of a mandatory
redemption will be taxable as contingent interest when it becomes fixed and
unconditionally payable. 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.
A holder of a note that has a fixed maturity date of not more than
one year from the issue date of such note (a "Short-Term Note") may be subject
to special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, 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 over the term of each
interest period. Other cash basis holders 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 holder 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 taxpayer may elect
under Section 1281 of the Code to accrue interest income on all nongovernment
debt obligations with a term of one year or less, in which case the taxpayer
would include interest on the Short-Term Note in income as it accrues, but
would not be subject to the interest expense deferral rule referred to in 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 noteholder sells a note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the note.
The adjusted tax basis of a note to a particular noteholder will equal the
holder's cost for the note, increased by any market discount, acquisition
discount, OID (including de minimis OID) and gain previously included by such
noteholder in income with respect to the note and decreased by the amount of
bond premium (if any) previously amortized and by the amount of principal
payments previously received by such noteholder with respect to such note. Any
such gain or loss will be capital gain or loss if the note was held as a
capital asset, except for gain representing accrued interest and accrued
market discount not previously included in income. Any capital gain recognized
upon a sale, exchange or other disposition of a note will be long-term capital
gain if the seller's holding period is more than one year and will be
short-term capital gain if the seller's holding period is one year or less.
The deductibility of capital losses is subject to certain limitations.
Prospective investors should consult with their own tax advisors concerning
the U.S. federal tax consequences of the sale, exchange or other disposition
of a note.
Foreign Holders. Interest payments made (or accrued) to a noteholder
who is a nonresident alien, foreign corporation or other non-U.S. person (a
"foreign person") generally will be considered "portfolio interest", and
generally will not be subject to United States federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent
shareholder" of the trust or the seller (including a holder of 10% of the
outstanding certificates) or a "controlled foreign corporation" with respect
to which the trust or the seller is a "related person" within the meaning of
the Code and (ii) provides the indenture trustee or other person who is
otherwise required to withhold U.S. tax with respect to the notes with an
appropriate statement (on Form W-8 BEN or a similar form), signed under
penalties of perjury, certifying that the beneficial owner of the note is a
foreign person and providing the foreign person's name and address. If a note
is held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide the relevant signed
statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 BEN or substitute form provided by
the foreign person that owns the note. If such interest is not portfolio
interest, then it will be subject to withholding tax at a rate of 30 percent,
unless the foreign person provides a properly executed (1) IRS Form W-8 BEN
(or successor form) claiming an exemption from or reduction in withholding
under the benefit of a tax treaty or (2) IRS Form W-8 ECI (or successor form)
stating that interest paid is not subject to withholding tax because it is
effectively connected with the foreign person's conduct of a trade or business
in the United States. If the interest is effectively connected income, the
foreign person, although exempt from the withholding tax discussed above, will
be subject to United States federal income tax on such interest at graduated
rates.
Any capital gain realized on the sale, redemption, retirement or
other taxable disposition of a note by a foreign person will be exempt from
United States federal income and withholding tax, provided that (i) such gain
is not effectively connected with the conduct of a trade or business in the
United States by the foreign person and (ii) in the case of an individual
foreign person, the foreign person is not present in the United States for 183
days or more in the taxable year and does not otherwise have a "tax home"
within the United States.
Backup Withholding. Each holder of a note (other than an exempt
holder such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
noteholder fail to provide the required certification, the trust will be
required to withhold 31 percent of the amount otherwise payable to the holder,
and remit the withheld amount to the IRS as a credit against the holder's
federal income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued
new regulations (the "New Regulations") which make certain modifications to
withholding, backup withholding and information reporting rules. 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. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Federal 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 treated as a publicly traded partnership taxable as a corporation
with potentially adverse tax consequences (and the publicly traded partnership
taxable as a 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 Federal Tax Counsel, the trust
would be treated as a publicly traded partnership that would not be taxable as
a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the notes as equity interests in such a partnership
could have adverse tax consequences to certain holders. For example, income to
certain tax-exempt entities (including pension funds) would be "unrelated
business taxable income", income to foreign holders generally would be subject
to U.S. tax and U.S. tax return filing and withholding requirements, and
individual holders might be subject to certain limitations on their ability to
deduct their share of trust expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The seller and the servicer
will agree, and the certificateholders will agree by their purchase of
certificates, to treat the trust 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 certificateholders (including
the seller in its capacity as recipient of distributions from the reserve
account), and the notes being debt of the related partnership. 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 that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the certificates have certain features characteristic of debt, the
certificates might be considered debt of the seller or the trust. Any such
characterization would not result in materially adverse tax consequences to
certificateholders 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, that principal
and interest are distributed on the 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 such certificates will be disclosed in the
applicable prospectus supplement.
Partnership Taxation. As a partnership, the trust will not be subject
to federal income tax. Rather, each certificateholder will be required to
separately take into account such holder's allocated share of income, gains,
losses, deductions and credits of the 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). The trust agreement will
provide, in general, that the certificateholders will be allocated taxable
income of the trust for each month equal to the sum of
(i) the interest that accrues on the certificates in accordance
with their terms for such month, including interest accruing
at the applicable pass through rate for such month and
interest on amounts previously due on the certificates but
not yet distributed;
(ii) 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;
(iii) prepayment premium payable to the certificateholders for such
month; and
(iv) any other amounts of income payable to the certificateholders
for such month.
Such allocation will be reduced by any amortization by the trust of premium on
receivables that corresponds to any excess of the issue price of certificates
over their principal amount. All remaining taxable income of the trust will be
allocated to the seller. Based on the economic arrangement of the parties,
this approach for allocating trust income 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
certificateholders. Moreover, even under the foregoing method of allocation,
certificateholders 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 distributions of such amount. Thus, cash
basis holders will in effect be required to report income from the
certificates on the accrual basis and certificateholders may become liable for
taxes on trust income even if they have not received cash from the trust to
pay such taxes. In addition, because tax allocations and tax reporting will be
done on a uniform basis for all certificateholders but certificateholders may
be purchasing certificates at different times and at different prices,
certificateholders 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.
See "-Allocations Between Transferors and Transferees" below.
All of the taxable income allocated to a certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated
business taxable income" generally taxable to such a holder under the Code.
An individual taxpayer's share of expenses of the trust (including
fees to the servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or
in part and might result in such holder being taxed on an amount of income
that exceeds the amount of cash actually distributed to such holder over the
life of the trust.
The trust intends to make all tax calculations relating to income and
allocations to certificateholders on an aggregate basis. If the IRS were to
require that such 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 certificateholders.
Discount and Premium. It is believed that the receivables were not
issued with OID, and, therefore, the 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 trust acquires the receivables at a market discount or
premium, the trust will elect to include any such discount in income currently
as it accrues over the life of the receivables or to offset any such premium
against interest income on the receivables. As indicated above, a portion of
such market discount income or premium deduction may be allocated to
certificateholders.
Section 708 Termination. Under Section 708 of the Code, the 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. Pursuant to final Treasury regulations issued on May 9, 1997,
if such a termination occurs, the trust will be considered to have contributed
the assets of the trust (the "old partnership") to a new partnership in
exchange for interests in the partnership. Such interests would be deemed
distributed to the partners of the old partnership in liquidation thereof,
which would not constitute a sale or exchange.
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 certificateholder's tax basis in a certificate will generally equal
the holder's cost increased by the holder's share of trust income (includible
in income) and decreased by any distributions received with respect to such
certificate. In addition, both the tax basis in the certificates and the
amount realized on a sale of a certificate would include the holder's share of
the notes and other liabilities of the trust. A holder acquiring certificates
at different prices may be required to maintain a single aggregate adjusted
tax basis in such certificates, and, upon sale or other disposition of some of
the certificates, allocate a portion of such 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 trust does not expect to have any
other assets that would give rise to such 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 certificateholder 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 distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the
trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
certificateholders in proportion to the principal amount of certificates owned
by them as of the close of the last day of such month. As a result, a holder
purchasing certificates may be allocated tax items (which will affect its tax
liability and tax basis) attributable to periods before the actual
transaction.
The use of such 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 trust might be reallocated among the certificateholders. The
Bank will be authorized to revise the 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 certificateholder sells its
certificates at a profit (or loss), the purchasing certificateholder will have
a higher (or lower) basis in the certificates than the selling
certificateholder had. The tax basis of the 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 trust will not make such an election. As a result,
certificateholders might be allocated a greater or lesser amount of trust
income than would be appropriate based on their own purchase price for the
certificates.
Administrative Matters. The trustee is required to keep or have kept
complete and accurate books of the trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year
of the trust will be the calendar year. The trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
trust and will report each certificateholder'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 such nominees will be
required to forward such information to the beneficial owners of the
certificates. Generally, holders must file tax returns that are consistent
with the information return filed by the trust or be subject to penalties
unless the holder notifies the IRS of all such 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 certain information on the nominee, the beneficial
owners and the certificates so held. Such information includes (i) the name,
address and taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and identification number of such
person, (y) whether such person is a United States person, a tax-exempt entity
or a foreign government, an international organization, or any wholly owned
agency or instrumentality of either of the foregoing, and (z) certain
information on certificates that were held, bought or sold on behalf of such
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 such information statement 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, will be responsible for representing the
certificateholders in any dispute 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
certificateholders, and, under certain circumstances, a certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the trust. An adjustment could also result in an audit of a
certificateholder's returns and adjustments of items not related to the income
and losses of the trust.
Tax Consequences to Foreign Certificateholders. 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
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the trust would be engaged in a trade or business in the
United States for such 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 trust expects to withhold on the portion of its
taxable income that is allocable to foreign certificateholders pursuant to
Section 1446 of the Code, as if such income were effectively connected to a
U.S. trade or business, at a rate of 35% for foreign holders that are taxable
as corporations and 39.6% for all other foreign holders. 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-8 BEN, IRS Form
W-9 or the holder's certification of nonforeign status signed under penalties
of perjury.
Each foreign holder 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 holder
must obtain a taxpayer identification number from the IRS and submit that
number to the trust on Form W-8 BEN (or substantially identical form) in order
to assure appropriate crediting of the taxes withheld. A foreign holder
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 certificateholder who is a foreign
person generally will be considered guaranteed payments to the extent such
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." As a result,
certificateholders will be subject to United States federal income tax and
withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an
applicable treaty. In such case, a foreign holder would only be entitled to
claim a refund for that portion of the taxes in excess of the taxes that
should be withheld with respect to the guaranteed payments.
Backup Withholding. Distributions 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 certificateholder fails to comply
with certain identification procedures, unless the holder is an exempt
recipient under applicable provisions of the Code.
New Withholding Regulations. Recently, the Treasury Department issued
the New Regulations which 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.
Prospective investors are urged to consult their own tax advisors regarding
the New Regulations.
TRUSTS IN WHICH ALL CERTIFICATES ARE RETAINED BY
THE SELLER OR AN AFFILIATE OF THE SELLER
Tax Characterization of the Trust
Federal Tax Counsel will deliver its opinion that a trust which
issues one or more classes of notes to investors and all the certificates of
which are retained by seller or an affiliate thereof 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 trust agreement and related documents will be complied with,
and on counsel's conclusions that the trust will constitute a mere security
arrangement for the issuance of debt by the single certificateholder.
Treatment of the Notes as Indebtedness. The seller will agree, and
the noteholders will agree by their purchase of notes, to treat the notes as
debt for federal income tax purposes. Federal Tax Counsel will, except as
otherwise provided in the related prospectus supplement, advise the trust that
the notes will be classified as debt for federal income tax purposes. Assuming
such characterization of the notes is correct, the federal income tax
consequences to noteholders described above under the heading "TRUSTS FOR
WHICH A PARTNERSHIP ELECTION IS MADE -- Tax Consequences to Holders of the
Notes" would apply to the noteholders.
If, contrary to the opinion of Federal Tax Counsel, the IRS
successfully asserted that one or more classes of notes did not represent debt
for federal income tax purposes, such class or classes of notes might be
treated as equity interests in the trust. If so treated, the trust might be
treated as a publicly traded partnership taxable as a corporation with
potentially adverse tax consequences (and the publicly traded partnership
taxable as a corporation would not be able to reduce its taxable income by
deductions for interest expense on notes recharacterized as equity).
Alternatively, and more likely in the view of Federal Tax Counsel, the trust
would most likely be treated as a publicly traded partnership that would not
be taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of notes as equity interests in such a
partnership could have adverse tax consequences to certain holders of such
notes. For example, income to certain tax-exempt entities (including pension
funds) would be "unrelated business taxable income", income to foreign holders
may be subject to U.S. withholding tax and U.S. tax return filing
requirements, and individual holders might be subject to certain limitations
on their ability to deduct their share of trust expenses. In the event one or
more classes of notes were treated as interests in a partnership, the
consequences governing the certificates as equity interests in a partnership
described above under "TRUSTS FOR WHICH A PARTNERSHIP ELECTION IS MADE -- Tax
Consequences to Holders of the Certificates" would apply to the holders of
such notes.
TRUSTS TREATED AS GRANTOR TRUSTS
Tax Characterization of the Trust as a Grantor Trust
If a partnership election is not made, Federal Tax Counsel will
deliver its opinion that the trust will not be classified as an association
taxable as a corporation and that such trust will be classified as a grantor
trust under subpart E, part 1, subchapter J, chapter 1 of subtitle A of the
Code. In this case, owners of certificates (referred to herein as "Grantor
Trust Certificateholders") will be treated for federal income tax purposes as
owners of a portion of the trust's assets as described below. The certificates
issued by a trust that is treated as a grantor trust are referred to herein as
"Grantor Trust Certificates."
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 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.
Each Grantor Trust Certificateholder will be required to report on
its federal income tax return in accordance with such 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 and late payment charges received
by the servicer. Under Sections 162 or 212 each Grantor Trust
Certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the servicer, provided that such 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 such expenses plus all other
Section 212 expenses exceed two percent of its adjusted gross income. In
addition, Section 68 of the Code provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a specified amount will be reduced by the lesser of (i) 3% of the
excess of the individual's adjusted gross income over such amount or (ii) 80%
of the amount of itemized deductions otherwise allowable for the taxable year.
Further, Certificateholders (other than corporations) subject to the
alternative minimum tax may not deduct miscellaneous itemized deductions in
determining such holder's alternative minimum taxable 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. If the
servicing fees paid to the servicer are deemed to exceed reasonable servicing
compensation, the amount of such 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 servicing fees) in a portion of the interest
payments on the receivables. The receivables would then be subject to the
"stripped bond" rules of the Code discussed below.
Stripped Bonds. If the servicing fees on the receivables are deemed
to exceed reasonable servicing compensation, based on recent guidance by the
IRS, each purchaser of a Grantor Trust Certificate will be treated as the
purchaser of a stripped bond 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 recently issued 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) such stripped bond will be considered to have
been issued with OID. See "Original Issue Discount." The original issue
discount on a Grantor Trust Certificate will be the excess of such
certificate's stated redemption price over its issue price. The issue price of
a Grantor Trust Certificate as to any purchaser will be equal to the price
paid by such purchaser of the Grantor Trust Certificate. The stated redemption
price of a Grantor Trust Certificate will be the sum of all payments to be
made on such certificate other than "qualified stated interest", if any. Based
on the preamble to the Section 1286 Treasury Regulations, Federal 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 fee rate that does not constitute excess
servicing will be treated as "qualified stated interest" within the meaning of
the Section 1286 Treasury Regulations and such income will be so treated in
the trustee's tax information reporting. Notice will be given in the
applicable prospectus supplement when it is determined that Grantor Trust
Certificates will be issued with greater than de minimis OID.
Original Issue Discount on Stripped Bonds. If the stripped bonds have
more than a de minimis amount of OID, the special rules of the Code relating
to "original issue discount" (currently Sections 1271 through 1273 and 1275)
will be applicable to a Grantor Trust Certificateholder's interest in those
receivables treated as stripped bonds (the "Stripped Bonds"). Generally, a
Grantor Trust Certificateholder that acquires an interest in a stripped bond
issued or acquired with OID must include in gross income the sum of the "daily
portions," as defined below, of the OID on such stripped bond for each day on
which it owns a 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 stripped bond
generally would be determined as follows. A calculation will be made of the
portion of OID that accrues on the stripped bond 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 (i) the present value of all remaining
payments to be received on the stripped bond under the prepayment assumption
used in respect of the stripped bonds and (ii) any payments received during
such accrual period, and subtracting from that total the "adjusted issue
price" of the stripped bond at the beginning of such accrual period. No
representation is made that the stripped bonds will prepay at any prepayment
assumption. The "adjusted issue price" of a stripped bond at the beginning of
the first accrual period is its issue price (as determined for purposes of the
OID rules of the Code) and the "adjusted issue price" of a stripped bond 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
(other than "qualified stated interest") made at the end of or during that
accrual period. The OID accruing during such 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 an appropriate allocation under either an exact or
approximate method set forth in the OID Regulations, or some other reasonable
method, provided that such method is consistent with the method used to
determine the yield to maturity of the stripped bonds.
With respect to the stripped bonds, 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 stripped bonds. Subsequent purchasers that
purchase stripped bonds at more than a de minimis discount should consult
their tax advisors with respect to the proper method to accrue such OID.
Market Discount if Stripped Bond Rules Do Not Apply. 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 such receivable
allocable to such holder's undivided interest over such holder's tax basis in
such interest. Market discount with respect to a Grantor Trust Certificate
will be considered to be zero if the amount allocable to the Grantor Trust
Certificate is less than 0.25% of the Grantor Trust Certificate'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, investors should
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 such 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 OID, the amount of
market discount that accrues during any accrual period would be equal to the
product of (i) the total remaining market discount and (ii) 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.
For Grantor Trust certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of (i) the total
remaining market discount and (ii) 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 such 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 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 such Grantor Trust Certificate purchased with market
discount. For these purposes, the de minimis rule referred above applies. Any
such deferred interest expense would not exceed the market discount that
accrues during such taxable year and is, in general, allowed as a deduction
not later than the year in which such market discount is includible in income.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will
not apply.
Premium. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each receivable based
on each receivable's relative fair market value, so that such holder's
undivided interest in each receivable will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in receivables at a premium
may elect to amortize such premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on
such Grantor Trust Certificate. The basis for such 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. 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 such Grantor Trust Certificateholder acquires
during the year of the election or thereafter.
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 such
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
such receivable. If a reasonable prepayment assumption is used to amortize
such premium, it appears that such a 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.
On December 30, 1997 the IRS issued final regulations (the
"Amortizable Bond Premium Regulations") dealing with amortizable bond premium.
These regulations specifically do not apply to prepayable debt instruments
subject to Code section 1272(a)(6). Absent further guidance from the IRS, the
trustee intends to account for amortizable bond premium in the manner
described above. It is recommended that prospective purchasers of the
certificates consult their tax advisors regarding the possible application of
the Amortizable Bond Premium Regulations.
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 such an 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 such 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 such Grantor Trust Certificateholder owns or
acquires. See "-- Premium" above. The election to accrue interest, discount
and premium on a constant yield method with respect to a Grantor Trust
Certificate is irrevocable.
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. Such adjusted basis generally
will equal the seller's purchase price for the Grantor Trust Certificate,
increased by the OID included in the seller's gross income with respect to the
Grantor Trust Certificate, and reduced by principal payments on the Grantor
Trust Certificate previously received by the seller. Such 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 twelve
months).
Grantor Trust Certificates will be "evidences 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
such section applies will be treated as ordinary income or loss.
Non-U.S. Persons. Generally, to the extent that a Grantor Trust
Certificate evidences ownership in underlying receivables that were issued on
or before July 18, 1984, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 to (i) an owner that is not a U.S.
Person (as defined below) or (ii) a Grantor Trust Certificateholder holding on
behalf of an owner that is not a U.S. Person will be subject to federal income
tax, collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by
the owner on the sale or exchange of such a Grantor Trust Certificate also
will be subject to federal income tax at the same rate. Generally, such
payments would 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 such Grantor Trust Certificateholder complies with
certain identification requirements (including delivery of a statement, signed
by the Grantor Trust Certificateholder under penalties of perjury, certifying
that such Grantor Trust Certificateholder is not a U.S. Person and providing
the name and address of such Grantor Trust Certificateholder). Additional
restrictions apply to receivables of where the obligor is not a natural person
in order to qualify for the exemption from withholding.
As used herein, a "U.S. Person" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws
of the United States, any state thereof or the District of Columbia, 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 a trust if a court within the United States is able to exercise primary
supervision of the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
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 such year, such 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 such 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 such
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 distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued
the New Regulations which 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.
Prospective investors are urged to consult their own tax advisors regarding
the New Regulations.
FASIT PROVISIONS
The Small Business and Job Protection Act of 1996 added sections 860H
through 860L to the Code (the "FASIT provisions"), which provide for a new
type of entity for United States federal income tax purposes known as a
"financial asset securitization investment trust" (a "FASIT"). Federal Tax
Counsel will deliver its opinion that a trust for which a FASIT election is
made will be treated as a FASIT for federal income tax purposes assuming
compliance with the terms of the trust agreement (including the making of a
timely FASIT election) and related documents. The FASIT provisions of the Code
became effective on September 1, 1997. On February 4, 2000, the IRS and
Treasury issued proposed Treasury regulations on FASITs. The regulations
generally would not be effective until final regulations are filed with the
federal register. However, it appears that certain anti-abuse rules would
apply as of February 4, 2000. Accordingly, definitive guidance cannot be
provided with respect to many aspects of the tax treatment of the trust or the
holders of FASIT regular interests (such holders, "FASIT Regular
Noteholders"). Moreover, the qualification as a FASIT of any trust for which a
FASIT election is made (a "FASIT Trust") depends on the trust's ability to
satisfy the requirements of the FASIT provisions on an ongoing basis,
including, without limitation, the requirements of any final Treasury
regulations that may be promulgated in the future under the FASIT provisions
or as a result of any change in applicable law. Thus, no assurances can be
made regarding the continuing qualification as a FASIT of any FASIT Trust for
which a FASIT election is made at any particular time after the issuance of
securities by the FASIT Trust. In general, the FASIT legislation will enable a
trust to be treated as a pass through entity not subject to United States
federal entity-level income tax (except with respect to certain prohibited
transactions) and to issue securities that would be treated as debt for United
States federal income tax purposes.
Qualification as a FASIT. A trust will qualify under the Code as a
FASIT in which FASIT Regular Notes will constitute the "regular interests" and
the certificate issued by the trust (the "FASIT Ownership Security") will
constitute the "ownership interest", respectively, if (i) a FASIT election is
in effect, (ii) certain tests concerning (A) the composition of the FASIT's
assets and (B) the nature of the noteholders' interests in the FASIT are met
on a continuing basis, and (iii) the trust is not a regulated investment
company as defined in section 851(a) of the Code.
Asset Composition. In order for the trust to be eligible for FASIT
status, substantially all of the assets of the trust must consist of
"permitted assets" as of the close of the third month beginning after the
closing date and at all times thereafter (the "FASIT Qualification Test").
Permitted assets include (i) cash or cash equivalents, (ii) debt instruments
with fixed terms that would qualify as regular interests if issued by a Real
Estate Mortgage Investment Conduit as defined in section 860D of the Code
("REMIC") (generally, instruments that provide for interest at a fixed rate, a
qualifying variable rate, or a qualifying interest-only ("IO") type rate),
(iii) foreclosure property, (iv) certain hedging instruments (generally,
interest and currency rate swaps and credit enhancement contracts) that are
reasonably required to guarantee or hedge against the FASIT's risks associated
with being the obligor on FASIT interests, (v) contract rights to acquire
qualifying debt instruments or qualifying hedging instruments, (vi) FASIT
regular interests, and (vii) REMIC regular interests. Permitted assets do not
include any debt instruments issued by the holder of the FASIT's ownership
interest or by any person related to such holder.
Interests in a FASIT. In addition to the foregoing asset
qualification requirements, the interests in a FASIT also must meet certain
requirements. All of the interests in a FASIT must belong to either of the
following: (i) one or more classes of regular interests or (ii) a single class
of ownership interest that is held by a fully taxable domestic C Corporation.
A FASIT interest generally qualifies as a FASIT regular interest if
(i) it is designated as a regular interest, (ii) it has a stated maturity no
greater than thirty years, (iii) it entitles its holder to a specified
principal amount, (iv) the issue price of the interest does not exceed 125% of
its stated principal amount, (v) the yield to maturity of the interest is less
than the applicable Treasury rate published by the IRS plus 5%, and (vi) 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) a permissible
variable rate 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 (iii), (iv), or (v) 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 (vi), 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 be held
only by domestic C corporations that are fully subject to corporate income tax
("Eligible Corporations"), other FASITs, and dealers in securities who acquire
such interests as inventory, rather than for investment. In addition, holders
of High-Yield Interests are subject to limitations on offset of income derived
from such interest. In addition, the FASIT provisions contain an anti-abuse
rule that imposes corporate income tax on income derived from a FASIT Regular
Note that is held by a pass-through entity (other than another FASIT) that
issues debt or equity securities backed by the FASIT Regular Note and that
have the same features as High-Yield Interests.
Anti-Abuse Rule. Under proposed Treasury regulations, the
Commissioner of Internal Revenue (the "Commissioner") may make appropriate
adjustments with regard to the FASIT and any arrangement or transaction
involving the FASIT if a principal purpose of forming or using the FASIT is to
achieve results inconsistent with the intent of the FASIT provisions and the
FASIT regulations. This determination would be based on all of the facts and
circumstances, including a comparison of the purported business purpose for a
transaction and the claimed tax benefits resulting from the transaction.
Consequences of the Failure of the Issuer to Qualify as a FASIT. If a
FASIT Trust fails to comply with one or more of the Code's ongoing
requirements for FASIT status during any taxable year, the proposed Treasury
regulations provide that its FASIT status would be lost for that year and the
Issuer will be unable to elect FASIT status in future years without the
approval of the Commissioner. If FASIT status is lost, under proposed Treasury
regulations the entity classification of the former FASIT (the "New
Arrangement") is determined under general federal income tax principles. The
holder of the FASIT Ownership Security is treated as exchanging the New
Arrangement's assets for an amount equal to their value and gain recognized is
treated as gain from a prohibited transaction that is subject to the 100
percent tax, without exception. Loss, if any, is disallowed. In addition, the
holder of the FASIT Ownership Security must recognize cancellation of
indebtedness income, on a regular interest by regular interest basis, in an
amount equal to the adjusted issue price of each regular interest outstanding
immediately before the cessation of FASIT status over its fair market value.
If the holder of the FASIT Ownership Security has a continuing economic
interest in the New Arrangement, the characterization of this interest is
determined under general federal income tax principles. Holder of regular
interests are treated as exchanging their regular interest for interest in the
New Arrangement, the classification of which is determined under general
federal income tax principles. Gain is recognized to the extent the new
interest either does not qualify as debt or differs from the regular interest
either in kind or extent. The basis of the interest in the New Arrangement
equals the basis in the regular interest increased by any gain recognized on
the exchange.
Tax Treatment of FASIT Regular Notes. Payments received by Holders of
FASIT Regular Notes generally should be accorded the same tax treatment under
the Code as payments received on other taxable corporate debt instruments.
Holders of FASIT Regular Notes must report income from such Notes under an
accrual method of accounting, even if they otherwise would have used the cash
receipts and disbursements method. Except in the case of FASIT Regular Notes
issued with original issue discount or acquired with market discount or
premium, interest paid or accrued on a FASIT Regular Note generally will be
treated as ordinary income to the Holder and a principal payment on such Note
will be treated as a return of capital to the extent that the Holder's basis
is allocable to that payment. FASIT Regular Notes issued with original issue
discount or acquired with market discount or premium generally will treat
interest and principal payments on such securities in the same manner
described for notes. See "Certain Federal Income Tax Consequences--Trusts for
which a Partnership Election is Made--Tax Consequences to Holders of the
Notes," above.
Under proposed Treasury regulations, if a non-U.S. person holds
(either directly or through a vehicle which itself is not subject to U.S.
federal income tax such as a partnership or a trust) a FASIT Regular Note and
a "conduit debtor" pays or accrues interest on a debt instrument held by such
FASIT, any interest received or accrued by the non-U.S. FASIT Regular Note
holder is treated as received or accrued from the conduit debtor. The proposed
Treasury regulations state that a debtor is a conduit debtor if the debtor is
a U.S. person or the United States branch of a non-U.S. person and the
non-U.S. regular interest holder is (1) a "10 percent shareholder" of the
debtor, (2) a "controlled foreign corporation" and the debtor is a related
person with respect to the controlled foreign corporation or (3) related to
the debtor. As set forth above, the proposed Treasury regulations would not be
effective until final regulations are filed with the federal register.
If a FASIT Regular Note is sold or exchanged, the holder thereof
generally will recognize gain or loss upon the sale in the manner described
above for notes. See "Certain Federal Income Tax Consequences--Trusts for
which a Partnership Election is Made--Tax Consequences to Holders of the
Notes--Sale or Other Disposition." In addition, if a FASIT Regular Note
becomes wholly or partially worthless as a result of default and delinquencies
of the underlying assets, the holder of such note should be allowed to deduct
the loss sustained (or alternatively be able to report a lesser amount of
income).
Tax Treatment of FASIT Ownership Securities. A FASIT Ownership
Security represents the residual equity interest in a FASIT. As such, the
holder of a FASIT Ownership Security determines its taxable income by taking
into account all assets, liabilities and items of income, gain, deduction,
loss and credit of a FASIT. In general, the character of the income to the
holder of a FASIT Ownership Security will be the same as the character of such
income of the FASIT, except that any tax-exempt interest income taken into
account by the holder of a FASIT Ownership Security is treated as ordinary
income. In determining that taxable income, the holder of a FASIT Ownership
Security must determine the amount of interest, original issue discount,
market discount and premium recognized with respect to the FASIT's assets and
the FASIT Regular Notes issued by the FASIT according to a constant yield
methodology and under an accrual method of accounting. In addition, holders of
FASIT Ownership Securities are subject to the same limitations on their
ability to use losses to offset income from their FASIT Security as are the
holders of High-Yield Interests. See "Certain Federal Income Tax
Consequences--FASIT Provisions--Interests in a FASIT."
Losses on dispositions of a FASIT Ownership Security generally will
be disallowed where, within six months before or after the disposition, the
seller of such security acquires any other FASIT Ownership Security. In
addition, if any security that is sold or contributed to a FASIT by the holder
of the related FASIT Ownership Security was required to be marked-to-market
under Code section 475 by such holder, then section 475 will continue to apply
to such securities, except that the amount realized under the mark-to-market
rules will be a greater of the securities' value under present law or the
securities' value after applying special valuation rules contained in the
FASIT provisions. Those special valuation rules generally require that the
value of debt instruments that are not traded on an established securities
market be determined by calculating the present value of the reasonably
expected payments under the instrument using a discount rate of 120% of the
applicable federal rate, compounded semiannually.
The Holder of a FASIT Ownership Security will be subject to a tax
equal to 100% of the net income derived by the FASIT from any "prohibited
transactions." Prohibited transactions include (i) the receipt of income
derived from assets that are not permitted assets, (ii) certain dispositions
of permitted assets, (iii) the receipt of any income derived from any loan
originated by a FASIT and (iv) in certain cases, the receipt of income
representing a servicing fee or other compensation. Any offering for which a
FASIT election is made generally will be structured to avoid application of
the prohibited transaction tax.
Backup Withholding, Reporting and Tax Administration. Holders of
FASIT Notes and Ownership Securities will be subject to backup withholding to
the same extent holders of notes would be subject. See "Certain Federal Income
Tax Consequences--Trusts for which a Partnership Election is Made--Foreign
Holders" and "--Backup Withholding." For purposes of reporting and tax
administration, holders of record of FASIT Notes and Ownership Securities
generally will be treated in the same manner as holders of notes.
CERTAIN STATE TAX CONSEQUENCES
The activities of servicing and collecting the receivables will be
undertaken by the servicer. 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. Noteholders and
certificateholders are urged to consult their own tax advisors with respect to
state tax consequences arising out of the purchase, ownership and disposition
of notes and certificates.
* * *
The federal and state tax discussions set forth above are included
for general information only and may not be applicable depending upon a
noteholder's or certificateholder's particular tax situation. Prospective
purchasers should consult their tax advisors with respect to the tax
consequences to them 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.
ERISA CONSIDERATIONS
Section 406 of ERISA and Section 4975 of the Code prohibit a pension,
profit sharing or other employee benefit or other plan (such as an individual
retirement account and certain types of Keogh Plans) that is subject to Title
I of ERISA or to Section 4975 of the Code from engaging in certain
transactions involving "plan assets" with persons that are "parties in
interest" under ERISA or "disqualified person" under the Code with respect to
the plan. Certain governmental plans, although not subject to ERISA or the
Code, are subject to federal, state or local laws ("Similar Law") that impose
similar requirements (such plans subject to ERISA, Section 4975, or Similar
Law referred to herein as "Plans"). A violation of these "prohibited
transaction" rules may generate excise tax and other liabilities under ERISA
and the Code or under Similar Law for such persons.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the securities
- -- for example:
o Prohibited Transaction Class Exemption ("PTE") 96-23,
which exempts certain transactions effected on behalf of a
Plan by an "in-house asset manager";
o PTE 95-60, which exempts certain transactions between
insurance company general accounts and parties in
interest;
o PTE 91-38, which exempts certain transactions between bank
collective investment funds and parties in interest;
o PTE 90-1, which exempts certain transactions between
insurance company pooled separate accounts and parties in
interest; or
o PTE 84-14, which exempts certain transactions effected on
behalf of a Plan by a "qualified professional asset
manager."
There can be no assurance that any of these exemptions will apply with respect
to any Plan's investment in the securities, or that such an exemption, if it
did apply, would apply to all prohibited transactions that may occur in
connection with such investment. Furthermore, these exemptions would not apply
to transactions involved in operation of a Trust if, as described below, the
assets of the trust were considered to include Plan assets.
ERISA also imposes certain duties on persons who are fiduciaries of
Plans subject to ERISA, including the requirements of investment prudence and
diversification, and the requirement that such a Plan's investments be made in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of such Plan. Plan
fiduciaries must determine whether the acquisition and holding of securities
and the operations of the trust would result in prohibited transactions if
Plans that purchase the securities were deemed to own an interest in the
underlying assets of the trust under the rules discussed below. There may also
be an improper delegation of the responsibility to manage Plan assets if Plans
that purchase the securities are deemed to own an interest in the underlying
assets of the trust.
Pursuant to Department of Labor Regulation ss.2510.3-101 (the "Plan
Assets Regulation"), in general when a Plan acquires an equity interest in an
entity such as the trust and such interest does not represent a "publicly
offered security" or a security issued by an investment company registered
under the Investment Company Act of 1940, as amended, the Plan's assets
include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the
entity is an "operating company" or that equity participation in the entity by
"benefit plan investors" is not "significant." In general, an "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The
treatment in this context of notes and certificates of a trust will be
discussed in the related prospectus supplement. However, it is anticipated
that the certificates will be considered equity interests in the trust for
purposes of the Plan Assets Regulation, and that the assets of the trust may
therefore constitute plan assets if certificates are acquired by Plans. In
such event, the fiduciary and prohibited transaction restrictions of ERISA and
section 4975 of the Code would apply to transactions involving the assets of
the trust.
As a result, except in the case of unsubordinated certificates with
respect to which the Exemption is available (as described below), certificates
generally shall not be transferred to a Plan or a person using Plan assets to
acquire the certificates. Each transferee of certificates to which the
Exemption is not applicable will be deemed to represent that the proposed
transferee is not a Plan and is not acquiring the certificates on behalf of or
with the assets of a Plan (including assets that may be held in an insurance
company's separate or general accounts where assets in such accounts may be
deemed "plan assets" for purposes of ERISA.]
Unless otherwise specified in the related prospectus supplement, the
notes may be purchased by a Plan. 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. However, the notes may not be
purchased with the assets of a Plan if the seller, an underwriter, the
indenture trustee, the trustee or any of their affiliates
o has investment or administrative discretion with respect
to that Plan assets;
o has authority or responsibility to give, or regularly
gives, investment advice with respect to that Plan assets
for a fee and pursuant to an agreement or understanding
that such advice
- will serve as a primary basis for investment decisions
with respect to that Plan assets and
- will be based on the particular investment needs for that
Plan; or
o is an employer maintaining or contributing to that Plan.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33)
of ERISA) are not subject to ERISA requirements. However, any such
governmental or church plan which is qualified under section 401 (a) of the
Code and exempt from taxation under Section 501 (a) of the Code is subject to
the prohibited transaction rules in Section 503 of the Code.
A fiduciary of a Plan considering the purchase of securities of a
given series should consult 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.
Senior Certificates Issued by Trusts
Unless otherwise specified in the related prospectus supplement, the
following discussion applies only to nonsubordinated certificates (referred to
herein as "Senior Certificates") issued by a Trust.
The U.S. Department of Labor (the "DOL") has granted to the lead
underwriter named in the prospectus supplement an exemption (the "Exemption")
from certain of the prohibited transaction rules of ERISA with respect to the
initial purchase, the holding and the subsequent resale by Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include motor vehicle installment loans such as the receivables. The
Exemption will apply to the acquisition, holding and resale of the Senior
Certificates by a Plan, provided that certain conditions (certain of which are
described below) are met.
Among the conditions which must be satisfied for the Exemption to
apply to the Senior Certificates are the following:
(1) The acquisition of the Senior Certificates by a Plan is on terms
(including the price for the Senior Certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Senior Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The Senior Certificates acquired by the Plan have received a
rating at the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Corporation, Moody's
Investors Service, Inc., Duff & Phelps Inc. or Fitch IBCA, Inc.;
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined below);
(5) The sum of all payments made to the underwriters in connection
with the distribution of the Senior Certificates represents not more than
reasonable compensation for underwriting the Senior 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
such receivables; and 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 applicable agreement and reimbursement of the servicer's
reasonable expenses in connection therewith; and
(6) The Plan investing in the Senior Certificates is an "accredited
investor" as defined in Rule 501 (a) (1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
On July 21, 1997, the DOL published in the Federal Register an
amendment to the Exemption, which extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment generally
allows mortgage loans or other secured receivables (the "Obligations")
supporting payments to certificateholders, and having a value equal to no more
than twenty-five percent (25%) of the total principal amount of the
certificates being offered by the trust, to be transferred to the trust within
a 90-day or three-month period following the closing date (the "Pre-Funding
Period"), instead of requiring that all such Obligations be either identified
or transferred on or before the closing date. The relief is available when the
following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the "Pre-Funding
Limit") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the closing date (the
"Additional Obligations") must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which terms
and conditions have been approved by a rating agency.
(3) The transfer of such Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered by
the Exemption receiving a lower credit rating from a rating agency upon
termination of the Pre-Funding Period than the rating that was obtained at the
time of the initial issuance of the certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate for all of the Obligations in the
trust at the end of the Pre-Funding Period must not be more than 100 basis
points lower than the average interest rate for the Obligations transferred to
the trust on the closing date.
(5) In order to insure that the characteristics of the Additional
Obligations are substantially similar to the original Obligations which were
transferred to the trust:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider that is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each
rating agency rating the certificates, the related underwriter and
the related trustee) stating whether or not the characteristics of
the Additional Obligations conform to the characteristics described
in the related prospectus or prospectus supplement and/or pooling
and servicing agreement. In preparing such letter, the independent
accountant must use the same type of procedures as were applicable
to the Obligations transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
pre-funding account falls below the minimum level specified in the pooling and
servicing agreement or an event of default occurs.
(7) Amounts transferred to any pre-funding account and/or
capitalized interest account used in connection with the pre-funding may be
invested only in certain permitted investments.
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding
Limit for the trust; and
(iv) that the amounts remaining in the pre-funding account at
the end of the Pre-Funding Period will be remitted to
certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must describe the
permitted investments for the pre-funding account and/or capitalized interest
account and, if not disclosed in the related prospectus supplement, the terms
and conditions for eligibility of Additional Obligations.
The Exemption would also provide relief from certain
self-dealing/conflict of interest or prohibited transactions that may occur
when the Plan fiduciary causes a Plan to acquire certificates in a trust when
the fiduciary (or its affiliate) is an obligor on receivables held in the
trust only if, among other requirements,
(i) in the case of the acquisition of Senior Certificates in
connection with the initial issuance, at least fifty (50)
percent of the Senior Certificates are acquired by persons
independent of the Restricted Group (as defined below),
(ii) such fiduciary (or its affiliate) is an obligor with respect
to five percent (5%) or less of the fair market value of the
obligations contained in the trust,
(iii) the Plan's investment in Senior Certificates does not exceed
twenty-five (25) percent of all of the Senior Certificates
outstanding at the time of the acquisition, and
(iv) immediately after the acquisition, no more than twenty-five
(25) percent of the assets of any Plan with respect to which
the fiduciary has discretionary authority or renders
investment advice are invested in certificates representing
an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemption does not apply to
Plans sponsored by the seller, any underwriter, the trustee,
the servicer, any obligor with respect to receivables
included in the trust constituting more than five percent of
the aggregate unamortized principal balance of the assets in
the trust, or any affiliate of such parties (the "Restricted
Group").
Any Plan fiduciary which proposes to cause a Plan to purchase
securities should consult with counsel concerning the impact of ERISA and the
Code, the applicability of the Exemption (as amended) and the potential
consequences in their specific circumstances, prior to making such investment.
Moreover, each Plan fiduciary should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment
in the securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
Special Considerations Applicable to Insurance Company General Accounts
The Small Business Job Protection Act of 1996 added new Section 401
(c) of ERISA relating to the status of the assets of insurance company general
accounts under ERISA and Section 4975 of the tax code. Under Section 401 (c),
the Department of Labor is required to issue general account regulations with
respect to insurance policies issued on or before December 31, 1998 that are
supported by an insurer's general account. The general account regulations are
to provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the tax code. Section 401 (c) also provides that, except in
the case of avoidance of the general account regulations and actions brought
by the Secretary of Labor relating to certain breaches of fiduciary duties
that also constitute breaches of state or federal criminal law, until the date
that is 18 months after the general account regulations become final, no
liability under the fiduciary responsibility and prohibited transaction
provisions of ERISA and Section 4975 of the tax code may result on the basis
of a claim that the assets of the general account of an insurance company
constitute the assets of any Plan. The plan asset status of insurance company
separate accounts is unaffected by new Section 401 (c) of ERISA, and separate
account assets continue to be treated as the plan assets of any Plan invested
in a separate account. Plan investors considering the purchase of securities
on behalf of an insurance company general account should consult their legal
advisors regarding the effect of the general account regulations on such
purchase.
As of the date hereof, the DOL has issued proposed regulations under
Section 401 (c). It should be noted that if the general account regulations
are adopted substantially in the form in which proposed, the general account
regulations may not exempt the assets of insurance company general accounts
from treatment as "plan assets" after December 31, 1998. The general account
regulations should not, however, adversely affect the applicability of PTCE
95-60.
PLAN OF DISTRIBUTION
The seller will agree to sell, or cause the related trust to sell, to
the underwriters named in the related prospectus supplement the notes and/or
certificates of the trust specified in an underwriting agreement. Each of the
underwriters will severally agree to purchase the principal amount of each
class of notes and/or certificates of the related trust set forth in the
related prospectus supplement and the underwriting agreement.
Each prospectus supplement will either--
o set forth the price at which each class of notes and/or
certificates, as the case may be, being offered thereby will be
offered to the public and any concessions that may be offered
to certain dealers participating in the offering of such notes
and/or certificates; or
o specify that the related notes and/or 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
such sale.
After the initial public offering of any such notes and/or
certificates, such public offering prices and such concessions may be changed.
The seller will indemnify the underwriters of securities against
certain 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 trust
accounts in investments acquired from such underwriters or from the seller.
Under each underwriting agreement with respect to a given trust, the
closing of the sale of any class of securities subject to such underwriting
agreement will be conditioned on the closing of the sale of all other such
classes of securities of that trust (some of which may not be registered or
may not be publicly offered).
The place and time of delivery for the securities in respect of which
this prospectus is delivered will be set forth in the related prospectus
supplement.
LEGAL OPINIONS
Certain legal matters relating to the securities of any trust will be
passed upon for the trust, the seller and the servicer by Brown & Wood, LLP,
New York, New York. Certain other legal matters will be passed upon for the
seller by Michael J. Broker, Esq., Vice-President and Banking Counsel for the
Bank.
GLOSSARY OF TERMS FOR THE PROSPECTUS
Set forth below is a list of the defined terms used in this
prospectus, which are also used in the prospectus supplement.
"Additional Obligations" means, with respect to the Exemption, all
Obligations transferred to a trust after its closing date.
"Advances" means, with respect to a delinquent receivable and a
payment date, the excess of (a) the product of the principal balance of that
receivable as of the first day of the related Collection Period and
one-twelfth of its contract rate of interest, over (b) the interest actually
received by the servicer with respect to that receivable from the obligor or
from the payment of the Purchase Amount during or with respect to such
Collection Period.
"administrator" means the Bank, in its capacity as administrator of
the trust under an administration agreement.
"Amortizable Bond Premium Regulations" means the final regulations
issued on December 30, 1997 by the IRS dealing with amortizable bond premium.
"Bank" means USAA Federal Savings Bank and its successors.
"Benefit Plan Investor" means any:
o "employee benefit plans" (as defined in Section 3(3) of
ERISA, including without limitation governmental plans, foreign
pension plans and church plans;
o "plans" described in Section 4975(e) (1) of the Code,
including individual retirement accounts and Keogh plans; or
o entities whose underlying assets include plan assets by
reason of a plan's investment in such entity, including without
limitation, as applicable, an insurance company general
account.
"Book-Entry Securities" means the notes and certificates that are
held in the U.S. through DTC and in Europe through Clearstream or Euroclear.
"certificate balance" means with respect to each class of
certificates and as the context so requires, (i) with respect to all
certificates of such class, an amount equal to, initially, the initial
certificate balance of such class of certificates and, thereafter, an amount
equal to the initial certificate balance of such class of certificates,
reduced by all amounts distributed to certificateholders of such class of
certificates and allocable to principal or (ii) with respect to any
certificate of such class, an amount equal to, initially, the initial
denomination of such certificate and, thereafter, an amount equal to such
initial denomination, reduced by all amounts distributed in respect of such
certificate and allocable to principal.
"Clearstream" means Clearstream Banking, societe anonyme, a
professional depository under the laws of Luxembourg.
"closing date" means that date specified as such in the prospectus
supplement on which the trust issues its securities.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collection Period" means with respect to securities of each trust,
the period specified in the related prospectus supplement with respect to
calculating payments and proceeds of the related receivables.
"Controlling Class" means, with respect to any trust, the Class A
Notes described in the prospectus supplement as long as any Class A Notes are
outstanding, and thereafter, in order of seniority, each other class of notes,
if any, described in the prospectus supplement as long as they are
outstanding.
"cut-off date" means the date specified as such in the applicable
prospectus supplement.
"daily portion" is computed as specified under "Certain Federal
Income Tax Consequences--Trusts Treated as a Grantor Trust--Stripped Bonds and
Stripped Coupons --Original Issue Discount."
"defaulted receivable" means a receivable (i) that the servicer
determines is unlikely to be paid in full or (ii) with respect to which at
least 5% of a scheduled payment is 120 or more days delinquent as of the end
of a calendar month.
"Definitive Certificates" means with respect to any class of
certificates issued in book-entry form, such certificates issued in fully
registered, certificated form to certificateholders or their respective
nominees, rather than to DTC or its nominee.
"Definitive Notes" means with respect to any class of notes issued in
book-entry form, such notes issued in fully registered, certificated form to
noteholders or their respective nominees, rather than to DTC or its nominee.
"Definitive Securities" means collectively, the Definitive Notes and
the Definitive Certificates.
"DOL" means the United States Department of Labor.
"DTC" means The Depository Trust Company and any successor depository
selected by the trust.
"Eligible Corporation" means, with respect to FASITs, a domestic C
corporation that is fully subject to corporate income tax.
"Eligible Deposit Account" means either--
o a segregated account with an Eligible Institution; or
o a segregated trust account with the corporate trust
department of a depository institution organized under the laws
of the U.S. or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), having
corporate trust powers and acting as trustee for funds
deposited in such account, so long as any of the securities of
such depository institution have a credit rating from each
Rating Agency in one of its generic rating categories which
signifies investment grade.
"Eligible Institution" means--
o the corporate trust department of the indenture trustee or
the related trustee, as applicable; or
o a depository institution organized under the laws of the U.S.
or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), (1) which has
either (A) a long-term unsecured debt rating acceptable to the
Rating Agencies or (B) a short-term unsecured debt rating or
certificate of deposit rating acceptable to the Rating Agencies
and (2) whose deposits are insured by the FDIC.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Euroclear" means a professional depository operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation.
"Events of Default" under the related indenture will consist of the
events specified under "Description of the Notes -- The Indenture" in this
prospectus.
"Events of Servicing Termination" under each sale and servicing
agreement or pooling and servicing agreement will consist of the events
specified under "Description of the Transfer and Servicing Agreements --
Events of Servicing Termination" in this prospectus.
"Exemption" means the exemption granted to the lead underwriter named
in the prospectus supplement by the DOL and described under "ERISA
Considerations'"
"FASIT" means a financial asset securitization investment trust.
"FASIT provisions" means sections 860H through 860L of the Code.
"FASIT Qualification Test" is the requirement for FASIT status
eligibility that substantially all of the assets of the trust must consist of
"permitted assets" as of the close of the third month beginning after the
closing date and at all times thereafter.
"FASIT Regular Noteholders" means holders of FASIT regular interests.
"Federal Tax Counsel" means the special federal tax counsel to each
trust specified in the related prospectus supplement.
"Foreign Person" means a nonresident alien, foreign corporation or
other non-U.S. person.
"Funding Period" the period specified in the related prospectus
supplement during which the seller will sell any Subsequent Receivables to the
trust, which period may be as frequently as daily.
"Grantor Trust Certificateholders" means owners of certificates
issued by a trust that is treated as a grantor trust.
"Grantor Trust Certificates" means certificates issued by a trust
that is treated as a grantor trust.
"indenture" means the indenture by and between the Trust, as issuer
of the notes, and the indenture trustee, identified in the prospectus
supplement.
"IO" means interest-only.
"IRS" means the Internal Revenue Service.
"Motor Vehicle Loans" means motor vehicle installment loans secured
by new and used automobiles and light-duty trucks.
"New Regulations" means the regulations recently issued by the
Treasury Department which make certain modifications to withholding, backup
withholding and information reporting rules.
"Obligations" means, with respect to the Exemption, mortgage loans or
other secured receivables.
"OID" means original issue discount.
"OID regulations" means those Treasury regulations relating to OID.
"payment date" means the date specified in each related prospectus
supplement for the payment of principal of and interest on the securities.
"Permitted Investments" means:
o direct obligations of, and obligations fully guaranteed as to
timely payment by, the United States of America or its
agencies;
o demand deposits, time deposits, certificates of deposit or
bankers' acceptances of certain depository institutions or
trust companies having the highest rating from the applicable
Rating Agency rating the notes or certificates;
o commercial paper having, at the time of such investment, a
rating in the highest rating category from the applicable
Rating Agency rating the notes or certificates;
o investments in money market funds having the highest rating
from the applicable Rating Agency rating the notes or
certificates;
o repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed by, the United States
of America or its agencies, in either case entered into with a
depository institution or trust company having the highest
rating from the applicable Rating Agency rating the notes or
certificates; and
o any other investment acceptable to the applicable Rating
Agencies.
Permitted Investments are generally limited to obligations or securities which
mature on or before the next payment date.
"Plan Assets Regulation" means a regulation, 29 C.F.R. Section
2510.3-101, issued by the DOL.
"pooling and servicing agreement" means the pooling and servicing
agreement between the trustee and the Bank, as seller and servicer, and the
trustee identified in the prospectus supplement.
"Pre-Funding Limit" means, with respect to the Exemption, the ratio
of the amount allocated to the pre-funding account to the total principal
amount of the certificates being offered.
"Pre-Funding Period" means, with respect to the Exemption, a 90-day
or three-month period following the closing date during which, subject to
certain conditions, Additional Obligations may be transferred to the trust.
"PTCE" means a Prohibited Transaction Class Exemption under ERISA.
"Purchase Amount" means a price at which the seller or the servicer
must purchase a receivable from a trust, equal to the unpaid principal balance
of the receivable plus accrued and unpaid interest thereon to the date of
purchase at the weighted average interest rate borne by the trust's
securities.
"Rating Agency" means a nationally recognized rating agency
providing, at the request of the seller, a rating on the securities issued by
the applicable trust.
"Receivables Transfer and Servicing Agreements" means, collectively,
(i) each sale and servicing agreement under which the trust will purchase
receivables from the seller and the servicer will agree to service such
receivables, each trust agreement under which the trust will be created and
certificates will be issued and each administration agreement under which the
Bank will undertake certain administrative duties or, (ii) in the case of a
trust that is a grantor trust, the pooling and servicing agreement.
"Record Date" means the business day immediately preceding the
payment date or, if definitive securities are issued, the last day of the
preceding calendar month.
"REMIC" means a Real Estate Mortgage Investment Conduit as defined in
section 860D of the Code.
"Restricted Group" means, with respect to the Exemption, Plans
sponsored by the seller, any underwriter, the trustee, the servicer, any
obligor with respect to receivables included in the trust constituting more
than five percent of the aggregate unamortized principal balance of the assets
in the trust, or any affiliate of such parties.
"sale and servicing agreement" means the sale and servicing agreement
by and between the Bank, as seller and servicer, and the trust, as purchaser,
identified in the related prospectus supplement.
"SEC" means the Securities and Exchange Commission.
"Section 1286 Treasury Regulations" means recently issued Treasury
regulations under which, 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),
such stripped bond will be considered to have been issued with OID.
"seller" means the Bank as seller of receivables to a trust.
"Senior Certificates" means the nonsubordinated certificates issued
by a trust.
"servicer" means the Bank acting in its capacity as servicer of the
receivables under the applicable sale and servicing agreement or pooling and
servicing agreement.
"Similar Law" means federal, state or local laws that impose
requirements similar to ERISA or the Code.
"Short-Term Note" means a note that has a fixed maturity date of not
more than one year from the issue date of such note.
"Subsequent Receivables" means additional receivables sold by the
seller to the applicable trust during a Funding Period after the closing date.
"Subsequent Transfer Date" means each date specified as a transfer
date in the related prospectus supplement on which Subsequent Receivables will
be sold by the seller to the applicable trust.
"tax code" means the Internal Revenue Code of 1986, as amended.
"trustee" means the trustee of the trust identified in the related
prospectus supplement.
"trust agreement" means the trust agreement by and between the
trustee and the Bank, as depositor, identified in the related prospectus
supplement.
"U.S. Person" means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United
States or any political subdivision thereof, an estate or trust, 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 a trust if a court within the
United States is able to exercise primary supervision of the administration of
the trust and one or more United States persons have the authority to control
all substantial decisions of the trust.
"USAA" means United Services Automobile Association.
<PAGE>
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Expenses in connection with the offering of the securities being
registered herein are estimated as follows:
Registration Fee ............................................$264
Legal Fees and Expenses .....................................$
Accounting Fees and Expenses ................................$
Blue Sky Fees and Expenses ..................................$
Rating Agency Fees ..........................................$
Trustee's Fees and Expenses .................................$
Printing ....................................................$
Miscellaneous ...............................................$________
Total....................................................$
========
- ----------
Item 15. Indemnification of Directors and Officers
Reference is made to each of following documents filed as an exhibit
to this Registration Statement which document is incorporated herein by
reference:
Article VI of the By-Laws of USAA Federal Savings Bank (Exhibit 3.2
hereto).
Reference is also made to 12 C.F.R.ss.545.121.
For the undertaking with respect to indemnification, see Item 17
herein.
Item 16. Exhibits and Financial Statement Schedules
(a)
Exhibits Description
1.1 Form of Underwriting Agreement*
3.1 Charter of the Registrant - filed as Exhibit 3.1 to
Registration Statement No. 333-37471 and incorporated
herein by reference.
3.2 By-Laws of the Registrant - filed as Exhibit 3.2 to
Registration Statement No. 333-37471 and incorporated
herein by reference.
4.1 Form of Pooling and Servicing Agreement between the
Registrant and the Trustee (including forms of
certificates).*
4.2 Form of Indenture between the trust and the indenture
trustee (including forms of notes).*
4.3 Form of Trust Agreement between the Trustee and the
Registrant (including form of certificates).*
4.4 Form of Certificate of Trust for trusts.*
5.1 Opinion of Brown & Wood with respect to legality.*
5.2 Opinion of Richards, Layton & Finger with respect to
legality.*
8.1 Opinion of Brown & Wood with respect to federal income
tax matters.*
23.1 Consent of Brown & Wood (included as part of Exhibits 5.1
and 8.1).*
23.2 Consent of Richards, Layton & Finger (included as part of
Exhibit 5.2).*
24.1 Power of Attorney.**
25. Form of Statement of Eligibility under the Trust Indenture
Act of 1939 of ____________.*
99.1 Form of Sale and Servicing Agreement between the Registrant
and the trust.*
99.2 Form of Administration Agreement among the trust, the
Administrator and the Indenture Trustee.*
*To be filed by amendment.
**Previously filed.
(b) Financial Statements:
Not applicable.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, 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;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the 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 changes 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.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, Form S-8 or Form
F-3, and the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the 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) The undersigned registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement 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.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than 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 Act and will by governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission.
<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 of the requirements for filing on Form S-3 and has duly caused this
Pre-effective Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Antonio, State of Texas on the 24th day of March, 2000.
USAA FEDERAL SAVINGS BANK
By /s/ Mark H. Wright*
----------------------------
Mark H. Wright
President and Chief Executive Officer
(Principal Executive Officer)
By /s/ Rosemary M. Elizalde
---------------------------
Rosemary M. Elizalde
Vice President
Senior Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 1 to the Registrant Statement has been signed by
the following persons in the capacities and on the dates indicated.
Signature Capacity Date
/s/ Robert G. Davis* Chairman March 24, 2000
- ------------------------------------
Robert G. Davis
/s/ Charles E. Bishop* Director March 24, 2000
- ------------------------------------
Charles E. Bishop
/s/ Arthur R. Emerson* Director March 24, 2000
- ---------------------------
Arthur R. Emerson
___________________________ Director
Carlos R. Montemayor
/s/ James E. Olson* Director March 24, 2000
- ------------------------------------
James E. Olson
/s/ Jane B. Phipps* Director March 24, 2000
- ------------------------------------
Jane B. Phipps
___________________________ Director
David M. Robinson
/s/ Mark H. Wright* Director March 24, 2000
- ------------------------------------
Mark H. Wright
*By: /s/ Michael J. Broker
-----------------------
Michael J. Broker
Attorney-in-Fact
March 24, 2000
