<PAGE>
PROSPECTUS
$411,980,000
MMCA AUTO OWNER TRUST 1999-1
$91,000,000 5.066% CLASS A-1 ASSET BACKED NOTES
$110,000,000 5.43% CLASS A-2 ASSET BACKED NOTES
$120,000,000 5.50% CLASS A-3 ASSET BACKED NOTES
$90,980,000 5.63% CLASS A-4 ASSET BACKED NOTES
MMCA AUTO RECEIVABLES, INC.
SELLER
[LOGO]
SERVICER
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UNDERWRITING
DISCOUNTS
PRICE* AND COMMISSIONS NET PROCEEDS TO SELLER
------------------------------ --------------------- ------------------------------
<S> <C> <C> <C>
Class A-1 Notes $ 91,000,000 (100%) $113,750 (0.125%) $ 90,886,250 (99.875%)
Class A-2 Notes $109,995,810 (99.996191%) $192,500 (0.175%) $109,803,310 (99.821191%)
Class A-3 Notes $119,992,891 (99.994076%) $270,000 (0.225%) $119,722,891 (99.769076%)
Class A-4 Notes $ 90,962,520 (99.980787%) $250,195 (0.275%) $ 90,712,325 (99.705787%)
Total $411,951,221 $826,445 $411,124,776
</TABLE>
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* The price of the notes will also include any interest accrued on the notes
from the date on which the notes are issued.
Interest and principal on the notes will be payable monthly, on the 15th or the
first business day after the 15th.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST AND ARE BACKED ONLY BY THE ASSETS
OF THE TRUST. THE NOTES DO NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN MMCA
AUTO RECEIVABLES, INC., MITSUBISHI MOTORS CREDIT OF AMERICA, INC. OR ANY OF
THEIR AFFILIATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The trust is offering the notes subject to availability.
UNDERWRITERS OF THE NOTES
MERRILL LYNCH & CO. LEHMAN BROTHERS
The date of this Prospectus is January 12, 1999
<PAGE>
TABLE OF CONTENTS
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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN
THIS PROSPECTUS.............................. iii
SUMMARY OF TERMS............................... 1
RISK FACTORS................................... 4
DESCRIPTION OF MMCA AUTO OWNER TRUST 1999-1.... 10
Description of the Limited Purposes and Assets
of the Trust................................. 10
Capitalization of the Trust.................... 11
Description of the Owner Trustee............... 11
DESCRIPTION OF THE PROPERTY OF THE TRUST....... 11
MMCA'S VEHICLE CONTRACT PORTFOLIO.............. 12
Types of Contracts Included in MMCA's Motor
Vehicle Contract Portfolio................... 12
MMCA's Underwriting Standards.................. 12
MMCA's Servicing and Collection Procedures..... 13
Physical Damage Insurance on MMCA's
Contracts.................................... 14
Delinquency, Credit Loss and Returned Vehicle
Loss Experience of MMCA's Contracts.......... 14
DESCRIPTION OF THE RECEIVABLES................. 17
Selection Criteria for the Receivables......... 17
Certain Characteristics of the Initial
Receivables.................................. 18
Payment Methods of the Receivables............. 22
Maturity and Prepayment Considerations for the
Receivables.................................. 23
POOL FACTORS AND OTHER INFORMATION............. 31
USE OF PROCEEDS................................ 31
DESCRIPTION OF THE SELLER...................... 31
DESCRIPTION OF THE SERVICER.................... 32
DESCRIPTION OF THE TERMS OF THE NOTES.......... 32
Principal Amount of and Interest Rates on the
Notes........................................ 32
Registration of the Notes in the Name of Cede
as Nominee of DTC............................ 33
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Book Entry Registration of the Notes........... 33
Issuance of Definitive Notes Upon the
Occurrence of Certain Circumstances.......... 36
Interest Payable on the Notes.................. 37
Principal Payable on the Notes................. 38
Mandatory Redemption of the Notes.............. 39
Optional Redemption of the Notes............... 39
Description of the Indenture Trustee........... 39
Description of the Trust's Bank Accounts....... 39
Description of the Yield Supplement
Agreement.................................... 41
Description of the Yield Supplement Account.... 41
Description of the Indenture Cash Flows........ 42
Description of the Negative Carry Account...... 47
Description of the Reserve Account and
Supplemental Reserve Account................. 48
Description of the Balloon Payment
Receivables.................................. 50
Subordination of the Certificates to the
Notes........................................ 51
Advances by the Servicer of Amounts Payable on
the Receivables.............................. 51
Deposit of Collections on the Receivables to
Collection Account........................... 52
Description of the Statements to Noteholders... 53
Description of the Terms of the Indenture...... 54
DESCRIPTION OF THE TRANSFER AND SERVICING
AGREEMENTS................................... 60
Sale and Assignment of the Initial Receivables
and the Subsequent Receivables............... 60
Description of the Pre-Funding Period.......... 63
Mandatory Repurchase of Receivables............ 63
Description of Servicing Procedures............ 64
Servicing Compensation......................... 66
Evidence to be Provided as to Servicer's
Compliance with its Servicing Obligations.... 66
Resignation by the Servicer.................... 66
Consequences of Merger, Conversion,
Consolidation or Similar Actions by
Servicer..................................... 67
Limits on Servicer's Liability................. 67
Limits on Servicer's Obligations in Connection
with Legal Actions........................... 67
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Events of Servicing Termination................ 67
Rights of Indenture Trustee and Noteholders
Upon an Event of Servicing Termination....... 68
Requirements for Amendments of the Transfer and
Servicing Agreements......................... 68
Requirements for Termination of the Trust...... 69
Actions to be Taken by Indenture Trustee Upon
Termination of the Trust..................... 69
Description of the Administration Agreement.... 70
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES....... 70
Bankruptcy Considerations Relating to the
Transfer of the Receivables by MMCA to the
Seller....................................... 70
Trust's Rights in the Receivables.............. 70
Trust's Security Interests in the Financed
Vehicles..................................... 71
Repossession of Financed Vehicles by Servicer
on Behalf of the Trust....................... 73
Servicer's Obligation to Provide Notice of Sale
of a Financed Vehicle; Obligor's Redemption
Rights in a Financed Vehicle................. 73
Trust's Right to Deficiency Judgments Against
Obligors..................................... 73
Obligor's Right to Excess Proceeds Upon Sale of
a Financed Vehicle........................... 73
Consumer Protection Laws Affecting the Trust's
Rights under the Receivables................. 73
Other Laws that Impose Limits on Enforcing the
Receivables.................................. 74
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ 75
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Tax Treatment of the Notes and the Trust under
Federal Income Tax Law....................... 75
Federal Tax Consequences of Waivers of Events
of Default and Amendments of Notes by
Noteholders.................................. 77
Information Reporting and Backup Withholding of
Taxes by Indenture Trustee................... 77
Tax Consequences to Foreign Investors.......... 78
CERTAIN STATE TAX CONSEQUENCES................. 79
ELIGIBILITY OF NOTES FOR PURCHASE BY MONEY
MARKET FUNDS................................. 79
ERISA CONSIDERATIONS........................... 79
Special ERISA Considerations for Employee
Benefit Plans................................ 79
Special ERISA Considerations Applicable to
Insurance Company General Accounts........... 80
General Investment Considerations for Employee
Benefit Plans................................ 80
UNDERWRITING................................... 81
LEGAL OPINIONS................................. 82
REPORTS TO NOTEHOLDERS......................... 82
WHERE YOU CAN FIND MORE INFORMATION............ 82
INDEX OF PRINCIPAL TERMS....................... 84
ANNEX A........................................ 88
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<PAGE>
IMPORTANT NOTICE
ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
You should rely only on information on the notes provided in this
prospectus. We have not authorized anyone to provide you with different
information.
We include cross-references to sections where you can find additional
information. Check the table of contents to locate these sections.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined beginning on page 84 in this prospectus.
iii
<PAGE>
SUMMARY OF TERMS
THIS SUMMARY CONTAINS A BRIEF DESCRIPTION OF THE NOTES. YOU WILL FIND A DETAILED
DESCRIPTION OF THE TERMS OF THE OFFERING OF THE NOTES FOLLOWING THIS SUMMARY.
<TABLE>
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THE TRUST: MMCA Auto Owner Trust 1999-1
SELLER OF THE RECEIVABLES TO THE
TRUST: MMCA Auto Receivables, Inc.
SELLER'S ADDRESS: 6363 Katella Avenue, Cypress, CA 90630-5205
SELLER'S TELEPHONE NUMBER: (714) 236-1592
SERVICER OF THE RECEIVABLES: Mitsubishi Motors Credit of America, Inc.
INDENTURE TRUSTEE: Bank of Tokyo-Mitsubishi Trust Company
OWNER TRUSTEE: Wilmington Trust Company
THE TRUST PROPERTY: The trust property will include:
- the receivables, which are motor vehicle retail
installment sale contracts originated by
Mitsubishi Motors Credit of America, Inc.;
- the security interests in the motor vehicles
financed by the receivables;
- the pre-funding account;
- the reserve account;
- the supplemental reserve account;
- the yield supplement account; and
- the negative carry account
</TABLE>
THE TERMS OF THE NOTES
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CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES CLASS A-4 NOTES
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Principal Amount: $91,000,000 $110,000,000 $120,000,000 $90,980,000
Interest Rate Per Annum: 5.066% 5.43% 5.50% 5.63%
Interest Accrual Method: actual/360 30/360 30/360 30/360
Payment Dates: monthly (15th) monthly (15th) monthly (15th) monthly (15th)
First Payment Date: February 16, 1999 February 16, 1999 February 16, 1999 February 16, 1999
Final Payment Date: January 2000 January 2004 July 2005 July 2005
Anticipated Ratings
(Moody's/Standard &
Poor's):* P-1/A-1(+) Aaa/AAA Aaa/AAA Aaa/AAA
</TABLE>
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* It is a condition to the offering of the notes that these ratings be
obtained. However, a rating agency in its discretion may lower or withdraw
its rating in the future.
<PAGE>
THE RECEIVABLES
The trust will own two types of receivables:
- receivables that provide for equal monthly payments over the term of the
receivable; and
- receivables that provide for equal monthly payments plus a substantially
larger final balloon payment.
The principal balance of the receivables on January 1, 1999 was
$355,155,262.30.
The principal balance of the balloon payments on January 1, 1999 was
$92,202,119.73.
The seller expects to sell additional receivables having a principal balance
of approximately $118,385,086.70 to the trust during a pre-funding period that
begins on the closing date and ends no later than June 30, 1999.
On each date on which additional receivables are sold to the trust, the
total principal balance of the balloon payments payable to the trust as a
percentage of the total principal balance of receivables will not exceed 26%.
PAYMENT SOURCES
On each payment date, the trust will pay the amounts owed by the trust from
the following sources:
- collections on the receivables during the prior month;
- amounts withdrawn from the reserve account and the supplemental reserve
account;
- amounts withdrawn from the yield supplement account and the negative carry
account; and
- advances by the servicer of amounts due on the receivables but not paid
during the prior month.
PRIORITY OF DISTRIBUTIONS
On each payment date, the trust will pay the amounts owed by the trust in
the following order:
(1) payment to the servicer of amounts advanced by the servicer on
previous payment dates;
(2) payment of the servicing fee equal to 1/12th of 1.00% of the total
principal balance of the receivables on the first day of the prior month;
(3) payment of the interest and principal payable on the notes; and
(4) any required deposits to the reserve account and the supplemental
reserve account.
For further information on the priority of distributions, see "Description
of the Terms of the Notes--Description of the Indenture Cash Flows" in this
prospectus.
PRIORITY OF INTEREST PAYMENTS
On each payment date, the trust will pay interest on the notes, in
proportion to the principal balance of each class.
PRIORITY OF PRINCIPAL PAYMENTS
On each payment date, the amount required to be paid as principal on the
notes will equal:
- the principal scheduled to be paid on the receivables during the prior
month; plus
- the full prepayments on the receivables received during the prior month;
plus
- the principal balance of receivables that became defaulted receivables
during the prior month.
On each payment date, the trust will distribute principal on the notes in
the following order:
(1) to the Class A-1 Notes until the Class A-1 Notes are paid in full;
(2) to the Class A-2 Notes until the Class A-2 Notes are paid in full;
(3) to the Class A-3 Notes until the Class A-3 Notes are paid in full;
and
(4) to the Class A-4 Notes until the Class A-4 Notes are paid in full.
If a default under the indenture occurs, the order of priority for principal
payments will change, and the trust will pay principal on all classes of the
notes, in proportion to the principal balance of each class, until the notes are
paid in full.
2
<PAGE>
CERTIFICATES
In addition to the notes, on the closing date the trust will issue
$61,560,349 total principal amount of certificates. The trust will not make any
distributions on the certificates on any payment date until the interest and
principal payable on the notes on that payment date have been paid. The
certificates are not being offered by this prospectus.
CREDIT ENHANCEMENT
The credit enhancement for the notes will be as follows:
- the subordination of the certificates; and
- the reserve account, the supplemental reserve account and the yield
supplement account.
The credit enhancement for the notes is intended to protect you against
losses or delays in payments on your notes by absorbing losses on the
receivables and other shortfalls in cash flows.
RESERVE ACCOUNT AND SUPPLEMENTAL RESERVE ACCOUNT
On each payment date, the trust will use funds in the supplemental reserve
account and the reserve account to pay the following amounts if collections on
the receivables are insufficient to pay such amounts:
(1) first, the amounts due to the servicer; and
(2) then, the interest and principal due on the notes.
On each payment date, the combined amount required to be on deposit in the
reserve account and the supplemental reserve account will equal the lesser of
(1) 2.75% of the principal balances of the receivables as of the dates on which
the trust acquired them and (2) the principal balance of the notes.
YIELD SUPPLEMENT ACCOUNT
On each payment date, the trust will use funds in the yield supplement
account to cover any shortfall between:
- the sum of (1) the weighted average interest rate on the notes and (2)
3.00%; and
- the interest rate on each receivable.
OPTIONAL REDEMPTION
The servicer can purchase the receivables once their total principal balance
is 10% or less of their principal balances on the dates they were sold to the
trust. If the servicer purchases the receivables, the indenture trustee will
redeem the notes for the unpaid principal amount plus the accrued and unpaid
interest on the notes.
TAX STATUS
In the opinion of Skadden, Arps, Slate, Meagher & Flom LLP, for federal
income and Delaware and California income and franchise 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.
If you purchase a note, you agree to treat it as debt for tax purposes.
ERISA CONSIDERATIONS
The notes are generally eligible for purchase by employee benefit plans that
are subject to the Employee Retirement Income Security Act of 1974. However,
administrators of employee benefit plans should review the matters discussed
under "ERISA Considerations" in this prospectus and also should consult with
their legal advisors before purchasing notes.
ELIGIBILITY OF NOTES FOR PURCHASE BY MONEY MARKET FUNDS
The Class A-1 Notes are structured to be eligible for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended.
3
<PAGE>
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase notes.
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ABSENCE OF SECONDARY MARKET The underwriters for the notes may assist in resales of the
FOR NOTES COULD LIMIT YOUR notes but they are not required to do so. A secondary market
ABILITY TO RESELL NOTES for the notes may not develop. If a secondary market for the
notes does develop, it may not continue or it may not be
sufficiently liquid to allow you to resell any of your
notes.
INTERESTS OF OTHER PERSONS IN Another person could acquire an interest in a receivable
RECEIVABLES AND VEHICLES COULD that is superior to the trust's interest in the receivable
REDUCE THE FUNDS AVAILABLE TO because the servicer will not segregate or mark the
MAKE PAYMENTS ON THE NOTES receivables as belonging to the trust. See "Certain Legal
Aspects of the Receivables--Trust's Rights in the
Receivables." If another person acquires an interest in a
receivable that is superior to the trust's interest in the
receivable, the collections on that receivable will not be
available to make payments on the notes.
Another person could acquire an interest in a vehicle
financed by a receivable that is superior to the trust's
interest in the vehicle because the servicer will not amend
the certificate of title or ownership to identify the trust
as the new secured party. See "Certain Legal Aspects of the
Receivables--Trust's Security Interests in the Financed
Vehicles." If another person acquires an interest in a
vehicle that is superior to the trust's interest in the
vehicle, the proceeds from the sale of the vehicle will not
be available to make payments on the notes.
BANKRUPTCY OF MITSUBISHI If Mitsubishi Motors Credit of America, Inc. ("MMCA") enters
MOTORS CREDIT OF AMERICA, INC. a bankruptcy proceeding, you could experience losses or
COULD RESULT IN LOSSES OR delays in the payments on your notes. MMCA will sell the
DELAYS IN PAYMENTS ON THE receivables to the seller, and the seller will transfer the
NOTES receivables to the trust. However, if MMCA enters a
bankruptcy proceeding, the court in the bankruptcy
proceeding could conclude that the sale of the receivables
by MMCA to the seller was not a "true sale" and that MMCA
still owns the receivables. The court could also conclude
that MMCA and the seller should be consolidated for
bankruptcy purposes. If the court were to reach either of
these conclusions, you could experience losses or delays in
payments on your notes because:
- the indenture trustee will not be able to exercise
remedies against MMCA on your behalf without permission
from the court;
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- the court may require the indenture trustee to accept
property in exchange for the receivables that is of
less value than the receivables;
- tax or government liens on MMCA's property that arose
before the transfer of the receivables to the trust
will be paid from the collections on the receivables
before the collections are used to make payments on
your notes; and
- the indenture trustee may not have a perfected
security interest in (a) one or more of the vehicles
securing the receivables or (b) cash collections held
by MMCA at the time that a bankruptcy proceeding
begins.
The seller has taken steps in structuring the transactions
described in this prospectus to minimize the risk that a
court would conclude that the sale of the receivables to the
seller was not a "true sale" or that MMCA and the seller
should be consolidated for bankruptcy purposes. See "Certain
Legal Aspects of the Receivables--Bankruptcy Considerations
Relating to the Transfer of the Receivables by MMCA to the
Seller" and "Description of the Seller."
In a case decided by the U.S. Court of Appeals for the 10th
Circuit in 1993, the court concluded that accounts
transferred by a seller to a buyer should be included in the
bankruptcy estate of the seller even if the transfer was a
"true sale". If MMCA enters a bankruptcy proceeding and the
court in the bankruptcy proceeding applies the reasoning of
the court in that case, you could experience losses or
delays in the payments on your notes. See "Certain Legal
Aspects of the Receivables--Bankruptcy Considerations
Relating to the Transfer of the Receivables by MMCA to the
Seller."
RISK THAT YOU MAY BE REQUIRED POTENTIAL PREPAYMENT OF NOTES DUE TO PREPAYMENT OF
TO REINVEST YOUR PRINCIPAL IN RECEIVABLES. The payment of principal on your notes will be
THE NOTES AT A LOWER RATE OF accelerated to an extent that cannot be fully predicted by
RETURN BECAUSE OF PREPAYMENTS prepayments on the receivables by the related obligors and
ON THE NOTES purchases of the receivables by the seller and the servicer
due to breaches of representations, warranties and covenants
by the seller and servicer. You will bear the risk that you
will have to reinvest the principal on your notes earlier
than you expected at a rate of interest that is less than
the rate of interest on your notes.
MMCA does not generally maintain historical records on the
rate of prepayment on its receivables. The obligors on the
receivables may prepay the receivables voluntarily at any
time. The receivables
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5
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are required to be prepaid upon the sale, insured loss or
other disposition of the related vehicle. In addition, if
MMCA breaches any of its representations and warranties with
respect to any receivables, MMCA will be required to
repurchase those receivables from the seller, and the seller
will be required to repurchase those receivables from the
trust. MMCA will also be required to purchase receivables
from the trust if it breaches its servicing obligations with
respect to those receivables. MMCA will be entitled to
purchase all of the remaining receivables from the trust
once the aggregate principal balance of the receivables is
10% or less of the principal balances of the receivables on
the dates on which they were sold to the trust.
POTENTIAL PREPAYMENT OF NOTES DUE TO AN INCENTIVE PROGRAM
OFFERED BY MMCA. Obligors on receivables that provide for a
balloon payment can return the related vehicle at the end of
the term of the receivable instead of paying the balloon
payment. MMCA will sell the returned vehicles on behalf of
the trust. MMCA expects the amount realized from the sale of
the returned vehicles to be less than the balloon payments.
To reduce losses from obligors returning their vehicles at
the end of the term of their receivables instead of paying
the balloon payments, MMCA and its affiliates offer
incentives for the obligors to prepay their receivables and
return the related vehicles early if they purchase another
vehicle manufactured by Mitsubishi Motors Corporation or one
of its affiliates. The incentives encourage a higher level
of prepayments on receivables than would otherwise be the
case. The higher level of prepayments on receivables will be
reflected in a higher level of prepayments on the notes than
would otherwise be the case. See "Description of the
Receivables--Maturity and Prepayment Considerations for the
Receivables."
POTENTIAL PREPAYMENTS ON NOTES If the aggregate principal balance of the receivables
DUE TO FAILURE TO TRANSFER A transferred to the trust during the pre-funding period is
SUFFICIENT NUMBER OF less than the amount deposited to the pre-funding account on
ADDITIONAL RECEIVABLES TO THE the closing date, the notes will be prepaid in the amount of
TRUST the shortfall. See "Description of the Terms of the
Notes--Mandatory Redemption of the Notes."
The ability of the seller to apply the entire balance of the
pre-funding account to the transfer of receivables to the
trust during the pre-funding period depends on the
manufacture, distribution, sale and financing of motor
vehicles by Mitsubishi Motors Corporation and its
affiliates. The seller will not be able to transfer
receivables to the trust during the pre-funding period
unless MMCA originates those receivables. MMCA mostly
finances vehicles manufactured by Mitsubishi Motors
Corporation and its affiliates. If Mitsubishi Motors
Corporation and its affiliates temporarily or permanently
stop manufacturing, distributing, selling
</TABLE>
6
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or financing motor vehicles, then MMCA's ability to
originate receivables for sale to the seller will be
adversely affected.
POTENTIAL LOSS OR PREPAYMENTS Changes in the overall characteristics of the trust's pool
ON NOTES DUE TO CHANGES IN of receivables resulting from the addition of receivables
POOL CHARACTERISTICS during the pre-funding period may increase the risk that you
will experience losses or delays in payments on your notes
or prepayments on your notes. The receivables to be
transferred by the seller to the trust during the
pre-funding period may be originated by MMCA using credit
criteria that are different from the credit criteria used by
MMCA in originating the receivables transferred to the trust
on the closing date. Any changes in such credit criteria may
result in a higher rate of delinquencies and losses on the
receivables or a higher rate of prepayment than would
otherwise be the case, which will be reflected in the timing
and amount of payment of principal and interest on the
notes.
POTENTIAL LOSS ON NOTES DUE TO You may suffer a loss on your notes if the assets of the
LIMITED ASSETS OF THE TRUST trust are insufficient to pay the principal amount of the
notes in full. The only source of funds for payments on the
notes will be the assets of the trust. The assets of the
trust are limited to the receivables and the funds on
deposit in the trust's bank accounts. The notes will not be
insured or guaranteed by MMCA, including in its capacity as
servicer, or by the seller, the indenture trustee, the owner
trustee or any other person or entity. Consequently, you
must rely for payment of the notes solely upon collections
on the receivables and funds on deposit in the trust's bank
accounts. See "Description of the Terms of the
Notes--Description of the Reserve Account and Supplemental
Reserve Account."
POTENTIAL LOSS ON NOTES IN The obligors on receivables that provide for a balloon
CONNECTION WITH SALES OF payment will not have to pay the balloon payment if they
VEHICLES return the related vehicle to MMCA at the end of the term of
the receivable. MMCA will sell the returned vehicle on
behalf of the trust. The trust will use the proceeds from
the sale of the returned vehicle to make payments on the
notes. You may experience delays or losses in the payments
on your notes if the proceeds from the sale of the returned
vehicles are less than the amount of the balloon payment.
MMCA expects the proceeds from the sale of a returned
vehicle to be less than the balloon payment because MMCA
sets the balloon payments higher than its estimate of the
wholesale value of the vehicle. See "Description of the
Terms of the Notes--Description of the Balloon Payment
Receivables."
POTENTIAL LOSS ON NOTES IF The obligor under a receivable that provides for a balloon
MMCA DOES NOT REFINANCE payment also has the option to refinance with MMCA the total
BALLOON RECEIVABLES amount due at the end of the term of the receivable, subject
to the satisfaction
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7
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of certain conditions. MMCA will be obligated to provide
such financing to the extent it offers vehicle financing. No
successor to MMCA as servicer will be obligated to provide
such refinancing. If at any time MMCA no longer makes
refinancing available, the seller may contract with third
parties to do so. If a refinancing option is not available,
more obligors may return their vehicles on the due date of
the balloon payment instead of paying the balloon payment
through refinancing of the motor vehicle, and consequently
more motor vehicles may be sold by MMCA on behalf of the
trust for prices less than the balloon payment.
POTENTIAL LOSS ON NOTES IF MMCA does not require the obligor under a receivable that
VEHICLES FINANCED BY provides for a balloon payment to pay the "gap amount" if
RECEIVABLES ARE STOLEN OR theft or physical damage to the vehicle results in a total
DESTROYED loss of the motor vehicle. The "gap amount" is the
difference between the amount owed in respect of the
receivable as of the date of the total loss and insurance
proceeds received with respect to the motor vehicle. In
accordance with its customary servicing practices and
procedures, MMCA treats any gap amount as a non-cash
reduction of the principal amount of the balloon payment.
Any such reduction will decrease the amount of collections
available to the trust. See "Description of the Terms of the
Notes--Description of the Balloon Payment Receivables."
LACK OF HISTORICAL DATA Receivables that provide for a balloon payment have matured
REGARDING THE RETURN RATES in large volumes only in recent years. MMCA therefore does
OF VEHICLES FINANCED BY not have extensive historical information regarding (a) the
BALLOON RECEIVABLES percentage of motor vehicles that will be returned to MMCA
upon the maturity of receivables that provide for a balloon
payment or (b) MMCA's loss experience upon resale of such
returned motor vehicles. MMCA expects that, in the
aggregate, the amounts received by MMCA from the sale of
such vehicles will be less than the principal amounts of the
balloon payment because, as discussed above, MMCA sets
balloon payments higher than its estimate of the wholesale
value of the vehicle.
POTENTIAL LOSS ON NOTES DUE TO Economic conditions in the states where the obligors under
GEOGRAPHIC CONCENTRATION OF the receivables reside may affect the delinquency, loan loss
RECEIVABLES and repossession experience of the trust with respect to the
receivables. Based on the principal balance of the original
pool of receivables as of the date as of which the
receivables were acquired by the trust, 9.84% of the
receivables were originated in California, 17.87% in Texas,
9.66% in Florida and 13.74% in Alabama. Accordingly, adverse
economic conditions or other factors affecting California,
Texas, Florida or Alabama could have an especially
significant effect on the delinquency, loan loss or
repossession experience of the trust and may adversely
affect the timing and amount of payment of principal and
interest on the notes.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
RISKS IN CONNECTION WITH AN If a default occurs under the indenture and the maturity
EVENT OF DEFAULT UNDER dates of the notes are accelerated, the indenture trustee
INDENTURE may sell the receivables and prepay the notes in advance of
their respective maturity dates. You may not be able to
reinvest the principal repaid to you earlier than expected
at a rate of return that is equal to or greater than the
rate of return on your notes. You also may not be paid the
principal amount of your notes in full if the assets of the
trust are insufficient to pay the aggregate principal amount
of the notes in full. In addition, the acceleration of the
maturity dates will change the order of priority for the
payment of principal on the different classes of notes. See
"Description of the Terms of the Notes--Principal Payable on
the Notes."
POTENTIAL DELAYS IN PAYMENTS The payment of principal and interest on the notes could be
ON NOTES DUE TO POTENTIAL delayed if MMCA, in its capacity as servicer, or the
COMPUTER PROGRAM PROBLEMS indenture trustee experience problems in their computer
BEGINNING IN THE YEAR 2000 programs relating to the year 2000. Many existing computer
programs use only two digits to identify a year. These
programs could fail or produce erroneous results during the
transition from the year 1999 to the year 2000 and
afterwards. MMCA has evaluated the impact of preparing its
systems for the year 2000. It has identified areas of
potential impact and is implementing conversion efforts. It
believes its mission-critical applications, including its
systems for operations, collections on the receivables and
servicing the receivables, are already year 2000 compliant,
subject to further testing. MMCA's target is to have all
systems ready for the year 2000 in advance of December 31,
1999.
If MMCA, in its capacity as the servicer, does not have a
computer system that is year 2000 compliant by the year
2000, MMCA's ability to service the receivables may be
materially and adversely affected. If the indenture trustee
does not have a computer system that is year 2000 compliant
by the year 2000, the indenture trustee's ability to make
distributions on the notes may be materially and adversely
affected.
</TABLE>
9
<PAGE>
DESCRIPTION OF MMCA AUTO OWNER TRUST 1999-1
DESCRIPTION OF THE LIMITED PURPOSES AND ASSETS OF THE TRUST
MMCA Auto Owner Trust 1999-1 (the "Trust") is a business trust formed under
the laws of the State of Delaware pursuant to a Trust Agreement, dated as of
December 9, 1998 (as amended and supplemented from time to time, the "Trust
Agreement"), between the Seller and Wilmington Trust Company in its capacity as
the owner trustee (the "Owner Trustee") of the Trust. The Trust was formed for
purposes of the transactions described in this Prospectus. The Trust will hold
title to the Receivables, the Pre-Funding Account and the other assets of the
Trust and the proceeds therefrom, issue the Notes and the Certificates and
distribute payments on the Notes and the Certificates. The Trust's principal
offices are in the State of Delaware in care of Wilmington Trust Company, as
Owner Trustee, at the address listed below. See "--Description of the Owner
Trustee."
The Trust will initially be capitalized through the issuance of the Notes
and $61,560,349 aggregate principal amount of Asset Backed Certificates (the
"Certificates"). The Certificates evidence beneficial ownership of the Trust and
will entitle Certificateholders to receive distributions of amounts not required
to be used to make payments on the Notes or to pay expenses of the Trust. The
Certificates will be subordinated to the Notes to the extent described herein.
The principal amount of the Certificates will be reduced on each Payment Date by
principal payments made on the Certificates. The Certificates are not being
offered hereby and will be retained by the Seller or an affiliate.
The Trust will purchase the Initial Receivables from the Seller pursuant to
the Sale and Servicing Agreement in exchange for the proceeds of the Notes and
the issuance to the Seller or an affiliate thereof of the Certificates. The
Seller or an affiliate will retain the Certificates.
The Servicer will service the Receivables, either directly or through
subservicers, and will be paid the Total Servicing Fee and reimbursed for any
Advances that are due and payable to it out of collections from the Receivables
prior to distributions to Noteholders. Certain other expenses of the Trust will
be paid by the Servicer or by the Seller as provided in the Sale and Servicing
Agreement. See "Description of the Transfer and Servicing
Agreements--Description of Servicing Procedures," "--Servicing Compensation" and
"Description of the Terms of the Notes--Description of the Indenture Cash
Flows."
The Servicer will hold the Receivables and the certificates of title or
ownership relating to the Financed Vehicles as custodian for the Indenture
Trustee and the Trust. However, the Receivables will not be marked or stamped to
indicate that they have been sold to the Trust, and the certificates of title or
ownership for the Financed Vehicles will not be endorsed or otherwise amended to
identify the Trust as the new secured party. Under such circumstances and in
certain jurisdictions, the Trust's security interest in the Receivables and the
Financed Vehicles may be defeated or may not be perfected. See "Certain Legal
Aspects of the Receivables."
The Trust will not acquire any assets other than the Trust Property and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Property and issuing and distributing payments on the Notes
and the Certificates, no historical or pro forma financial statements or ratios
of earnings to fixed charges with respect to the Trust have been included
herein.
If the protection provided to the Noteholders by the subordination of the
Certificates and by amounts on deposit in the Supplemental Reserve Account, the
Reserve Account, the Negative Carry Account and the Yield Supplement Account
from time to time is insufficient, the Noteholders would have to look
principally to the Receivables that are not Defaulted Receivables, the proceeds
from the repossession and sale of Financed Vehicles which secure Defaulted
Receivables and the proceeds from recourse, if any, against Dealers with respect
to the Receivables for payment of the Notes. In such event, certain factors,
such as the Trust's not having perfected security interests in the Financed
Vehicles in all states, may affect
10
<PAGE>
the Trust's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to Noteholders.
See "Description of the Terms of the Notes--Description of the Indenture Cash
Flows" and "Certain Legal Aspects of the Receivables."
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date:
<TABLE>
<S> <C>
Class A-1 Notes............................................. $91,000,000.00
Class A-2 Notes............................................. 110,000,000.00
Class A-3 Notes............................................. 120,000,000.00
Class A-4 Notes............................................. 90,980,000.00
Certificates................................................ 61,560,349.00
--------------
Total................................................... $473,540,349.00
--------------
--------------
</TABLE>
DESCRIPTION OF THE OWNER TRUSTEE
Wilmington Trust Company is the Owner Trustee under the Trust Agreement. The
Owner Trustee's Corporate Trust Office is located at Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001. The Seller, the Servicer
and their respective affiliates may have other banking relationships with the
Owner Trustee and its affiliates in the ordinary course of their businesses.
DESCRIPTION OF THE PROPERTY OF THE TRUST
The Notes will be secured by the property of the Trust (the "Trust
Property") pursuant to the Indenture. The Trust Property will include:
(1) a pool of motor vehicle retail installment sale contracts originated
during or after September, 1995 and certain rights and obligations
thereunder (collectively, the "Receivables");
(2) with respect to Actuarial Receivables, monies due thereunder on or
after the related Cutoff Date (including Payaheads) and, with respect to
Simple Interest Receivables, monies received thereunder on or after the
related Cutoff Date;
(3) amounts and property from time to time held in or credited to one or
more accounts maintained by the Indenture Trustee pursuant to the Sale and
Servicing Agreement as described below, including the Pre-Funding Account,
the Reserve Account, the Supplemental Reserve Account, the Negative Carry
Account and the Yield Supplement Account;
(4) the Seller's security interests in the Financed Vehicles;
(5) the Seller's rights to receive proceeds from claims on physical
damage, credit life, theft and disability insurance policies covering the
Financed Vehicles or the obligors;
(6) the Seller's rights of recourse against the Dealers under the Dealer
Agreements relating to the Receivables;
(7) all of the Seller's rights to certain documents contained in the
Receivable Files;
(8) all of the Trust's rights under the Sale and Servicing Agreement and
the Yield Supplement Agreement;
(9) all of the Seller's rights under the Purchase Agreement, including
the Seller's right to cause MMCA to repurchase certain Receivables from the
Seller;
(10) payments and proceeds with respect to the Receivables held by the
Servicer;
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<PAGE>
(11) all property (including the right to receive liquidation proceeds
and recoveries and Financed Vehicles and the proceeds thereof acquired by
the Trust pursuant to the terms of a Balloon Payment Receivable) that shall
have secured a Receivable (other than a Receivable repurchased by the Seller
or purchased by the Servicer) and that shall have been acquired by or on
behalf of the Trust;
(12) rebates of premiums and other amounts relating to insurance
policies and other items financed under the Receivables in effect as of the
related Cutoff Date; and
(13) all proceeds of the foregoing.
MMCA'S VEHICLE CONTRACT PORTFOLIO
TYPES OF CONTRACTS INCLUDED IN MMCA'S MOTOR VEHICLE CONTRACT PORTFOLIO
MMCA currently purchases motor vehicle and light-duty truck retail
installment sale contracts (the "Motor Vehicle Contracts") and medium-duty truck
retail installment sale contracts (the "Truck Contracts," and, together with the
Motor Vehicle Contracts, the "Contracts") directly from authorized Mitsubishi
Motors motor vehicle dealers and authorized Mitsubishi Motors FUSO truck dealers
(each, a "Dealer"), respectively, throughout the United States. The Contracts
are originated by Dealers who regularly sell such contracts to MMCA and other
finance providers. MMCA purchases Contracts in accordance with its established
underwriting procedures and subject to the terms of its agreements (each, a
"Dealer Agreement") with each Dealer. Each Dealer Agreement, among other things,
obligates the related Dealer to repurchase any Motor Vehicle Contract or Truck
Contract that it sold to MMCA for the outstanding principal balance thereof if
the Dealer breaches certain representations and warranties set forth in the
agreement. Such representations and warranties typically relate to the
origination of the Motor Vehicle Contract or Truck Contract and the security
interest in the related automobile or light-duty truck (a "Motor Vehicle") or
medium-duty truck (a "Truck") and not the creditworthiness of the obligor under
the Contract.
MMCA currently purchases Motor Vehicle Contracts relating to new Motor
Vehicles manufactured or distributed by Mitsubishi Motors and Motor Vehicle
Contracts relating to used Motor Vehicles manufactured or distributed by
Mitsubishi Motors or other motor vehicle manufacturers. MMCA has applied the
same underwriting standards to its purchases of Motor Vehicle Contracts whether
or not the Contracts related to Motor Vehicles manufactured or distributed by
Mitsubishi Motors. See "--MMCA's Underwriting Standards."
MMCA has at all times purchased Truck Contracts relating to new Trucks
manufactured or distributed by Mitsubishi Motors and used Trucks manufactured or
distributed by Mitsubishi Motors or other truck manufacturers. MMCA has applied
the same underwriting standards to its purchases of Truck Contracts whether or
not the Contracts related to Trucks manufactured or distributed by Mitsubishi
Motors. See "--MMCA's Underwriting Standards."
MMCA'S UNDERWRITING STANDARDS
MMCA's underwriting standards emphasize each prospective obligor's ability
to pay and creditworthiness as well as the asset value of the Motor Vehicle or
Truck that secures the related Motor Vehicle Contract or Truck Contract.
Prior to its purchase of a Motor Vehicle Contract, MMCA reviews credit
applications from the obligors that include information about each obligor's
income, residential status, monthly mortgage or rent payments, credit
obligations, bank accounts and other personal information. Upon receipt of a
credit application, MMCA obtains a credit report from an independent credit
bureau which MMCA reviews to determine the applicant's current credit status and
past credit performance. Where necessary, MMCA verifies the employment or the
income of an applicant. MMCA uses a credit scoring system and considers other
factors to reach each credit decision. In November 1996, MMCA introduced a new
credit scoring
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<PAGE>
system for all Motor Vehicle Contracts, replacing the one that had been used
since June 1994. The new credit scoring system first assigns the application to
one of three credit segments: prime, limited credit experience and non-prime.
Each segment considers different credit application and credit bureau report
characteristics or assigns different weighting to certain characteristics that
are considered by all segments. This segmentation is based solely upon the
information in the applicant's credit bureau report. The new credit scoring
system identifies those aspects of an applicant's credit report and credit
application and the proposed financing arrangement that, based upon the specific
performance experience of MMCA's portfolio, are most predictive of the
probability that the applicant will pay MMCA as agreed. MMCA considers
attributes other than the credit score as part of its credit decision process,
including such factors as ratio of income to debt, an applicant's equity in the
Motor Vehicle, satisfactory existing account relationships, excellent recent
reported credit history and availability of an acceptable guarantor. MMCA
management sets limits on the percentage of credit decisions that approve credit
to applicants scoring below company credit score minimums and deny credit to
applicants scoring above such minimums. Prior to June 1994, MMCA used a
credit-scoring system for Motor Vehicle Contracts (other than Contracts relating
to Balloon Payment Receivables) that took into account additional factors from
the credit application. Where the obligor of a Motor Vehicle Contract is a
business entity, MMCA reviews credit applications that include information about
bank accounts, credit references and financial results of such business entity.
In addition, MMCA obtains and reviews published credit reports on the business
entity, where available. In some cases, MMCA may require an individual to
guarantee the business' obligation under the Motor Vehicle Contract.
After considering the relevant information, an assessment is made of the
relative degree of credit risk of a particular application and the decision to
grant or deny credit for a Contract is made at the appropriate management level.
The application, if approved, is assigned to one of four credit tiers reflecting
its degree of credit risk. The interest rate for the customer's account is
determined by the credit tier, with the relatively more risky accounts receiving
a higher interest rate.
Prior to its purchase of a particular Truck Contract, MMCA reviews credit
applications from the obligors that include information about the business of
the applicant, its trade references, its bank references and personal
information of sole proprietors, partners or guarantors. MMCA does not use a
formal credit scoring system but considers, where appropriate, Dun & Bradstreet
reports, business checking account references, business credit references,
review of business financial statements and the projected income to be generated
from the Truck. An individual guarantor is generally required for a business
entity.
MMCA'S SERVICING AND COLLECTION PROCEDURES
MMCA measures delinquency by the number of days elapsed from the date a
payment is due under the Motor Vehicle Contract or the Truck Contract (the "Due
Date"). MMCA considers a payment to be past due or delinquent when the obligor
fails to make at least 90% of a scheduled payment by the related Due Date. MMCA
generally begins collection activities with respect to delinquent Motor Vehicle
Contracts or Truck Contracts through telephone contact based upon the original
credit risk assigned to each obligor at contract origination. Obligors
considered to be weaker credits are generally contacted by telephone when the
Contract becomes seven days delinquent, while obligors considered strong credits
with lesser risk are generally contacted when the Contract becomes 15 days
delinquent. Computer generated delinquency notices are mailed to all delinquent
obligors on the 12th day of delinquency. MMCA also uses an automated system of
monitoring delinquency, which categorizes delinquent accounts into different
priorities of collection activity, based on the level of delinquency of each
account.
MMCA's collectors are assigned to specific delinquencies and attempt to
contact the delinquent obligor by telephone or by letter based on the term of
delinquency and the history of the account. Repossession procedures typically
begin when a Motor Vehicle Contract or Truck Contract becomes
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<PAGE>
between 60 to 75 days delinquent. Repossession is carried out pursuant to
applicable state law and specific procedures adopted by MMCA.
If the Motor Vehicle or Truck securing a delinquent Contract is repossessed,
MMCA's current policy is generally to charge off the Motor Vehicle Contract or
Truck Contract on the date on which the proceeds of sale of the Motor Vehicle or
Truck are applied to the Contract balance and the deficiency is determined.
Prior to February 1997, MMCA's policy was generally to charge off a Contract on
the earlier of the date on which the proceeds of sale of the repossessed
Financed Vehicle were applied to the Contract balance and the date on which the
Motor Vehicle Contract became 120 days delinquent or the Truck Contract became
180 days delinquent if MMCA had not yet repossessed the related Motor Vehicle or
Truck. MMCA's current policy, which was first implemented in February 1997, is
to charge off a delinquent Contract as to which the related Financed Vehicle has
not been repossessed only at such time as it determines that it will be unable
to recover the Financed Vehicle (which time may be later than the time at which
the Contract would have been charged off under MMCA's prior policy). Any
deficiencies remaining after repossession and sale of the related Motor Vehicle
or Truck or after the full charge-off of the related Motor Vehicle Contract or
Truck Contract are pursued by MMCA to the extent practicable and legally
permitted. Obligors are contacted, and when warranted by individual
circumstances, repayment schedules are established and monitored until the
deficiencies are either paid in full or become impractical to pursue.
PHYSICAL DAMAGE INSURANCE ON MMCA'S CONTRACTS
Each Contract generally requires the obligor to obtain physical damage
insurance covering loss or damage to the Motor Vehicle or Truck. The Dealer
Agreements include a requirement that the Dealers provide MMCA with written
confirmation that there is physical damage insurance acceptable to MMCA covering
each Motor Vehicle or Truck at the time that MMCA purchased the related Motor
Vehicle Contract or Truck Contract from the Dealers. MMCA tracks the ongoing
status of insurance by the obligors, and attempts to cause the obligors to
reinstate such insurance in the event that it is allowed to lapse; nevertheless,
there is no assurance that each Motor Vehicle or Truck will continue to be
covered by physical damage insurance for the entire term during which the
related Contract is outstanding.
DELINQUENCY, CREDIT LOSS AND RETURNED VEHICLE LOSS EXPERIENCE OF MMCA'S
CONTRACTS
Set forth below is certain information concerning MMCA's combined portfolio
of Motor Vehicle Contracts and Truck Contracts, including Contracts previously
sold which MMCA continues to service. MMCA changed its credit scoring system for
Motor Vehicle Contracts (other than Contracts relating to Balloon Payment
Receivables) in June 1994. MMCA changed its credit scoring system again in
November 1996 and made the changes applicable to all types of Motor Vehicle
Contracts. See "--MMCA's Underwriting Standards" above. The Initial Receivables
were originated more recently than, on average, the receivables related to Motor
Vehicles and Trucks in the tables in the following pages.
Because (1) the composition of Initial Receivables included in the Trust
differs from, and the Subsequent Receivables to be included in the Trust are
anticipated to differ from, MMCA's combined portfolio, (2) MMCA changed its
underwriting criteria with respect to non-Balloon Payment Receivables in June
1994 and (3) MMCA changed its underwriting criteria again in November 1996 with
respect to all types of receivables, no assurance can be given that the
performance of the Receivables included in the Trust will be similar to the
historical performance of the portfolio as a whole. Further, for the same
reasons as are set forth above, the delinquencies, credit losses and returned
vehicle losses experienced by the Trust may differ from the delinquencies,
credit losses and returned vehicle losses experienced by the combined portfolio
in the past or in the future.
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DELINQUENCY EXPERIENCE (1)
<TABLE>
<CAPTION>
AS OF NOVEMBER 30, AS OF DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding at End of
Period................................................... 129,750 124,426 123,274 122,224 107,507
Delinquencies as a Percent of Contracts
Outstanding (2)
30-59 Days............................................... 3.59% 4.76% 4.42% 5.13% 4.00%
60-89 Days............................................... 0.99% 1.53% 1.56% 1.69% 0.92%
90 Days or More.......................................... 0.26% 0.44% 0.51% 0.54% 0.30%
Repossessions as a Percent of Contracts
Outstanding (2)(3)....................................... 0.77% 0.98% 0.96% 1.41% 1.70%
</TABLE>
- ------------------------
(1) The information in the table includes Motor Vehicle Contracts for new and
used Motor Vehicles and Truck Contracts for new and used Trucks owned by
MMCA or previously sold by MMCA which MMCA continues to service. Delinquency
numbers are net of bankrupt accounts and repossessions.
(2) The period of delinquency is based on the number of days more than 10% of a
payment is contractually past due, and the percent represents delinquent
dollars as a percent of dollars outstanding.
(3) Repossessions means Contracts with respect to which the Financed Vehicle has
been repossessed but for which sale proceeds have not yet been applied to
the Contract balance.
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE (1)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
NOVEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- ----------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Amount Outstanding (2)..................... $ 1,923,375 $ 1,793,632 $ 1,769,219 $ 1,687,592 $ 1,436,009
Average Amount Outstanding (3)............. $ 1,840,194 $ 1,776,031 $ 1,776,481 $ 1,590,046 $ 1,221,467
Number of Contracts Outstanding............ 129,750 124,426 123,274 122,224 107,507
Average Number of Contracts Outstanding
(3)...................................... 125,635 125,044 124,945 117,048 93,879
Charge-offs (4)............................ $ 47,974 $ 67,870 $ 73,242 $ 84,872 $ 20,171
Recoveries (5)............................. $ 8,938 $ 12,215 $ 13,126 $ 7,372 $ 1,058
Net Losses................................. $ 39,036 $ 55,655 $ 60,116 $ 77,500 $ 19,113
Number of Repossessions (6)................ 4,455 6,947 7,382 6,712 4,260
Number of Repossessions as a Percent of the
Average Number of Contracts Outstanding
(7)...................................... 3.87% 6.06% 5.91% 5.73% 4.54%
Net Losses as a Percent of Average Amount
Outstanding (7).......................... 2.31% 3.42% 3.38% 4.87% 1.56%
</TABLE>
- ------------------------------
(1) The information in the table includes Motor Vehicle Contracts for new and
used Motor Vehicles and Truck Contracts for new and used Trucks owned by
MMCA or previously sold by MMCA which MMCA continues to service.
(2) Amount outstanding is remaining principal balance of the Contracts,
including Balloon Payments to the extent attributable to principal on
Balloon Payment Receivables, plus any outstanding fees and charges and any
accrued and unpaid interest.
(3) Averages are computed by taking a simple average of the average months
outstanding for each period presented.
(4) Charge-offs represent the total aggregate amount due on Motor Vehicle
Contracts and Truck Contracts that is determined to be uncollectible in the
period, less proceeds from disposition of related vehicles, other than
recoveries described in Note (5). The
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<PAGE>
calculation of Charge-offs for the Contracts in the portfolio includes both
earned but unpaid finance charges and Balloon Payments. Charge-offs do not
include any losses on sales of Motor Vehicles that were purchased by MMCA
pursuant to the terms of a Balloon Payment Receivable, because such losses
would not constitute credit losses, but Charge-offs do include losses with
respect to both the amortizing monthly installments and Balloon Payments for
Balloon Payment Receivables which have defaulted. Charge-offs do not include
expenses associated with collection, but do include expenses associated with
repossession or disposition of the vehicles. MMCA currently charges off a
Contract upon the earlier of (a) the date upon which the related Financed
Vehicle is sold following repossession or (b) the date as of which MMCA
determines that it will be unable to recover the Financed Vehicle from the
obligor. Prior to February 1997, MMCA had a policy of charging off Motor
Vehicle Contracts and Truck Contracts upon the earlier of the date of sale
of the repossessed Financed Vehicle and the dates as of which the Motor
Vehicle Contract or Truck Contract became 120 days and 180 days delinquent,
respectively. Contracts of bankrupt obligors are included only if charged
off.
(5) Recoveries generally consist of amounts received on Contracts following the
time at which the Contract is charged off net of collection expenses.
(6) Number of Repossessions means the number of repossessed Motor Vehicles and
Trucks in a given period.
(7) Annualized rate. The eleven-month period ended November 30, 1998 is not
necessarily indicative of a full year's actual results. MMCA's credit loss
experience is dependent upon the number of repossessions, the amount
outstanding at the time of repossession, and the resale value of repossessed
vehicles. Losses and delinquencies are affected by, among other things,
general and regional economic conditions and the supply of and demand for
automobiles and light- or medium-duty trucks.
MMCA began originating Balloon Payment Receivables in October 1993. Because
Balloon Payment Receivables have matured in large volumes only more recently,
the experience shown in the tables below may not be comparable to the actual
performance of the Balloon Payment Receivables included in the Trust Property.
BALLOON PAYMENT RECEIVABLES: LOSS EXPERIENCE ON RETURNED VEHICLES (1)
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
NOVEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Total Number of Final Payment
Receivables Scheduled to Terminate............ 17,355 8,760 10,716 1,022 34
Total Number of Vehicles
Returned to MMCA.............................. 4,007 2,322 2,926 435 7
Return Ratio (2)................................ 23.09% 26.51% 27.31% 42.56% 20.59%
Total Losses on Returned
Vehicles Sold (3)............................. $6,077,898 $4,675,334 $5,371,694 $726,208 $12,464
Total Number of Returned
Vehicles Sold................................. 3,601 2,298 2,578 432 7
Average Loss per Returned
Vehicle Sold (3).............................. $1,688 $2,035 $2,084 $1,681 $1,781
</TABLE>
- ------------------------------
(1) The information in the table includes Motor Vehicles returned upon the
expiration of the related Contracts and Motor Vehicles returned under MMCA's
program that offers attractive terms to owners of Motor Vehicles to prepay
their accounts in connection with their respective purchases of a new Motor
Vehicle.
(2) The number of vehicles returned to MMCA as a percentage of the number of
Balloon Payment Receivables scheduled to terminate in the related period.
(3) Losses are calculated without deduction for auction or other disposition
expenses on resale.
MMCA's loss experience on returned Motor Vehicles is dependent upon the
number of Motor Vehicles returned, any programs offered by MMCA that permit the
early return of Motor Vehicles, the amount of the related receivables
outstanding at the time the Motor Vehicles are returned and the resale value of
the returned Motor Vehicles.
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<PAGE>
DESCRIPTION OF THE RECEIVABLES
The Receivables will consist of a pool of retail installment sale contracts
secured by new and used automobiles and light- and medium-duty trucks, including
rights to receive certain payments made with respect to such Receivables,
security interests in the vehicles financed thereby (the "Financed Vehicles")
and the proceeds thereof. The Receivables will include the Initial Receivables
purchased as of the Initial Cutoff Date and any Subsequent Receivables purchased
as of the related Subsequent Cutoff Date. As of the Initial Cutoff Date, the
Initial Receivables had an aggregate principal balance of $355,155,262.30, which
consisted of a Level Pay Pool Balance of $262,953,142.57 and a Balloon Payment
Pool Balance of $92,202,119.73.
The Receivables will be purchased by the Trust from the Seller pursuant to a
Sale and Servicing Agreement, to be dated as of January 1, 1999 (as amended or
supplemented from time to time, the "Sale and Servicing Agreement"), among the
Trust, the Seller and MMCA providing for the purchase of the Initial Receivables
on or before the date of issuance of the Notes (the "Closing Date") and any
Subsequent Receivables on the related Subsequent Transfer Date. The Receivables
will be purchased by the Seller from MMCA pursuant to a Purchase Agreement, to
be dated as of January 1, 1999 (as amended or supplemented from time to time,
the "Purchase Agreement"), between the Seller and MMCA, providing for the
purchase of the Initial Receivables on or before the Closing Date and any
Subsequent Receivables on the related Subsequent Transfer Date. The Receivables
will be selected from the Contracts owned by MMCA based on the criteria
specified in the Sale and Servicing Agreement and described herein. No Initial
Receivable will have a scheduled maturity later than December 30, 2003 (the
"Final Scheduled Maturity Date").
The "Pool Balance" at any time will represent the aggregate principal
balance of the Receivables (including the aggregate principal balance of Balloon
Payments) at the end of the preceding Collection Period or, with respect to any
time during the first Collection Period, on the Initial Cutoff Date, after
giving effect to all payments (other than Payaheads) received from obligors, and
the principal component of all Advances and Purchase Amounts to be remitted by
the Servicer or the Seller, as the case may be, for such Collection Period, and
reduced by the principal amount of Receivables that became Defaulted Receivables
during such Collection Period. The "Initial Pool Balance" means the sum of (a)
the Pool Balance as of the Initial Cutoff Date plus (b) the aggregate principal
balance of all Subsequent Receivables sold to the Trust as of their respective
Subsequent Cutoff Dates.
SELECTION CRITERIA FOR THE RECEIVABLES
The Initial Receivables were purchased, and the Subsequent Receivables have
been or will be purchased, by MMCA from Dealers in the ordinary course of
business in accordance with MMCA's underwriting standards. The Initial
Receivables were selected, and the Subsequent Receivables will be selected, from
MMCA's portfolio by several criteria, including the following:
(1) each Receivable is secured by a new or used automobile or a light-
or medium-duty truck;
(2) each Receivable has an annual percentage rate ("APR") of at least 0%
and not more than 30%;
(3) each Receivable had a remaining maturity as of the related Cutoff
Date of not more than 60 months, and an original maturity of not more than
60 months;
(4) each Receivable had an original principal balance (net of unearned
precomputed finance charges) of not more than $60,000 and a remaining
principal balance of not less than $100 as of the related Cutoff Date;
(5) no Receivable was more than 30 days delinquent with respect to more
than 10% of a payment as of the related Cutoff Date;
17
<PAGE>
(6) no Financed Vehicle had been repossessed as of the related Cutoff
Date;
(7) each Receivable is an installment sale contract;
(8) each Receivable is an Actuarial Receivable or a Simple Interest
Receivable (and may also be a Balloon Payment Receivable);
(9) each Receivable was originated during or after September 1995;
(10) as of the related Cutoff Date, no obligor under a Receivable is the
subject of a proceeding under the United States Bankruptcy Code; and
(11) each Receivable was originated in the United States by a Dealer for
the consumer or commercial sale of a Financed Vehicle in the ordinary course
of such Dealer's business.
In addition, the pool of Receivables will not deviate from the following
characteristics as of each Subsequent Cutoff Date (after giving effect to
Subsequent Receivables sold to the Trust on the related Subsequent Transfer
Date):
(1) the weighted average remaining maturity of the Receivables will not
be more than 51 months; and
(2) the aggregate principal balance of the Balloon Payments as a
percentage of the Pool Balance will not be greater than 26%.
The Initial Receivables will represent approximately 75% of the sum of the
initial principal amount of the Notes and the initial principal amount of the
Certificates. Except for the criteria described in the preceding paragraph and
in "Description of the Transfer and Servicing Agreements--Sale and Assignment of
the Initial Receivables and the Subsequent Receivables", there will be no
required characteristics of the Subsequent Receivables. Therefore, following the
transfer of Subsequent Receivables to the Trust, the aggregate characteristics
of the entire pool of Receivables, including the composition of the Receivables,
the geographic distribution of the Receivables and the distribution by APR of
the Receivables described in the following tables, may vary from those of the
Initial Receivables. Following the end of the Pre-Funding Period, the Seller
will file a report on Form 8-K containing information comparable to that
contained in the tables set forth below regarding the aggregate characteristics
of the entire pool of Receivables, after the addition of the Subsequent
Receivables.
CERTAIN CHARACTERISTICS OF THE INITIAL RECEIVABLES
The composition of the Initial Receivables as of January 1, 1999 and the
geographic distribution and distribution by APR of the Pool Balance of the
Initial Receivables as of January 1, 1999 are set forth in the following tables.
"Level Pay Pool Balance" means the Pool Balance exclusive of the Balloon Payment
Pool Balance. "Balloon Payment Pool Balance" means the aggregate principal
balance of Balloon Payments. See "Description of the Terms of the
Notes--Description of the Balloon Payment Receivables."
18
<PAGE>
COMPOSITION OF THE INITIAL RECEIVABLES AS OF THE INITIAL CUTOFF DATE
<TABLE>
<S> <C>
Pool Balance......................................................................... $355,155,262.30
Level Pay Pool Balance............................................................... $262,953,142.57
Balloon Payment Pool Balance......................................................... $92,202,119.73
Number of Receivables................................................................ 18,921
Average Principal Balance............................................................ $18,770.43
(Range).......................................................................... $2,128.10 to $55,113.90
Average Original Amount Financed..................................................... $20,219.88
(Range).......................................................................... $2,315.00 to $58,860.00
Average Level Pay Balance............................................................ $13,897.42
(Range).......................................................................... $185.58 to $55,113.90
Average Balloon Payment Balance (1).................................................. $11,148.99
(Range).......................................................................... $2,878.34 to $23,544.37
Average Balloon Payment Balance as a Percentage of the Average
Principal Balance of the Balloon Payment Receivables............................. 52.80%
Weighted Average APR................................................................. 6.993%
(Range).......................................................................... 0.000% to 23.499%
Weighted Average Original Term to Maturity........................................... 50.67 months
(Range).......................................................................... 12 months to 60 months
Weighted Average Remaining Term to Maturity.......................................... 45.84 months
(Range).......................................................................... 4 months to 60 months
</TABLE>
- ------------------------------
(1) Based on Balloon Payment Receivable balances only.
19
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE INITIAL RECEIVABLES AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
POOL BALANCE
STATE (1) (2)
- -------------------------------------- ---------------
<S> <C>
Alabama............................... 13.74%
Alaska................................ 0.07
Arizona............................... 0.98
Arkansas.............................. 0.64
California............................ 9.84
Colorado.............................. 0.42
Connecticut........................... 1.74
Delaware.............................. 0.48
Florida............................... 9.66
Georgia............................... 5.38
Hawaii................................ 0.00
Idaho................................. 0.04
Illinois.............................. 4.95
Indiana............................... 0.59
Iowa.................................. 0.45
Kansas................................ 0.19
Kentucky.............................. 0.39
Louisiana............................. 4.73
Maine................................. 0.22
Maryland.............................. 2.99
Massachusetts......................... 0.95
Michigan.............................. 0.53
Minnesota............................. 0.63
Mississippi........................... 1.36
Missouri.............................. 0.88
<CAPTION>
PERCENTAGE OF
POOL BALANCE
STATE (1) (2)
- -------------------------------------- ---------------
<S> <C>
Montana............................... 0.00%
Nebraska.............................. 0.18
Nevada................................ 0.16
New Hampshire......................... 0.18
New Jersey............................ 1.94
New Mexico............................ 0.45
New York.............................. 4.62
North Carolina........................ 1.34
North Dakota.......................... 0.01
Ohio.................................. 0.95
Oklahoma.............................. 0.67
Oregon................................ 0.28
Pennsylvania.......................... 1.93
Rhode Island.......................... 0.17
South Carolina........................ 2.93
South Dakota.......................... 0.04
Tennessee............................. 1.36
Texas................................. 17.87
Utah.................................. 0.25
Vermont............................... 0.02
Virginia.............................. 2.15
Washington............................ 0.29
West Virginia......................... 0.05
Wisconsin............................. 0.35
Wyoming............................... 0.00
------
Total................................. 100.00%
------
------
</TABLE>
- ------------------------
(1) State of origination is based on the addresses of the originating Dealers.
(2) Percentages may not add to 100.00% due to rounding.
20
<PAGE>
DISTRIBUTION BY APR OF THE INITIAL RECEIVABLES AS OF THE INITIAL CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF POOL OF POOL
APR RANGE(%) RECEIVABLES BALANCE(1)(2) BALANCE(3)
- --------------------------------------------------------------------- ----------- ----------------- -----------
<S> <C> <C> <C>
0.00 to 0.99......................................................... 1,941 $ 38,739,277.17 10.91%
1.00 to 1.99......................................................... 63 834,884.76 0.24
2.00 to 2.99......................................................... 690 10,287,106.58 2.90
3.00 to 3.99......................................................... 1,923 39,167,529.70 11.03
4.00 to 4.99......................................................... 1,202 19,421,442.19 5.47
5.00 to 5.99......................................................... 1,991 34,680,743.76 9.76
6.00 to 6.99......................................................... 2,078 38,527,313.61 10.85
7.00 to 7.99......................................................... 2,111 50,547,950.67 14.23
8.00 to 8.99......................................................... 1,798 38,577,273.00 10.86
9.00 to 9.99......................................................... 877 18,604,494.86 5.24
10.00 to 10.99....................................................... 1,225 21,681,396.58 6.10
11.00 to 11.99....................................................... 839 13,712,123.46 3.86
12.00 to 12.99....................................................... 328 4,872,641.64 1.37
13.00 to 13.99....................................................... 395 5,541,895.46 1.56
14.00 to 14.99....................................................... 372 5,724,453.06 1.61
15.00 to 15.99....................................................... 271 3,965,171.28 1.12
16.00 to 16.99....................................................... 176 2,595,527.56 0.73
17.00 to 17.99....................................................... 182 2,513,784.88 0.71
18.00 to 18.99....................................................... 255 2,923,060.99 0.82
19.00 to 19.99....................................................... 85 841,393.20 0.24
20.00 to 20.99....................................................... 40 541,702.28 0.15
21.00 to 21.99....................................................... 19 199,874.69 0.06
22.00 to 22.99....................................................... 59 646,210.49 0.18
23.00 to 23.99....................................................... 1 8,010.43 0.00
----------- ----------------- -----------
Total................................................................ 18,921 $ 355,155,262.30 100.00%
----------- ----------------- -----------
----------- ----------------- -----------
</TABLE>
- ------------------------------
(1) Remaining principal balance for Simple Interest Receivables, and the present
value of scheduled remaining payments for Actuarial Receivables.
(2) Pool Balance does not add up to Initial Pool Balance because of rounding.
(3) Percentages may not add to 100.00% due to rounding.
Approximately 85.55% of the total number of Receivables and approximately
92.07% of the Pool Balance as of the Initial Cutoff Date relate to new
automobiles and light- or medium-duty trucks. Substantially all of such new
automobiles and light- or medium-duty trucks were manufactured or distributed by
Mitsubishi Motors.
Approximately 14.45% of the total number of Receivables and approximately
7.93% of the Pool Balance as of the Initial Cutoff Date relate to used
automobiles and light- or medium-duty trucks.
Approximately 0.47% of the total number of Receivables and approximately
0.39% of the Pool Balance as of the Initial Cutoff Date relate to program
automobiles and light-duty trucks. Program automobiles are vehicles which
dealers have acquired under a remarketing program administered by MMCA. This
program allows dealers to offer to purchasers of program automobiles the same
rate of interest and terms offered to new car buyers. Program vehicles are
primarily automobiles returned to MMCA by rental car companies, but also include
off-lease MMCA company and employee lease vehicles and MMCA pool cars.
21
<PAGE>
Approximately 1.07% of the total number of Receivables and approximately
1.61% of the Pool Balance as of the Initial Cutoff Date, relate to medium-duty
trucks, the primary purchasers of which are businesses.
Approximately 6.72% of the total number of Receivables and approximately
2.93% of the Pool Balance as of the Initial Cutoff Date relate to refinanced
program automobiles and light- or medium-duty trucks manufactured in prior model
years which are financed at the original rates set forth in the related
Contracts or at used vehicle rates.
PAYMENT METHODS OF THE RECEIVABLES
Approximately 9.56% of the Pool Balance as of the Initial Cutoff Date was
attributable to Receivables that provide for the allocation of payments
according to the "actuarial" method ("Actuarial Receivables") excluding
Actuarial Receivables of the type described in the immediately following
paragraph. An Actuarial Receivable provides for amortization of the loan over a
series of fixed level monthly installments. Each monthly installment is deemed
to consist of an amount of interest equal to one twelfth of the stated APR of
the loan multiplied by the scheduled principal balance. The remainder of the
scheduled payment is applied to principal. Generally, no adjustment is made in
the event of early or late payments, although in the latter case the obligor may
be subject to a late payment charge.
Approximately 3.26% of the Pool Balance as of the Initial Cutoff Date was
attributable to Actuarial Receivables that provide that if the Receivable is
prepaid in full, the amount payable will be determined in accordance with a
contractual calculation that is based upon the "Rule of 78's." In the event of
the prepayment in full of such Actuarial Receivables, the excess of the amount
that would be due if the Receivable generally provided for allocation of
payments between principal and interest using the Rule of 78's over the amount
that would be payable upon such prepayment using the actuarial method (the "Rule
of 78's Payment") will not be used to make payments due to Noteholders but will
be paid to the Servicer.
Approximately 87.19% of the Pool Balance as of the Initial Cutoff Date was
attributable to Receivables that provide for the allocation of payments
according to the "simple interest" method ("Simple Interest Receivables")
including Simple Interest Receivables of the type described in the immediately
following paragraph. In November 1996, MMCA began phasing out Motor Vehicle
Contracts and Truck Contracts that provide for the allocation of payments
according to the actuarial method in favor of those Contracts that provide for
allocation of payments according to the "simple interest" method. Since June
1997, MMCA has purchased only Motor Vehicle Contracts and Truck Contracts which
provide for allocation of payments according to the "simple interest" method. A
Simple Interest Receivable also provides for the amortization of the amount
financed under the Receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under an Actuarial Receivable, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the Receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an obligor pays a fixed monthly
installment before the Due Date, 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 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 Due Date, 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 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. In the case of a Balloon Payment Receivable that is a Simple Interest
Receivable, this allocation of payments may
22
<PAGE>
result in the remaining principal balance of the Balloon Payment Receivable on
the Due Date for the Balloon Payment being greater or less than the Balloon
Payment.
Approximately 0.11% of the Pool Balance as of the Initial Cutoff Date was
attributable to Simple Interest Receivables that are subject to a cap on the
aggregate amount of interest to be paid during the term of such Receivables
("Capped Receivables"). With respect to Capped Receivables, if the obligor
consistently makes scheduled payments after the Due Date, the amount of interest
accrued over the term of the loan will be less than would be the case in the
absence of the cap on the aggregate amount of interest payable over the term of
a Capped Receivable. If, as a result of such delinquencies, the aggregate amount
of interest paid under the Receivable reaches the lifetime cap, no further
interest will accrue and each scheduled payment due thereafter will be applied
to the reduction of principal.
Approximately 49.17% of the Pool Balance as of the Initial Cutoff Date was
attributable to Balloon Payment Receivables. Such Receivables provide for
amortization of a portion of the amount financed over a series of fixed level
monthly installments in accordance with the actuarial method or the simple
interest method, but also provide for a substantially larger final scheduled
payment of principal together with one month's interest after payment of such
monthly installments. Upon maturity of a Balloon Payment Receivable, an obligor
thereunder may satisfy the amount then owed by the obligor by (1) paying the
remaining principal amount of the Receivable, all accrued and unpaid interest,
plus any fees, charges, and other amounts then owing on the Due Date of the
Balloon Payment; (2) refinancing the net amount then due, which may be greater
or less than the Balloon Payment, subject to certain conditions; or (3) selling
the related Motor Vehicle to MMCA or its assignee for an amount equal to the
Balloon Payment (reduced by certain charges) and paying any excess of the total
amount owed over the Balloon Payment to MMCA. See "Description of the Terms of
the Notes--Description of the Balloon Payment Receivables."
The Receivables will be prepayable by the obligors at any time. Prepayments
may also result from liquidations due to default, the receipt of proceeds from
physical damage or other insurance, repurchases by the Seller as a result of
certain uncured breaches of the representations and warranties made by it in the
Sale and Servicing Agreement with respect to the Receivables, purchases by the
Servicer as a result of certain uncured breaches of the covenants made by it in
the Sale and Servicing Agreement with respect to the Receivables, or the
Servicer exercising its option to purchase all of the remaining Receivables. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, social, and other factors. See "--Maturity and Prepayment
Considerations for the Receivables."
MATURITY AND PREPAYMENT CONSIDERATIONS FOR THE RECEIVABLES
Prepayments in full on Actuarial Receivables and full or partial prepayments
on Simple Interest Receivables generally will have the effect of reducing the
weighted average life of the Notes, while delinquencies by obligors under the
Simple Interest Receivables, as well as extensions and deferrals on the
Receivables generally, will have the effect of increasing the weighted average
life of the Notes. The Receivables may be prepaid by the obligors at any time
and mandatory prepayments of a Receivable may result from, among other things,
the sale, insured loss or other disposition of the Financed Vehicle or the
Receivable becoming a Defaulted Receivable. No assurance can be given as to the
rate of prepayments or as to whether there will be a substantial amount of
prepayments, nor can any assurance be given as to the level or timing of
prepayments, since prepayments are affected by numerous social, economic and
other factors. Noteholders will bear all reinvestment risk resulting from the
rate of prepayment of the Receivables. To the extent that MMCA or any affiliate
of MMCA maintains any program which has the effect of encouraging prepayments,
prepayments may increase. MMCA currently maintains a program that offers
attractive terms to obligors to prepay their accounts and return their vehicles
early, provided that they purchase a new Mitsubishi Motors vehicle, which has
the effect of encouraging prepayments. No prediction can be made of the effect
of such programs on prepayments, and MMCA is not required to establish or
maintain any such program.
23
<PAGE>
The Receivables have different APRs, and the rates of prepayments of
Receivables with higher and lower APRs may differ. Higher rates of prepayments
of Receivables with higher APRs will decrease the amount available to cover
delinquencies and defaults on the Receivables and may decrease the amount
available to the Reserve Account and the Supplemental Reserve Account. See
"Description of the Terms of the Notes--Description of the Indenture Cash Flows"
and "--Description of the Reserve Account and Supplemental Reserve Account." The
Yield Supplement Agreement will mitigate this effect in the case of Receivables
having APRs less than an amount equal to the sum of (A) the Weighted Average
Rate and (B) 3.00% (which percentage represents the Servicing Rate plus 2.00%).
Prepayments on receivables relating to Motor Vehicle Contracts and Truck
Contracts can be measured relative to a prepayment standard or model. The model
used in this Prospectus, 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 1.00% ABS rate means that 100 receivables prepay each
month. ABS does not purport to be an historical description of prepayment
experience or a prediction of the anticipated rate of prepayment of any pool of
receivables, including the Receivables.
As the rate of payment of principal of the Notes will depend on the rate of
payment (including prepayments) of the principal balance of the Receivables,
final payment of the Notes of any class could occur significantly earlier than
the Final Payment Date for such class. Reinvestment risk associated with early
payment of the Notes will be borne exclusively by the Noteholders.
25.96% of the Pool Balance as of the Initial Cutoff Date consists of the
principal balance of the Balloon Payments on Initial Receivables. Accordingly, a
portion of the principal amount of the Notes is expected to be paid from Balloon
Payments. All of the Balloon Payments on Initial Receivables that are Balloon
Payment Receivables are due, as of the Closing Date, between April 2, 1999 and
December 30, 2003. Accordingly, significant payments of principal are likely to
be made during such period. The average principal balance of a Balloon Payment
on an Initial Receivable that is a Balloon Payment Receivable is approximately
$11,148.99, which is approximately 52.80% of the average principal balance of an
Initial Receivable that is a Balloon Payment Receivable.
The tables captioned "Projected Class A-1 Note Amortization", "Projected
Class A-2 Note Amortization", "Projected Class A-3 Note Amortization" and
"Projected Class A-4 Note Amortization" (collectively, the "ABS Tables") assume
that:
(1) the Yield Supplement Amount is deposited into the Collection Account
each period;
(2) the Negative Carry Amount is deposited into the Collection Account
each period;
(3) the Initial Pre-Funded Amount is applied in its entirety to the
purchase of Subsequent Receivables and the related deposits to the Reserve
Account, the Yield Supplement Account and the Payahead Account;
(4) the Receivables prepay in full at the specified constant percentage
of ABS monthly, with no defaults, losses or repurchases;
(5) each scheduled monthly payment on the Receivables is made on the
last day of each month, and each month has 30 days;
(6) payments on the Notes are made on each Payment Date (and each such
date is assumed to be the 15th day of each applicable month);
(7) the Closing Date is January 21, 1999;
(8) the Servicer does exercise its option to purchase the Receivables;
and
24
<PAGE>
(9) MMCA's program to manage end-of-term risks and mitigate returned
vehicle losses by offering attractive terms to owners of Motor Vehicles to
prepay their accounts and return their Motor Vehicles early, provided that
they purchase a new Motor Vehicle manufactured by Mitsubishi Motors, does
not extend to the Receivables.
The ABS Tables indicate the percent of the initial principal balance of each
class of the Notes that is projected to be outstanding after each of the Payment
Dates shown at various constant ABS percentages.
For purposes of creating the ABS Tables, both the Initial Receivables and
the Subsequent Receivables will be aggregated into hypothetical level payment
and balloon payment pools.
The ABS Tables assume that the Initial Receivables have been aggregated into
the four hypothetical level payment pools set forth below with all of the
Initial Receivables within each such pool having the following characteristics
and that the level scheduled monthly payment for each of the four pools (which
is based on its aggregate principal balance, APR, original term to maturity and
remaining term to maturity as of the Initial Cutoff Date) will be such that each
pool will be fully amortized by the end of its remaining term to maturity.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
LEVEL AGGREGATE WEIGHTED ORIGINAL TERM REMAINING TERM
PAYMENT PRINCIPAL AVERAGE TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- --------------------------------------------------- ----------------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1.................................................. $ 9,925,238.43 5.533% 38 20
2.................................................. 25,454,658.26 6.030 40 32
3.................................................. 117,115,322.18 5.931 48 45
4.................................................. 110,457,923.70 7.662 60 57
</TABLE>
The ABS Tables also assume that the principal amounts of the Balloon
Payments on the Initial Receivables have been aggregated into the four
hypothetical balloon payment pools set forth below with all of the Balloon
Payments within each pool having the following characteristics and that the
principal amount is due at the maturity of the pool.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALLOON AGGREGATE WEIGHTED ORIGINAL TERM REMAINING TERM
PAYMENT PRINCIPAL AVERAGE TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---------------------------------------------------- ---------------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1................................................... $ 13,020,584.26 5.926% 46 18
2................................................... 10,954,215.92 8.206 45 30
3................................................... 65,520,931.16 8.147 48 45
4................................................... 2,706,388.39 12.314 60 57
</TABLE>
The ABS Tables also assume that the Subsequent Receivables will be
transferred to the Trust in three groups having equal aggregate principal
balances as of their respective Subsequent Cutoff Dates (February 1, 1999, March
1, 1999 and April 1, 1999). The Subsequent Receivables in each such group will
be aggregated into the four hypothetical level payment pools set forth below
with all of the Subsequent Receivables within each such pool having the
following characteristics. The level scheduled monthly payments for each of the
four pools (which is based on its aggregate principal balance, APR, original
term
25
<PAGE>
to maturity and remaining term to maturity as of the related Subsequent Cutoff
Date) are assumed to be such that each pool will be fully amortized by the end
of its remaining term to maturity.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
LEVEL AGGREGATE WEIGHTED ORIGINAL TERM REMAINING TERM
PAYMENT PRINCIPAL AVERAGE TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---------------------------------------------------- ---------------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1................................................... $ 1,102,804.27 5.533% 38 38
2................................................... 2,828,295.36 6.030 40 40
3................................................... 13,012,813.57 5.931 48 48
4................................................... 12,273,102.63 7.662 60 60
</TABLE>
The ABS Tables also assume that the principal amounts of the Balloon
Payments on the Subsequent Receivables in each group will be aggregated into the
four hypothetical balloon payment pools set forth below with all of the Balloon
Payments within each pool having the following characteristics and that the
principal amount is due at the maturity of the pool.
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
BALLOON AGGREGATE WEIGHTED ORIGINAL TERM REMAINING TERM
PAYMENT PRINCIPAL AVERAGE TO MATURITY TO MATURITY
POOL BALANCE APR (IN MONTHS) (IN MONTHS)
- ----------------------------------------------------- --------------- ----------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1.................................................... $ 1,446,731.58 5.926% 46 46
2.................................................... 1,217,135.10 8.206 45 45
3.................................................... 7,280,103.46 8.147 48 48
4.................................................... 300,709.82 12.314 60 60
</TABLE>
The actual characteristics and performance of the Receivables in the Trust
will differ from the assumptions used in constructing the ABS Tables. The
assumptions used are hypothetical and have been provided only to give a general
sense of how the principal cash flow might behave under varying prepayment
scenarios. For example, it is very unlikely that the Receivables will prepay at
the same level of ABS. Moreover, the diverse terms of Receivables within each of
the hypothetical level payment pools and the hypothetical balloon payment pools
could produce slower or faster principal distributions than indicated in the ABS
Tables at the various constant percentages of ABS specified, even if the
original and remaining terms to maturity of the Receivables are as assumed. In
addition, the characteristics of the Subsequent Receivables are expected to be
different from the characteristics of the Initial Receivables. See "--Selection
Criteria for the Receivables." Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time, as well as collections of interest and principal on Receivables.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
AND SHOULD BE READ IN CONJUNCTION THEREWITH.
26
<PAGE>
PROJECTED CLASS A-1 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-1 NOTE BALANCE (%)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
January 21, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 94 90 88 86
March 15, 1999...................................................... 88 80 75 70
April 15, 1999...................................................... 81 68 61 53
May 15, 1999........................................................ 74 56 46 35
June 15, 1999....................................................... 66 44 31 18
July 15, 1999....................................................... 59 31 16 0
August 15, 1999..................................................... 51 19 2 0
September 15, 1999.................................................. 44 7 0 0
October 15, 1999.................................................... 36 0 0 0
November 15, 1999................................................... 29 0 0 0
December 15, 1999................................................... 21 0 0 0
January 15, 2000.................................................... 13 0 0 0
February 15, 2000................................................... 5 0 0 0
March 15, 2000...................................................... 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 0.62 0.40 0.33 0.28
</TABLE>
27
<PAGE>
PROJECTED CLASS A-2 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-2 NOTE BALANCE (%)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
January 21, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 100
March 15, 1999...................................................... 100 100 100 100
April 15, 1999...................................................... 100 100 100 100
May 15, 1999........................................................ 100 100 100 100
June 15, 1999....................................................... 100 100 100 100
July 15, 1999....................................................... 100 100 100 100
August 15, 1999..................................................... 100 100 100 86
September 15, 1999.................................................. 100 100 90 72
October 15, 1999.................................................... 100 96 78 59
November 15, 1999................................................... 100 87 67 45
December 15, 1999................................................... 100 77 56 32
January 15, 2000.................................................... 100 68 45 19
February 15, 2000................................................... 100 59 34 7
March 15, 2000...................................................... 98 49 23 0
April 15, 2000...................................................... 91 40 12 0
May 15, 2000........................................................ 85 31 2 0
June 15, 2000....................................................... 78 22 0 0
July 15, 2000....................................................... 60 5 0 0
August 15, 2000..................................................... 53 0 0 0
September 15, 2000.................................................. 47 0 0 0
October 15, 2000.................................................... 40 0 0 0
November 15, 2000................................................... 34 0 0 0
December 15, 2000................................................... 28 0 0 0
January 15, 2001.................................................... 21 0 0 0
February 15, 2001................................................... 15 0 0 0
March 15, 2001...................................................... 9 0 0 0
April 15, 2001...................................................... 2 0 0 0
May 15, 2001........................................................ 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 1.70 1.18 0.99 0.83
</TABLE>
28
<PAGE>
PROJECTED CLASS A-3 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-3 NOTE BALANCE (%)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
January 21, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 100
March 15, 1999...................................................... 100 100 100 100
April 15, 1999...................................................... 100 100 100 100
May 15, 1999........................................................ 100 100 100 100
June 15, 1999....................................................... 100 100 100 100
July 15, 1999....................................................... 100 100 100 100
August 15, 1999..................................................... 100 100 100 100
September 15, 1999.................................................. 100 100 100 100
October 15, 1999.................................................... 100 100 100 100
November 15, 1999................................................... 100 100 100 100
December 15, 1999................................................... 100 100 100 100
January 15, 2000.................................................... 100 100 100 100
February 15, 2000................................................... 100 100 100 100
March 15, 2000...................................................... 100 100 100 95
April 15, 2000...................................................... 100 100 100 84
May 15, 2000........................................................ 100 100 100 73
June 15, 2000....................................................... 100 100 93 62
July 15, 2000....................................................... 100 100 78 50
August 15, 2000..................................................... 100 96 69 40
September 15, 2000.................................................. 100 89 60 31
October 15, 2000.................................................... 100 81 52 22
November 15, 2000................................................... 100 74 44 13
December 15, 2000................................................... 100 67 37 5
January 15, 2001.................................................... 100 60 29 0
February 15, 2001................................................... 100 53 21 0
March 15, 2001...................................................... 100 46 14 0
April 15, 2001...................................................... 100 40 7 0
May 15, 2001........................................................ 96 33 0 0
June 15, 2001....................................................... 90 26 0 0
July 15, 2001....................................................... 75 14 0 0
August 15, 2001..................................................... 69 8 0 0
September 15, 2001.................................................. 63 2 0 0
October 15, 2001.................................................... 57 0 0 0
November 15, 2001................................................... 52 0 0 0
December 15, 2001................................................... 46 0 0 0
January 15, 2002.................................................... 41 0 0 0
February 15, 2002................................................... 35 0 0 0
March 15, 2002...................................................... 30 0 0 0
April 15, 2002...................................................... 24 0 0 0
May 15, 2002........................................................ 19 0 0 0
June 15, 2002....................................................... 13 0 0 0
July 15, 2002....................................................... 8 0 0 0
August 15, 2002..................................................... 2 0 0 0
September 15, 2002.................................................. 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 2.92 2.14 1.82 1.55
</TABLE>
29
<PAGE>
PROJECTED CLASS A-4 NOTE AMORTIZATION
PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
<TABLE>
<CAPTION>
CLASS A-4 NOTE BALANCE (%)
----------------------------------------------------------
<S> <C> <C> <C> <C>
PAYMENT DATE 0.0% ABS 1.0% ABS 1.5% ABS 2.0% ABS
- -------------------------------------------------------------------- ------------- ------------- ------------- -------------
January 21, 1999.................................................... 100 100 100 100
February 15, 1999................................................... 100 100 100 100
March 15, 1999...................................................... 100 100 100 100
April 15, 1999...................................................... 100 100 100 100
May 15, 1999........................................................ 100 100 100 100
June 15, 1999....................................................... 100 100 100 100
July 15, 1999....................................................... 100 100 100 100
August 15, 1999..................................................... 100 100 100 100
September 15, 1999.................................................. 100 100 100 100
October 15, 1999.................................................... 100 100 100 100
November 15, 1999................................................... 100 100 100 100
December 15, 1999................................................... 100 100 100 100
January 15, 2000.................................................... 100 100 100 100
February 15, 2000................................................... 100 100 100 100
March 15, 2000...................................................... 100 100 100 100
April 15, 2000...................................................... 100 100 100 100
May 15, 2000........................................................ 100 100 100 100
June 15, 2000....................................................... 100 100 100 100
July 15, 2000....................................................... 100 100 100 100
August 15, 2000..................................................... 100 100 100 100
September 15, 2000.................................................. 100 100 100 100
October 15, 2000.................................................... 100 100 100 100
November 15, 2000................................................... 100 100 100 100
December 15, 2000................................................... 100 100 100 100
January 15, 2001.................................................... 100 100 100 96
February 15, 2001................................................... 100 100 100 85
March 15, 2001...................................................... 100 100 100 75
April 15, 2001...................................................... 100 100 100 65
May 15, 2001........................................................ 100 100 100 55
June 15, 2001....................................................... 100 100 91 46
July 15, 2001....................................................... 100 100 77 35
August 15, 2001..................................................... 100 100 69 27
September 15, 2001.................................................. 100 100 61 18
October 15, 2001.................................................... 100 95 54 11
November 15, 2001................................................... 100 88 46 4
December 15, 2001................................................... 100 81 39 0
January 15, 2002.................................................... 100 74 33 0
February 15, 2002................................................... 100 67 26 0
March 15, 2002...................................................... 100 60 20 0
April 15, 2002...................................................... 100 54 13 0
May 15, 2002........................................................ 100 47 7 0
June 15, 2002....................................................... 100 41 2 0
July 15, 2002....................................................... 100 35 0 0
August 15, 2002..................................................... 100 29 0 0
September 15, 2002.................................................. 96 23 0 0
October 15, 2002.................................................... 16 0 0 0
November 15, 2002................................................... 11 0 0 0
December 15, 2002................................................... 4 0 0 0
January 15, 2003.................................................... 0 0 0 0
--- --- --- ---
Weighted Average Life (yrs)......................................... 3.76 3.31 2.85 2.41
</TABLE>
30
<PAGE>
POOL FACTORS AND OTHER INFORMATION
The "Note Pool Factor" for each class of Notes will be a seven-digit decimal
which the Servicer will compute each month indicating the remaining outstanding
principal amount of the Notes of each class as of the close of business on the
Payment Date in that month, as a fraction of the initial outstanding principal
amount of the Notes of such class. The Note Pool Factor for each class of Notes
will be 1.0000000 as of the Closing Date, and thereafter will decline to reflect
reductions in the outstanding principal amount of the Notes. A Noteholder's
portion of the aggregate outstanding principal amount of the Notes of a class
will be the product of (a) the original denomination of the Noteholder's Note
and (b) the Note Pool Factor for such class.
Pursuant to the Sale and Servicing Agreement, the Noteholders will receive
monthly reports concerning the payments received on the Receivables, the Pool
Balance, the Note Pool Factor and various other items of information.
Noteholders of record during any calendar year will be furnished information for
tax reporting purposes not later than the latest date permitted by law. See
"Description of the Terms of the Notes--Description of the Statements to
Noteholders."
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the Notes
will be applied to the purchase of the Initial Receivables from MMCA and to make
the deposits required to be made by the Seller on the Closing Date to the
Pre-Funding Account, the Negative Carry Account, the Payahead Account, the Yield
Supplement Account and the Reserve Account.
DESCRIPTION OF THE SELLER
MMCA Auto Receivables, Inc. (the "Seller"), a wholly-owned subsidiary of
MMCA, was incorporated in the State of Delaware on July 8, 1993. The Seller was
organized for limited purposes, which include purchasing receivables from MMCA
and transferring such receivables to third parties and any activities incidental
to and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 6363 Katella Avenue,
Cypress, California 90630-5205. The telephone number of such offices is (714)
236-1592. The Seller is subject to the informational requirements of the
Exchange Act and the Commission's rules and regulations thereunder. For further
information regarding the periodic reports concerning the Trust and the
Receivables that will be filed with the Commission, reference is made to the
information that is available as described under "Where You Can Find More
Information."
The Seller has taken steps in structuring the transactions contemplated
hereby that are intended to ensure that the voluntary or involuntary application
for relief by MMCA under the United States Bankruptcy Code or similar state laws
("Insolvency Laws") will not result in consolidation of the assets and
liabilities of the Seller with those of MMCA. These steps include the
maintenance of the Seller as a separate, limited-purpose subsidiary pursuant to
a certificate of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the unanimous affirmative vote of all of its directors). However,
there can be no assurance that the activities of the Seller would not result in
a court concluding that the assets and liabilities of the Seller should be
consolidated with those of MMCA in a proceeding under any Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject to
certain facts, assumptions and qualifications, it would not be a proper exercise
by a court of its equitable discretion to disregard the separate corporate
existence of the Seller and to require the consolidation of the assets and
liabilities of the Seller with the assets and liabilities of MMCA in the event
of the application of the Federal bankruptcy
31
<PAGE>
laws to MMCA. Among other things, it is assumed by counsel that the Seller will
follow certain procedures in the conduct of its affairs, including maintaining
records and books of account separate from those of MMCA, refraining from
commingling its assets with those of MMCA and refraining from holding itself out
as having agreed to pay, or being liable for, the debts of MMCA. The Seller
intends to follow and has represented to such counsel that it will follow these
and other procedures related to maintaining its separate corporate identity.
However, in the event that the Seller did not follow these procedures, there can
be no assurance that a court would not conclude that the assets and liabilities
of the Seller should be consolidated with those of MMCA. If a court were to
reach such a conclusion, or a filing were made under any Insolvency Law by or
against the Seller, or if an attempt were made to litigate any of the foregoing
issues, delays in payments on the Notes could occur or reductions in the amounts
of such payments could result.
DESCRIPTION OF THE SERVICER
Mitsubishi Motors Credit of America, Inc. ("MMCA" or the "Servicer") is a
Delaware corporation which primarily provides retail and wholesale financing,
retail leasing and certain other financial services to authorized Mitsubishi
automobile and truck dealers and their customers in the United States. MMCA was
incorporated in the State of Delaware in August 1990 and commenced operations in
March 1991.
MMCA is a wholly-owned subsidiary of Mitsubishi Motor Sales of America, Inc.
("MMSA"), a California corporation which is engaged in the wholesale
distribution of automobiles and light-duty trucks throughout the United States
manufactured by Mitsubishi Motors Corporation and its affiliates (collectively,
"Mitsubishi Motors"). MMSA is a subsidiary of Mitsubishi Motors Corporation, a
Japanese corporation that is a worldwide manufacturer and distributor of motor
vehicles and trucks. Mitsubishi Motors Corporation owns 97.20% of the stock of
MMSA. Mitsubishi Corporation, a Japanese corporation that is a worldwide general
trading company, owns 2.00% of the stock of MMSA. Mitsubishi International
Corporation, a New York corporation that is a worldwide trading company and a
wholly-owned subsidiary of Mitsubishi Corporation, owns 0.80% of the stock of
MMSA.
The national headquarters of MMCA is located at 6363 Katella Avenue,
Cypress, CA 90630-5205. Its telephone number is (714) 236-1500. MMCA has five
regional offices throughout the United States.
DESCRIPTION OF THE TERMS OF THE NOTES
PRINCIPAL AMOUNT OF AND INTEREST RATES ON THE NOTES
The Trust will issue $411,980,000 aggregate principal amount of Asset Backed
Notes (collectively, the "Notes") pursuant to an indenture to be dated as of
January 1, 1999 (as amended and supplemented from time to time, the
"Indenture"), between the Trust and Bank of Tokyo-Mitsubishi Trust Company in
its capacity as indenture trustee (the "Indenture Trustee").
The Notes will be issued in four classes consisting of:
- the 5.066% Class A-1 Notes in the aggregate principal amount of
$91,000,000 (the "Class A-1 Notes");
- the 5.43% Class A-2 Notes in the aggregate principal amount of
$110,000,000 (the "Class A-2 Notes");
- the 5.50% Class A-3 Notes in the aggregate principal amount of
$120,000,000 (the "Class A-3 Notes"); and
- the 5.63% Class A-4 Notes in the aggregate principal amount of $90,980,000
(the "Class A-4 Notes").
32
<PAGE>
A form of the Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Notes, the Indenture, the Trust Agreement and the Sale and
Servicing Agreement.
REGISTRATION OF THE NOTES IN THE NAME OF CEDE AS NOMINEE OF DTC
The Notes of each class will be offered for purchase in minimum
denominations of $1,000 and integral multiples thereof and will be represented
initially by one or more physical notes registered in the name of Cede & Co.
("Cede") as nominee of The Depository Trust Company ("DTC"). No person acquiring
a beneficial ownership interest in the Notes (a "Note Owner") will be entitled
to receive a definitive note representing such person's beneficial ownership
interest in the applicable class of Notes except in the event that Definitive
Notes are issued under the limited circumstances described herein. Unless and
until Definitive Notes are issued, all references to actions by Noteholders
shall refer to actions taken by DTC upon instructions from its Direct
Participants and all references to payments, notices, reports and statements to
Noteholders shall refer to payments, notices, reports and statements to DTC or
Cede, as the registered holder of the Notes, for payment or distribution to Note
Owners in accordance with DTC's procedures with respect thereto. See "--Book
Entry Registration of the Notes" and "--Issuance of Definitive Notes Upon the
Occurrence of Certain Circumstances."
BOOK ENTRY REGISTRATION OF THE NOTES
Beneficial owners of Notes may hold their Notes through DTC (in the United
States) or Cedel Bank, societe anonyme ("Cedel") or Euroclear (in Europe) if
they are participants of such systems, or indirectly through organizations that
are participants in such systems.
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 pursuant to Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Direct Participants")
and to facilitate the clearance and settlement of securities transactions
between Direct Participants through electronic book-entries, thereby eliminating
the need for physical movement of certificates. Direct Participants include
securities brokers and dealers, banks, trust companies and clearing
corporations, and may include certain other organizations. Indirect access to
the DTC system is also available to others such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants" and,
together with Direct Participants, "DTC Participants").
To facilitate subsequent transfers, all Notes deposited with DTC will be
registered in the name of DTC's nominee, Cede. The deposit of Notes with DTC and
their registration in the name of Cede will effect no change in beneficial
ownership. DTC has no knowledge of the actual Note Owners of the Notes; DTC's
records reflect only the identity of the Direct Participants to whose accounts
such Notes are credited, which may or may not be the Note Owners. The DTC
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
No Noteholder will be entitled to receive a certificate representing such
person's interest in a class of Notes. Unless and until Definitive Notes are
issued under the limited circumstances described below, all references herein to
actions by Noteholders shall refer to actions taken by DTC upon instructions
from DTC Participants, and all references herein to distributions, notices,
reports and statements to Noteholders shall refer to distributions, notices,
reports and statements to Cede, as the registered holder of the Notes, for
distribution to Noteholders in accordance with DTC procedures.
Note Owners will receive all payments of principal and interest on the Notes
through Direct Participants or Indirect Participants. DTC will forward such
payments to its Direct Participants which thereafter will forward them to
Indirect Participants or Note Owners. Under a book-entry format, Note
33
<PAGE>
Owners may experience some delay in their receipt of payments, since such
payments will be forwarded to Cede as nominee of DTC. Note Owners will not be
recognized by the Indenture Trustee as Noteholders, as such term is used in the
Indenture. Note Owners will be permitted to exercise the rights of Noteholders
only indirectly through DTC and its Direct Participants and Indirect
Participants. Because DTC can act only on behalf of Direct Participants, who in
turn act on behalf of Indirect Participants, and on behalf of certain banks,
trust companies and other persons approved by it, the ability of a Note Owner to
pledge the Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Notes, may be limited due to
the absence of physical notes for such Notes.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Note Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payments by DTC Participants to Note Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of such DTC
Participant and not of DTC, the Indenture Trustee, the Owner Trustee, the Seller
or the Servicer, subject to any statutory or regulatory requirements as may be
in effect from time to time. Payment of principal and interest to DTC is the
responsibility of the Indenture Trustee, disbursement of such payments to Direct
Participants shall be the responsibility of DTC and disbursement of such
payments to Note Owners shall be the responsibility of Direct Participants and
Indirect Participants.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual Note Owner is in turn to be recorded on the
Direct Participants' and Indirect Participants' records. Note Owners will not
receive written confirmation from DTC of their purchase, but Note Owners are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holdings, from the Direct Participant or
Indirect Participant through which the Note Owner entered into the transaction.
Transfers of ownership interests in the Notes are to be accomplished by entries
made on the books of DTC Participants acting on behalf of Note Owners. Note
Owners will not receive physical notes representing their ownership interest in
Notes, except in the event that use of the book-entry system for the Notes is
discontinued.
Neither DTC nor Cedel will comment or vote with respect to the Notes. DTC
has advised the Seller that it will take any action permitted to be taken by a
Noteholder under the Indenture only at the direction of one or more Direct
Participants to whose accounts with DTC the Notes are credited. Additionally,
DTC has advised the Seller that to the extent that the Indenture requires that
any action may be taken only by holders of Notes representing a specified
percentage of the aggregate outstanding principal amount thereof, DTC will take
such action only at the direction of and on behalf of Direct Participants whose
holdings include undivided interests that satisfy such specified percentage.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the Indenture
Trustee as soon as possible after any applicable record date with respect to a
consent or vote. The Omnibus Proxy will assign Cede's consenting or voting
rights to those Direct Participants to whose accounts the Notes will be credited
on that record date (identified on a listing attached to the Omnibus Proxy).
DTC may discontinue providing its services as securities depository with
respect to the Notes at any time by giving reasonable notice to the Indenture
Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, Definitive Notes are required to be printed and
delivered. The Seller may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that event,
Definitive Notes will be delivered to Noteholders. See "--Issuance of Definitive
Notes Upon the Occurrence of Certain Circumstances."
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's
34
<PAGE>
names on the books of their respective depositaries (each, a "Depositary" and
collectively, the "Depositaries") which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Transfers between Direct Participants will occur in accordance with DTC
rules. Transfers between Cedel Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through Cedel or Euroclear, on the other, will be effected in DTC in accordance
with DTC rules through the relevant European international clearing system
through its Depositary; however, such cross-market transactions will require
delivery of instructions to the relevant European international clearing system
by the counterparty in such system in accordance with its rules and procedures
and within its established deadlines (European time). The relevant European
international clearing system will, if the transaction meets its settlement
requirements, deliver instructions to its Depositary to take action to effect
final settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Cedel Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and such credits or any transactions in
such securities settled during such processing day will be reported to the
relevant Cedel Participant or Euroclear Participant on such business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel Participant or a Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Seller believes to be reliable, but the
Seller takes no responsibility for the accuracy thereof.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 36
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriters. Indirect access to Cedel is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Cedel Participant,
either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for participants
of the Euroclear System ("Euroclear Participants") and to clear and settle
transactions between Euroclear Participants through simultaneous electronic
book-entry delivery against payment, thereby eliminating the need for physical
movement of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 34 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. The Euroclear System is
operated by Morgan Guaranty Trust Company of New
35
<PAGE>
York, Brussels, Belgium office (the "Euroclear Operator" or "Euroclear"), under
contract with Euroclear Clearance System, S.C., a Belgian cooperative
corporation (the "Cooperative"). All operations are conducted by the Euroclear
Operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of or relationship with persons holding through Euroclear Participants.
Payments on Notes held through Cedel or Euroclear will be credited to the
cash accounts of Cedel Participants or Euroclear Participants in accordance with
the relevant system's rules and procedures, to the extent received by its
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Certain Federal Income Tax
Consequences" and Annex A. Cedel or the Euroclear Operator, as the case may be,
will take any other action permitted to be taken by a Noteholder under the
related agreement on behalf of a Cedel Participant or Euroclear Participant only
in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures in
order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
ISSUANCE OF DEFINITIVE NOTES UPON THE OCCURRENCE OF CERTAIN CIRCUMSTANCES
The Notes of each class will be issued in fully registered, certificated
form ("Definitive Notes") to Noteholders or their nominees, rather than to DTC
or its nominee or a successor clearing agency, only if:
(1) the Trust, the Administrator or the Servicer advises the Indenture
Trustee in writing that DTC (or such successor clearing agency) is no longer
willing or able to discharge properly its responsibilities as depository
with respect to the Notes and the Indenture Trustee or the Administrator is
unable to locate a qualified successor;
(2) the Administrator, at its option, elects to terminate the book-entry
system through DTC (or such successor clearing agency); or
(3) after the occurrence of an Event of Default or an Event of Servicing
Termination, Note Owners representing in the aggregate not less than 51% of
the aggregate outstanding principal amount of the Notes advise the Indenture
Trustee and DTC (or such successor clearing agency) in writing that the
continuation of a book-entry system through DTC (or such successor clearing
agency) is no longer in the best interest of Note Owners.
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Upon the occurrence of any event described in the immediately preceding
paragraph, DTC is required to notify all Direct Participants and the Indenture
Trustee of the availability through DTC of Definitive Notes. Upon surrender by
DTC of the definitive notes representing the Notes and receipt by the Indenture
Trustee of instructions for re-registration, the Indenture Trustee will reissue
the Notes as Definitive Notes, and thereafter the Indenture Trustee will
recognize the holders of such Definitive Notes as Noteholders.
Payments of principal of, and interest on, the Definitive Notes will be made
by the Indenture Trustee directly to Noteholders in accordance with the
procedures set forth herein and in the Indenture. Payments of principal and
interest on each Payment Date will be made to Noteholders in whose names the
Definitive Notes were registered at the close of business on the preceding
Record Date. Such payments will be made by check mailed to the address of such
Noteholder as it appears on the register maintained by the Indenture Trustee.
The final payment on any Definitive Note, however, will be made only upon
presentation and surrender of such Definitive Note at the office or agency
specified in the notice of final payment mailed to Noteholders.
Definitive Notes will be transferable and exchangeable at the offices of the
Indenture Trustee. No service charge will be imposed for any registration of
transfer or exchange, but the Indenture Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
INTEREST PAYABLE ON THE NOTES
The Notes will bear interest at the following rates per annum:
- the Class A-1 Notes: 5.066% per annum (the "Class A-1 Rate");
- the Class A-2 Notes: 5.43% per annum (the "Class A-2 Rate");
- the Class A-3 Notes: 5.50% per annum (the "Class A-3 Rate"); and
- the Class A-4 Notes: 5.63% per annum (the "Class A-4 Rate").
The interest rates for the various classes of Notes are referred to herein
collectively as the "Note Interest Rates."
Interest on the outstanding principal amount of each class of the Notes will
accrue at the applicable Note Interest Rate and will be payable to the
applicable Noteholders monthly on the 15th of each month or, if the 15th day of
the month is not a Business Day, the next following Business Day (each, a
"Payment Date"), commencing February 16, 1999. Payments will be made to holders
of record of the Notes (the "Noteholders") as of the Business Day immediately
preceding each Payment Date or, if Definitive Notes are issued, as of the 15th
day of the preceding month unless such day is not a Business Day, in which case
the immediately preceding Business Day (a "Record Date"). A "Business Day" is a
day other than a Saturday, a Sunday or a day on which banking institutions or
trust companies in New York, New York, Los Angeles, California or Wilmington,
Delaware are authorized or obligated by law, regulation or executive order to be
closed.
Interest will accrue: (1) with respect to the Class A-1 Notes, from and
including the Closing Date (in the case of the first Payment Date) or from and
including the previous Payment Date, to but excluding the following Payment Date
and (2) with respect to the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes, from and including the Closing Date (in the case of the first Payment
Date) or from and including the 15th day of the calendar month preceding each
Payment Date to but excluding the 15th day of the following calendar month (each
such period, an "Interest Period").
Interest will be calculated in the case of the Class A-1 Notes on the basis
of the actual number of days elapsed and a 360-day year, and in the case of the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes on the basis of a
360-day year of twelve 30-day months. Interest payable on a Payment Date will be
calculated on the basis of the outstanding principal amount of the Notes of each
class as of the preceding Payment Date, after giving effect to any payments of
principal of the Notes on such preceding Payment
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Date (or, in the case of the first Payment Date, on the basis of the initial
outstanding principal amount of the Notes of such class).
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 Note Interest Rate (to the extent permitted by law). Interest
payments on the Notes will generally be derived from the Available Funds
remaining after the payment of the Total Servicing Fee for the related
Collection Period and, to the extent the Available Funds remaining are
insufficient, from amounts on deposit in the Supplemental Reserve Account and,
to the extent such amounts are insufficient, from amounts on deposit in the
Reserve Account. See "--Description of the Indenture Cash Flows" and
"--Description of the Reserve Account and Supplemental Reserve Account."
Interest payments to all classes of Notes will have the same priority of
payment. Under certain circumstances, the amount available for interest payments
could be less than the amount of interest payable on the Notes on any Payment
Date, in which case each class of Noteholders will receive their ratable share
(based upon the aggregate amount of interest due to such class of Noteholders)
of the aggregate amount available to be distributed in respect of interest on
the Notes. An Event of Default will occur if the full amount of interest due to
all classes of Noteholders is not paid within five days. No distributions will
be made on the Certificates on any Payment Date until the interest and principal
payable on the Notes on such Payment Date are paid in full.
PRINCIPAL PAYABLE ON THE NOTES
Principal payments will be made to the Noteholders on each Payment Date in
an amount equal in the aggregate to the Principal Distribution Amount in respect
of such Payment Date, subject to certain limitations. Certificateholders will
not be entitled to receive payments of principal until all classes of Notes have
been paid in full. Following the occurrence and during the continuation of an
Event of Default resulting in an acceleration of the Notes, the Noteholders will
be paid in full before any distributions may be made on the Certificates. See
"--Description of the Indenture Cash Flows" and "--Description of the Reserve
Account and Supplemental Reserve Account."
On each Payment Date, an amount equal to the Principal Distribution Amount
will be paid:
(1) to the holders of the Class A-1 Notes until the Class A-1 Notes have
been paid in full;
(2) after the Class A-1 Notes are paid in full, to the holders of the
Class A-2 Notes until the Class A-2 Notes have been paid in full;
(3) after the Class A-2 Notes are paid in full, to the holders of the
Class A-3 Notes until the Class A-3 Notes have been paid in full; and
(4) after the Class A-3 Notes are paid in full, to the holders of the
Class A-4 Notes until the Class A-4 Notes have been paid in full.
If the maturity dates of the Notes are accelerated following the occurrence
of an Event of Default under the Indenture, the order of priority for principal
payments on the Notes will change. On each Payment Date occurring on or after
the date on which the maturity dates of the Notes have been accelerated
following the occurrence of an Event of Default, the Total Available Funds
remaining after payment to the Servicer of the Total Servicing Fee for such
Payment Date will be deposited to the Note Payment Account for distribution in
the order of priority set forth under "--Description of the Indenture Cash
Flows--Monthly Withdrawals From the Note Payment Account On and After an
Acceleration of the Maturity Dates of the Notes."
The outstanding principal balance, if any, of each class of Notes will be
payable in full on the Payment Date in the months specified below for such class
of Notes to the extent not previously paid:
- for the Class A-1 Notes, January 2000 (the "Class A-1 Final Payment
Date");
- for the Class A-2 Notes, January 2004 (the "Class A-2 Final Payment
Date");
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- for the Class A-3 Notes, July 2005 (the "Class A-3 Final Payment Date");
and
- for the Class A-4 Notes, July 2005 (the "Class A-4 Final Payment Date"
and, together with the foregoing, each a "Final Payment Date").
The actual date on which the aggregate outstanding principal amount of any
class of Notes is paid may be earlier or later than the respective Final Payment
Dates based on a variety of factors, including those described under "Risk
Factors--Risk that You May Be Required to Reinvest Your Principal in the Notes
at a Lower Rate of Return Because of Prepayments on the Notes" and "Description
of the Receivables-- Maturity and Prepayment Considerations for the
Receivables."
MANDATORY REDEMPTION OF THE NOTES
On the Payment Date on or immediately following the last day of the
Pre-Funding Period, any funds remaining in the Pre-Funding Account (after giving
effect to the purchase of all Subsequent Receivables, including any such
purchase on the last day of the Pre-Funding Period) exclusive of any net
earnings from the investment of funds on deposit in the Pre-Funding Account will
be applied to redeem the Notes then outstanding in the same sequence and
proportions that would apply if such remaining funds were a part of the
Principal Distribution Amount. Although the Pre-Funding Account will be funded
in an amount that the Seller anticipates will allow the Trust to acquire
Subsequent Receivables in an aggregate principal amount approximately equal to
the Pre-Funded Amount, it is unlikely that the aggregate principal amount of
Subsequent Receivables will exactly equal the Pre-Funded Amount, and therefore
it is likely that at least a nominal amount of principal will be prepaid to the
Noteholders at the end of the Pre-Funding Period.
OPTIONAL REDEMPTION OF THE NOTES
The Notes (and the Certificates) will be redeemed 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 on any Payment Date with
respect to which the Pool Balance as of the end of the related Collection Period
is 10% or less of the Initial Pool Balance. The redemption price will be equal
to the unpaid principal amount of the Notes plus accrued and unpaid interest
thereon, together with the unpaid principal amount of the Certificates. The
Seller does not anticipate, although no assurances can be given, that the Pool
Balance will decline to a level permitting the Servicer to purchase the
Receivables while the Notes are outstanding.
DESCRIPTION OF THE INDENTURE TRUSTEE
Bank of Tokyo-Mitsubishi Trust Company, a New York banking corporation, will
be the Indenture Trustee. The Indenture Trustee's Corporate Trust Office is
located at 1251 Avenue of the Americas, New York, New York 10020-1104. The
Seller, the Servicer, and their respective affiliates may have other banking
relationships with the Indenture Trustee and its affiliates in the ordinary
course of their businesses.
DESCRIPTION OF THE TRUST'S BANK ACCOUNTS
The Servicer will establish an account in the name of the Indenture Trustee
on behalf of the Noteholders and the Certificateholders (the "Collection
Account") into which payments made on or with respect to the Receivables and
Advances made by the Servicer will be deposited and into which amounts on
deposit in the Reserve Account, the Supplemental Reserve Account, the Negative
Carry Account and the Yield Supplement Account may be transferred from time to
time, other than certain amounts payable to the Servicer under the Sale and
Servicing Agreement that are not required to be so deposited or transferred.
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The Servicer will also establish and maintain:
(1) an account in the name of the Indenture Trustee on behalf of the
Noteholders and the holders of record of the Certificates (the
"Certificateholders"), in which the Initial Pre-Funded Amount will be
deposited on the Closing Date (the "Pre-Funding Account");
(2) an account, in the name of the Indenture Trustee on behalf of the
Noteholders, in which amounts released from the Collection Account for
distribution to Noteholders will be deposited and from which all payments to
Noteholders will be made (the "Note Payment Account");
(3) an account, in the name of the Owner Trustee on behalf of the
Certificateholders, in which amounts released from the Collection Account
for distribution to Certificateholders will be deposited and from which all
distributions to Certificateholders will be made (the "Certificate
Distribution Account"); and
(4) an account, in the name of the Indenture Trustee on behalf of the
Noteholders and the Certificateholders, in which early payments with respect
to Actuarial Receivables by or on behalf of the obligors which constitute
neither current scheduled payments nor full prepayments ("Payaheads") will
be deposited until such time as the payment falls due or until such funds
are applied to shortfalls in the scheduled payments with respect to
Actuarial Receivables (the "Payahead Account" and, together with the
Pre-Funding Account, the Negative Carry Account, the Yield Supplement
Account, the Supplemental Reserve Account, the Reserve Account, the
Collection Account and the Note Payment Account, the "Trust Accounts").
The Payahead Account will be funded on the Closing Date with an initial
deposit by the Seller of an amount equal to the aggregate amount of Payaheads as
of the Initial Cutoff Date of the Initial Receivables. On each Subsequent
Transfer Date, the Indenture Trustee will make an additional deposit to the
Payahead Account of an amount equal to the aggregate amount of the Payaheads as
of the related Subsequent Cutoff Date of the Subsequent Receivables sold to the
Trust on such Subsequent Transfer Date. The Indenture Trustee will make the
additional deposit to the Payahead Account on each Subsequent Transfer Date from
funds on deposit in the Pre-Funding Account that otherwise would be
distributable to the Seller as payment for the Subsequent Receivables.
The Seller will also establish and maintain the Reserve Account, the
Supplemental Reserve Account and the Yield Supplement Account, each in the name
of the Indenture Trustee for the benefit of the Noteholders and the
Certificateholders and the Negative Carry Account in the name of the Indenture
Trustee for the exclusive benefit of the Noteholders. The Trust Accounts shall
each be a segregated trust account initially established with the Indenture
Trustee and maintained with the Indenture Trustee so long as permitted by each
of Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's, a division
of The McGraw-Hill Companies, Inc. ("Standard & Poor's" and, together with
Moody's, each a "Rating Agency"). In the event that a Rating Agency no longer
permits the Trust Accounts to be located at the Indenture Trustee, such accounts
shall be moved to either a Qualified Institution or a Qualified Trust
Institution.
A "Qualified Institution" is a depository institution organized under the
laws of the United States or any state thereof or incorporated under the laws of
a foreign jurisdiction with a branch or agency located in the United States
qualified to take deposits and subject to supervision and examination by Federal
or state banking authorities, having a short-term deposit rating acceptable to
each Rating Agency, and, if such institution is organized under the laws of the
United States, the deposits of which are insured by the Federal Deposit
Insurance Corporation or any successor thereto.
A "Qualified Trust Institution" is the corporate trust department of an
institution organized under the laws of the United States or any state thereof
or incorporated under the laws of a foreign jurisdiction with a branch or agency
located in the United States qualified to take deposits and subject to
supervision and examination by Federal or state banking authorities, with
authority to act under such laws as trustee or in
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any other fiduciary capacity, having not less than $1 billion in assets under
fiduciary management and a long-term deposit rating acceptable to each Rating
Agency.
Funds in the Collection Account, the Pre-Funding Account, the Payahead
Account, the Reserve Account, the Supplemental Reserve Account, the Negative
Carry Account and the Yield Supplement Account will be invested in Permitted
Investments as provided in the Sale and Servicing Agreement. "Permitted
Investments" generally will be limited to investments acceptable to each Rating
Agency as being consistent with the ratings of the Notes. Permitted Investments
will be limited to obligations or securities that mature not later than the
Business Day immediately preceding the next Payment Date (or the payment due
date, in the case of a Payahead). Any earnings (net of losses and investment
expenses) on amounts on deposit in the Collection Account will be paid to the
Certificateholders. Any earnings (net of losses and investment expenses) on
amounts on deposit in the Payahead Account will be paid to the Servicer as
additional servicing compensation and will not be available to Noteholders, and
any earnings (net of losses and investment expenses) on, and any amounts
released from the Reserve Account, the Supplemental Reserve Account, the
Negative Carry Account and the Yield Supplement Account will be distributed to
the Seller. However, earnings on amounts on deposit in the Reserve Account, the
Supplemental Reserve Account and the Negative Carry Account will be distributed
to the Seller only to the extent that the amounts on deposit in those accounts
exceed the required balances of those accounts.
DESCRIPTION OF THE YIELD SUPPLEMENT AGREEMENT
Simultaneously with the sale and assignment of the Initial Receivables by
MMCA to the Seller, MMCA and the Seller will enter into a yield supplement
agreement (the "Yield Supplement Agreement"), pursuant to which MMCA will be
obligated to pay the Yield Supplement Amount, if any, to the Trust on the
Business Day prior to each Payment Date.
The "Yield Supplement Amount" with respect to any Payment Date will be
determined by aggregating with respect to all of the Receivables the amount (if
positive) calculated by the Servicer with respect to each Receivable equal to
the product of (x) one-twelfth times (y) an amount equal to the difference (if
positive) between (1) interest on such Receivable's principal balance as of the
first day of the related Collection Period at a rate equal to the sum of (A) the
Weighted Average Rate as of the first day of the related Collection Period and
(B) 3.00% (which percentage represents the Servicing Rate plus 2.00%) and (2)
interest on such Receivable's principal balance as of the first day of the
related Collection Period at the APR on such Receivable. The Seller will assign
the Yield Supplement Agreement to the Trust, and the Trust will pledge it to the
Indenture Trustee for the benefit of the Noteholders.
The "Weighted Average Rate" means, with respect to any date of
determination, a per annum rate equal to (1) the sum of (a) the product of (x)
the outstanding principal amount of the Class A-1 Notes on such date, (y) the
Class A-1 Rate and (z) a fraction, the numerator of which is 365 and the
denominator of which is 360, plus (b) the product of (x) the outstanding
principal amount of the Class A-2 Notes on such date and (y) the Class A-2 Rate,
plus (c) the product of (x) the outstanding principal amount of the Class A-3
Notes on such date and (y) the Class A-3 Rate, plus (d) the product of (x) the
outstanding principal amount of the Class A-4 Notes on such date and (y) the
Class A-4 Rate, divided by (2) the outstanding principal amount of the Notes on
such date.
DESCRIPTION OF THE YIELD SUPPLEMENT ACCOUNT
Payments of the Yield Supplement Amount due under the Yield Supplement
Agreement will be secured by funds on deposit in a segregated trust account
initially to be established with the Indenture Trustee for the benefit of the
Noteholders and the Certificateholders (the "Yield Supplement Account"). The
Yield Supplement Account will initially be a segregated trust account in the
corporate trust department of the Indenture Trustee. Notwithstanding the
foregoing, in the event that MMCA either obtains a letter of credit (a "Yield
Supplement Letter of Credit") securing timely remittance to the
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Indenture Trustee of amounts due from MMCA under the Yield Supplement Agreement
or otherwise satisfies certain other conditions satisfactory to each Rating
Agency, then subject to the delivery of certain tax opinions the Yield
Supplement Account may be terminated. On the Closing Date, the Seller will make
an initial deposit to the Yield Supplement Account in the amount specified in
the Sale and Servicing Agreement. On each Subsequent Transfer Date, the
Indenture Trustee will make an additional deposit to the Yield Supplement
Account from funds on deposit in the Pre-Funding Account that otherwise would be
distributable to the Seller as payment for the Subsequent Receivables sold to
the Trust on such Subsequent Transfer Date unless the Yield Supplement Account
has been replaced by a Yield Supplement Letter of Credit on or prior to such
Subsequent Transfer Date.
On each Payment Date, the amount required to be on deposit in such Yield
Supplement Account or to be available under such Yield Supplement Letter of
Credit after giving effect to the withdrawal or drawing, as the case may be,
required to be made therefrom on such Payment Date will be an amount equal to
the sum of all projected Yield Supplement Amounts for all future Payment Dates,
which will be determined assuming that future scheduled payments on the
Receivables are made on their scheduled Due Dates. The amount on deposit in the
Yield Supplement Account will decrease as payments are made from such account
with respect to the Yield Supplement Amounts and funds in excess of the maximum
required balance are released to the Seller.
The Yield Supplement Letter of Credit, if any, will be issued by a bank that
has a debt rating sufficient to maintain the rating of each class of Notes at
the initial level at which it was rated by each Rating Agency. In the event that
the rating of the letter of credit bank that issues any Yield Supplement Letter
of Credit is reduced below any such rating, the Indenture Trustee will be
required to obtain a suitable replacement Yield Supplement Letter of Credit, to
obtain funds in the required amount for deposit in the Yield Supplement Account
or to draw the full amount available under the Yield Supplement Letter of Credit
and deposit such funds in the Yield Supplement Account.
DESCRIPTION OF THE INDENTURE CASH FLOWS
DEPOSITS TO THE COLLECTION ACCOUNT; CALCULATIONS MADE BY THE SERVICER;
NOTICE TO THE INDENTURE TRUSTEE. On or before each Payment Date, the Servicer
will cause all payments on the Receivables (from whatever source) and all
proceeds of the Receivables (other than certain amounts payable to the Servicer
under the Sale and Servicing Agreement that are not required to be deposited in
the Collection Account) received by the Servicer during the related Collection
Period to be deposited into the Collection Account. On or before the seventh
Business Day, but no later than the tenth calendar day (the "Determination
Date"), of each month, the Servicer will calculate the Available Funds, the
Total Available Funds, the Total Servicing Fee, the Accrued Note Interest, the
Scheduled Principal, the Principal Distribution Amount, the principal
attributable to Balloon Payments, the Negative Carry Amount, if any, and the
Yield Supplement Amount, if any, in each case with respect to such Payment Date.
On or before each Payment Date, the Servicer will deliver to the Indenture
Trustee a certificate setting forth the deposits to and withdrawals from the
Collection Account, the Supplemental Reserve Account and the Reserve Account to
be made on such Payment Date.
WITHDRAWALS FROM THE SUPPLEMENTAL RESERVE ACCOUNT AND THE RESERVE ACCOUNT TO
REIMBURSE ADVANCES. On each Payment Date, the Indenture Trustee will withdraw
from the Supplemental Reserve Account and pay to the Servicer an amount equal to
the lesser of (x) the amount on deposit in the Supplemental Reserve Account on
such Payment Date (prior to giving effect to any deposits thereto or withdrawals
therefrom relating to such Payment Date) and (y) the amount, if any, of Advances
due to be reimbursed on such Payment Date but not reimbursed from funds on
deposit in the Collection Account.
In the event that the amount on deposit in the Supplemental Reserve Account
is insufficient to fully reimburse the Servicer for Advances due to be
reimbursed on such Payment Date, the Indenture Trustee will withdraw from the
Reserve Account and pay to the Servicer an amount equal to the lesser of (x) the
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amount on deposit in the Reserve Account on such Payment Date (prior to giving
effect to any deposits thereto or withdrawals therefrom relating to such Payment
Date) and (y) the amount, if any, of Advances due to be reimbursed on such
Payment Date but not reimbursed from funds on deposit in the Collection Account
or the Supplemental Reserve Account.
WITHDRAWALS FROM THE SUPPLEMENTAL RESERVE ACCOUNT AND THE RESERVE ACCOUNT TO
PAY THE TOTAL REQUIRED PAYMENT. In the event that on any Payment Date the Total
Required Payment exceeds the Available Funds, the Indenture Trustee will
withdraw from the Supplemental Reserve Account and deposit in the Collection
Account an amount equal to the lesser of (x) the amount on deposit in the
Supplemental Reserve Account on such Payment Date (after any reimbursement of
Advances but prior to any deposits thereto or other withdrawals therefrom
relating to such Payment Date), and (y) the amount, if any, by which the Total
Required Payment for such Payment Date exceeds the Available Funds for such
Payment Date.
In the event that the amount on deposit in the Supplemental Reserve Account
is insufficient to make up a shortfall in the Available Funds to pay the Total
Required Payment, the Indenture Trustee will withdraw from the Reserve Account
and deposit in the Collection Account an amount equal to the lesser of (x) the
amount on deposit in the Reserve Account on such Payment Date (after any
reimbursement of Advances but prior to any deposits thereto or other withdrawals
therefrom relating to such Payment Date), and (y) the amount, if any, by which
the Total Required Payment for such Payment Date exceeds the sum of the
Available Funds and amounts withdrawn from the Supplemental Reserve Account to
pay the Total Required Payment.
The "Available Funds" for a Payment Date to be deposited into the Collection
Account on or prior to such Payment Date shall equal:
(1) the sum of the following amounts with respect to the preceding
calendar month (the related "Collection Period"):
(A) all collections on the Receivables including Payaheads withdrawn
from the Payahead Account but excluding Payaheads deposited into the
Payahead Account and excluding Rule of 78's Payments (and including the
proceeds of sale by the Trust of any Financed Vehicle sold to the Trust
upon termination, including a prepayment, of a Balloon Payment
Receivable);
(B) all proceeds of the liquidation of Receivables which became
Defaulted Receivables during the related Collection Period, net of
expenses incurred by the Servicer in connection with such liquidation and
any amounts required by law to be remitted to the obligor on such
Defaulted Receivable ("Liquidation Proceeds");
(C) any recoveries in respect of Receivables that became Defaulted
Receivables in prior Collection Periods ("Recoveries");
(D) all extension and deferral fees paid with respect to the
Receivables;
(E) the Purchase Amount of each Receivable that was repurchased by
the Seller or purchased by the Servicer under an obligation which arose
during or prior to the related Collection Period (net of applicable
expenses);
(F) all Actuarial Advances and Balloon Payment Advances deposited to
the Collection Account on such Payment Date by the Servicer;
(G) the Yield Supplement Amount for such Payment Date;
(H) the Negative Carry Amount for such Payment Date;
(I) 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
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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 related Cutoff Date;
(J) the net earnings on funds on deposit in the Pre-Funding Account
to the extent deposited to the Collection Account on such Payment Date by
the Indenture Trustee; and
(K) with respect to the Payment Date on or immediately following the
last day of the Pre-Funding Period, any funds remaining in the
Pre-Funding Account (after giving effect to the purchase of all
Subsequent Receivables, including any purchase on the last day of the
Pre-Funding Period) exclusive of any net earnings on funds on deposit in
the Pre-Funding Account; minus
(2) the aggregate amount of the funds described in clause (1) above that
are used in the related Collection Period to reimburse the Servicer for the
aggregate amount of Advances previously made by the Servicer that are due
and payable to the Servicer with respect to such Payment Date.
A "Defaulted Receivable" will be a Receivable (other than a Receivable with
respect to which payment of the Purchase Amount has been made by the Seller or
the Servicer) as to which:
(1) the related Financed Vehicle has been repossessed and liquidated;
(2) more than 10% of a scheduled payment (including, in the case of a
Balloon Payment Receivable, the amount owed by an obligor with respect to a
Balloon Payment but excluding charges for excess wear and tear or excess
mileage) is, in the case of Motor Vehicles, 120 or more days past due or, in
the case of Trucks, 180 days past due and, in either case, the Servicer has
not repossessed the related Financed Vehicle; or
(3) the Servicer has determined, in accordance with its customary
standards, policies and procedures, that eventual payment in full
(including, in the case of a Balloon Payment Receivable, the amount owed by
an obligor with respect to a Balloon Payment but excluding charges for
excess wear and tear or excess mileage) of the Contract is unlikely and has
either repossessed and liquidated the related Financed Vehicle or
repossessed and held the related Financed Vehicle in its repossession
inventory for 90 days, which 90 days shall not, when added to the aggregate
number of days since a scheduled payment was due but not paid, exceed 180
days.
The Available Funds on any Payment Date shall exclude all payments and
proceeds (including Liquidation Proceeds) of any Receivables the Purchase Amount
of which has been included in the Available Funds for a prior Collection Period
(which shall be paid to the Seller or Servicer, as applicable).
The "Total Available Funds" for a Payment Date is an amount equal to the
Available Funds for such Payment Date plus the amounts, if any, deposited by the
Indenture Trustee to the Collection Account from the Supplemental Reserve
Account and the Reserve Account on such Payment Date.
MONTHLY WITHDRAWALS FROM COLLECTION ACCOUNT. On each Payment Date, the
Indenture Trustee will make the following withdrawals of Total Available Funds
in respect of the related Collection Period from the Collection Account and make
deposits, distributions and payments in the amounts and in the order of priority
specified below:
(1) to the Servicer, the Total Servicing Fee;
(2) to the Note Payment Account, the Accrued Note Interest for each
class of Notes;
(3) to the Note Payment Account, the Principal Distribution Amount;
(4) to the Reserve Account, the amount, if any, required to bring the
amount in the Reserve Account up to the Specified Reserve Balance;
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(5) to the Supplemental Reserve Account, the amount, if any, required to
bring the amount in the Supplemental Reserve Account up to the Maximum
Supplemental Reserve Amount; and
(6) to the Certificate Distribution Account, any remaining portion of
Total Available Funds.
On each Payment Date, the amount, if any, on deposit in the Certificate
Distribution Account will be distributed to the Certificateholders.
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
maturity dates of Notes, the Total Available Funds will be deposited in the Note
Payment Account for distribution in the order of priority set forth under "--
Monthly Withdrawals From the Note Payment Account On and After an Acceleration
of the Maturity Dates of the Notes."
For purposes hereof, the following terms have the following meanings:
"Accrued Note Interest" means, with respect to any Payment Date and each
class of Notes, the sum of the Monthly Accrued Note Interest and the Interest
Carryover Shortfall for such class for such Payment Date.
"Certificate Balance" equals, initially, $61,560,349 and, thereafter, equals
the initial Certificate Balance minus all amounts paid as principal on the
Certificates.
"Interest Carryover Shortfall" means, with respect to any Payment Date and
any class of Notes, the excess of the sum of the Monthly Accrued Note Interest
for the preceding Payment Date and any outstanding Interest Carryover Shortfall
from the close of business on such preceding Payment Date, over the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Payment Date with respect to such class, plus interest on such
excess, to the extent permitted by law, at the applicable Note Interest Rate for
the related Interest Period.
"Monthly Accrued Note Interest" means, with respect to any Payment Date and
(a) any class of Notes, interest accrued for the related Interest Period at the
applicable Note Interest Rate for such class on the aggregate principal balance
of the Notes of such class as of the immediately preceding Payment Date, after
giving effect to all payments of principal to Noteholders on or prior to such
preceding Payment Date (or, in the case of the first Payment Date, the initial
principal amount of the Notes); and (b) with respect to the Notes collectively,
the sum of Monthly Accrued Note Interest for each class.
"Note Interest Rate" means in the case of (a) the Class A-1 Notes, 5.066%
per annum, (b) the Class A-2 Notes, 5.43% per annum, (c) the Class A-3 Notes,
5.50% per annum and (d) the Class A-4 Notes, 5.63% per annum. Interest on the
Class A-1 Notes will be calculated on the basis of the actual number of days
elapsed and a 360-day year, and interest on the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes will be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
"Principal Carryover Shortfall" means, as of the close of business on any
Payment Date, the excess of the Principal Distribution Amount and any
outstanding Principal Carryover Shortfall from the preceding Payment Date over
the amount in respect of principal that is actually deposited in the Note
Payment Account on such Payment Date.
"Principal Distribution Amount" means, with respect to any Payment Date, the
sum of (1) the Scheduled Principal for such Payment Date (including, in the case
of a Balloon Payment Receivable, the amount owed by an obligor with respect to a
Balloon Payment), (2) any outstanding Principal Carryover Shortfall as of the
close of business on the preceding Payment Date and (3) with respect to the
Payment Date on or immediately following the end of the Pre-Funding Period, any
funds remaining in the Pre-Funding Account (after giving effect to the purchase
of all Subsequent Receivables, including any purchase on the last day of the
Pre-Funding Period) exclusive of any net earnings from the investment of funds
on deposit in the Pre-Funding Account; provided, however, that the Principal
Distribution Amount
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shall not exceed the outstanding aggregate principal balance of the Notes; and
provided further, that, on the Final Payment Date for each class of Notes, the
principal required to be deposited in the Note Payment Account will include the
amount necessary (after giving effect to the other amounts to be deposited in
the Note Payment Account on such Payment Date and allocable to principal) to
reduce the outstanding principal amount of such class of Notes to zero.
"Realized Losses" means with respect to each Payment Date and each
Receivable that became a Defaulted Receivable during the related Collection
Period, the excess of the principal balance of such Defaulted Receivable
(including the principal of a Balloon Payment) over the Liquidation Proceeds
attributable to such Defaulted Receivable.
"Scheduled Principal" shall mean, with respect to any Payment Date, the sum
of:
(1) the sum of (A) collections of principal on Simple Interest
Receivables received during the related Collection Period, including
collections of principal attributable to the Balloon Payment of a Simple
Interest Receivable that is a Balloon Payment Receivable (unless a Balloon
Payment Advance has previously been made with respect to such Balloon
Payment) and charges for excess wear and tear and excess mileage and (B)
Balloon Payment Advances made on such Payment Date with respect to Simple
Interest Receivables that are Balloon Payment Receivables;
(2) the principal portion of each scheduled payment, including a Balloon
Payment on a Balloon Payment Receivable, due on any Actuarial Receivable
during the related Collection Period;
(3) (without duplication of amounts taken into account under (1) or (2))
the outstanding principal balance of (A) Receivables prepaid in full during
the related Collection Period, and (B) Receivables which became Defaulted
Receivables during the related Collection Period;
(4) the Purchase Amount of each Receivable that was repurchased by the
Seller or purchased by the Servicer during such Collection Period, to the
extent attributable to principal;
(5) the proceeds of any other sale of a Receivable to the extent
allocable to principal; and
(6) partial prepayments attributable to any refunded item included in
the amount financed, 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 be
below the scheduled payment as of the related Cutoff Date; provided,
however, that in calculating the Scheduled Principal, (A) all payments and
proceeds (including Liquidation Proceeds) of any purchased Receivables the
Purchase Amount of which has been included in Scheduled Principal in a prior
Collection Period (which shall be paid to the Seller or Servicer, as
applicable) and (B) all amounts released from the Pre-Funding Account will
be excluded.
"Total Required Payment" means, on any Payment Date, the Total Servicing
Fee, the Accrued Note Interest and the Principal Distribution Amount.
MONTHLY WITHDRAWALS FROM THE NOTE PAYMENT ACCOUNT. On each Payment Date,
unless the maturity dates of the Notes have been accelerated following the
occurrence of an Event of Default, all amounts on deposit in the Note Payment
Account will be paid in the following order of priority:
(1) to the Noteholders, the Accrued Note Interest on the applicable
class of Notes;
(2) to the Class A-1 Noteholders, the Principal Distribution Amount
until the Class A-1 Notes have been paid in full;
(3) following payment in full of the Class A-1 Notes, to the Class A-2
Noteholders, the Principal Distribution Amount until the Class A-2 Notes
have been paid in full;
(4) following payment in full of the Class A-2 Notes, to the Class A-3
Noteholders, the Principal Distribution Amount until the Class A-3 Notes
have been paid in full; and
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(5) following payment in full of the Class A-3 Notes, to the Class A-4
Noteholders, the Principal Distribution Amount until the Class A-4 Notes
have been paid in full.
MONTHLY WITHDRAWALS FROM THE NOTE PAYMENT ACCOUNT ON AND AFTER AN
ACCELERATION OF THE MATURITY DATES OF THE NOTES. On each Payment Date occurring
on or after the acceleration of the maturity dates of the Notes following the
occurrence of an Event of Default, all amounts on deposit in the Note Payment
Account will be paid:
(1) to the Indenture Trustee, amounts due as compensation or indemnity
payments pursuant to the terms of the Indenture;
(2) to the Servicer, the amounts due and unpaid in respect of the Total
Servicing Fee;
(3) to the Noteholders, the Accrued Note Interest on the applicable
class of Notes;
(4) to the Noteholders, all unpaid principal on the Notes PRO RATA in
proportion to the respective principal balances of each class of Notes until
each of such classes has been paid in full; and
(5) to the Certificate Distribution Account, any amount remaining in the
Note Payment Account after each class of Notes has been paid in full.
DESCRIPTION OF THE NEGATIVE CARRY ACCOUNT
An account to be known as the "Negative Carry Account" will be established
by the Seller and held in the name of the Indenture Trustee for the exclusive
benefit of the Noteholders. The Negative Carry Account will be created with an
initial deposit by the Seller of $1,349,467 (the "Negative Carry Account Initial
Deposit"), which is equal to the Maximum Negative Carry Amount as of the Closing
Date.
The "Maximum Negative Carry Amount" means, as of any date of determination,
the product of (1) the Weighted Average Rate as of such date minus 2.50%,
multiplied by (2) the product of the Note Percentage as of such date and the
Pre-Funded Amount as of such date after giving effect to any withdrawals from
the Pre-Funding Account on such date, multiplied by (3) the percentage
equivalent of a fraction, the numerator of which is the actual number of days
until the expected end of the Pre-Funding Period and the denominator of which is
360.
"Note Percentage" means, as of any date of determination, the percentage
equivalent of a fraction, the numerator of which is the aggregate principal
amount of the Notes as of such date, and the denominator of which is an amount
equal to the sum of the aggregate principal amount of the Notes as of such date
and aggregate principal amount of the Certificates as of such date, in each case
after giving effect to any payment of principal on such date.
On each Payment Date, the Servicer will instruct the Indenture Trustee to
withdraw from the Negative Carry Account and deposit into the Collection Account
an amount equal to the Negative Carry Amount for such Payment Date. For each
Payment Date, the "Negative Carry Amount" will be calculated by the Servicer as
the difference (if positive) between (1) the product of (a) the Monthly Accrued
Note Interest for such Payment Date, multiplied by (b) the Pre-Funded Percentage
as of the immediately preceding Payment Date, or in the case of the first
Payment Date, the Closing Date, minus (2) the net investment earnings on the
Pre-Funded Amount for the related Collection Period (or in the case of the first
Payment Date, from the Closing Date until January 31, 1999).
The "Pre-Funded Percentage" means, as of any date of determination, the
percentage equivalent of a fraction, the numerator of which is the Pre-Funded
Amount and the denominator of which is the sum of the Pool Balance and the
Pre-Funded Amount, in each case as of such date after taking into account all
withdrawals from the Pre-Funding Account and all transfers of Subsequent
Receivables on or prior to such date.
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The amount required to be on deposit in the Negative Carry Account (the
"Required Negative Carry Account Balance") as of any Payment Date will be equal
to the lesser of (x) the Negative Carry Account Initial Deposit minus all
previous withdrawals of the Negative Carry Amount from the Negative Carry
Account, including any withdrawals of the Negative Carry Amount therefrom on
such Payment Date and (y) the Maximum Negative Carry Amount as of such Payment
Date. If the amount on deposit in the Negative Carry Account on any Payment Date
(after giving effect to the withdrawal of the Negative Carry Amount, if any, for
such Payment Date) is greater than the Required Negative Carry Account Balance,
the excess will be released to the Seller. All amounts remaining on deposit in
the Negative Carry Account on the Payment Date on or immediately following the
last day of the Pre-Funding Period (after giving effect to all withdrawals
therefrom on such Payment Date for deposit to the Collection Account on such
Payment Date) will be released to the Seller.
DESCRIPTION OF THE RESERVE ACCOUNT AND SUPPLEMENTAL RESERVE ACCOUNT
Accounts to be known as the "Reserve Account" and the "Supplemental Reserve
Account" will be established by the Seller and held in the name of the Indenture
Trustee for the benefit of Noteholders and Certificateholders.
The Reserve Account will be funded initially by a deposit by the Seller on
the Closing Date of cash or Permitted Investments having a value of $532,732.89,
which is equal to the Pool Balance as of the Initial Cutoff Date multiplied by
0.15%. On each Subsequent Transfer Date, cash or Permitted Investments having a
value approximately equal to 0.15% of the aggregate principal balance as of the
related Subsequent Cutoff Date of the Subsequent Receivables conveyed to the
Trust on such Subsequent Transfer Date will be withdrawn from the Pre-Funding
Account from amounts otherwise distributable to the Seller in connection with
the sale of Subsequent Receivables and deposited in the Reserve Account. The
Supplemental Reserve Account will not be funded by an initial deposit by the
Seller on the Closing Date or an additional deposit by the Seller on any
Subsequent Transfer Date.
On or before each Payment Date, the Servicer will instruct the Indenture
Trustee to withdraw funds from the Supplemental Reserve Account and apply such
funds to make the following payment and deposit in the following order of
priority:
(1) to the Servicer, an amount equal to the shortfall, if any, between
the aggregate amount of Advances that are due and payable to the Servicer on
such Payment Date and the aggregate amount of the collections on the
Receivables that are paid to the Servicer on such Payment Date as
reimbursement for such Advances; and
(2) to the Collection Account, an amount equal to the shortfall, if any,
between the Total Required Payment for such Payment Date and the Available
Funds allocable to the payment of the Total Required Payment.
On each Payment Date, the Servicer will instruct the Indenture Trustee to
withdraw from the Reserve Account an amount equal to the shortfall, if any,
between the funds available in the Supplemental Reserve Account on such Payment
Date and the amounts described in clauses (1) and (2) of the preceding
paragraph, for application in the same order of priority.
On each Payment Date, after payment of the amount owed to the Servicer for
Advances and the Total Servicing Fee for such Payment Date and the deposit to
the Note Payment Account of an amount equal to the Accrued Note Interest for
each class of Notes and the Principal Distribution Amount for such Payment Date,
the Indenture Trustee will apply the remaining Total Available Funds to make the
following deposits in the following order of priority:
(1) to the Reserve Account, an amount, equal to the excess, if any, of
the Specified Reserve Balance for such Payment Date over the amount on
deposit in the Reserve Account after giving effect to any withdrawals made
from the Reserve Account on such Payment Date; and
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(2) to the Supplemental Reserve Account, an amount equal to the excess,
if any, of the Maximum Supplemental Reserve Amount for such Payment Date
over the amount on deposit in the Supplemental Reserve Account after giving
effect to any withdrawals made from the Supplemental Reserve Account on such
Payment Date.
Amounts on deposit in the Reserve Account and the Supplemental Reserve
Account will be invested by the Seller in Permitted Investments. On any Payment
Date, to the extent that the amounts on deposit in the Reserve Account and the
Supplemental Reserve Account (including amounts attributable to investment
income, net of losses and investment expenses) exceed the required balances in
such accounts after giving effect to the withdrawals to be made from such
accounts on such Payment Date, such excess will be withdrawn from the Reserve
Account or the Supplemental Reserve Account, as the case may be, and paid to the
Seller. The Noteholders will not have any rights in, or claims to, any such
amounts paid to the Seller.
Amounts on deposit in the Reserve Account and the Supplemental Reserve
Account from time to time are intended to enhance the likelihood of receipt by
Noteholders of amounts due them and to decrease the likelihood that the
Noteholders will experience losses. If the aggregate amount required to be
withdrawn from the Reserve Account and the Supplemental Reserve Account on any
Payment Date to reimburse the Servicer for Advances and to cover shortfalls in
Available Funds exceeds the aggregate amount on deposit in the Reserve Account
and the Supplemental Reserve Account, a temporary shortfall in the amounts
distributed to the Noteholders could result. In addition, depletion of the
Reserve Account and the Supplemental Reserve Account ultimately could result in
losses to Noteholders. To the extent that amounts on deposit in the Reserve
Account and the Supplemental Reserve Account are exhausted, Noteholders will
have no recourse to the assets of the Seller as a source of payment.
The "Specified Reserve Balance" with respect to any Payment Date will be an
amount equal to the lesser of:
(1) 0.75% of the sum of the aggregate principal balance of the Initial
Receivables as of the Initial Cutoff Date and the principal balances of the
Subsequent Receivables transferred to the Trust on or prior to such Payment
Date as of the related Subsequent Cutoff Dates; and
(2) an amount equal to (x) the outstanding principal amount of the Notes
as of such Payment Date (after giving effect to any principal payment made
on such Payment Date) less (y) the amount on deposit in the Supplemental
Reserve Account on such Payment Date (after giving effect to any deposits to
or withdrawals from the Supplemental Reserve Account on such Payment Date).
The "Maximum Supplemental Reserve Amount" with respect to any Payment Date
will be an amount equal to the lesser of:
(1) 2.00% of the sum of the aggregate principal balance of the Initial
Receivables as of the Initial Cutoff Date and the principal balances of the
Subsequent Receivables transferred to the Trust on or prior to such Payment
Date as of the related Subsequent Cutoff Dates; and
(2) the outstanding principal amount of the Notes on such Payment Date
(after giving effect to any principal payment made on such Payment Date).
The Servicer may, from time to time after the date of this Prospectus,
request each Rating Agency to approve a reduction in the Specified Reserve
Balance or the Maximum Supplemental Reserve Amount or a change in the manner in
which the Reserve Account or the Supplemental Reserve Account is funded. If each
Rating Agency delivers a letter to the Indenture Trustee to the effect that the
reduction in the Specified Reserve Balance or the Maximum Supplemental Reserve
Amount, as the case may be, will not result in the qualification, reduction or
withdrawal of its then-current rating of any class of Notes, then the required
balance of the account will be reduced, provided that a reduction in the
Specified Reserve Balance will also require the delivery of certain tax
opinions. The Indenture will accordingly be amended to reflect the change in the
required balance of the account without the consent of any Noteholders.
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DESCRIPTION OF THE BALLOON PAYMENT RECEIVABLES
Certain of the Motor Vehicle Contracts (the "Balloon Payment Receivables")
provide for level monthly payments that amortize the entire amount financed
under the Receivable to one substantially larger final payment (the "Balloon
Payment"), which is due at the end of the term of the Receivable. MMCA sets the
Balloon Payment for a particular model of Motor Vehicle at the time the related
Contract is entered into. The Balloon Payment Receivables provide for a series
of scheduled payments which, if each is made on its scheduled Due Date, will
amortize the initial principal amount of the Receivable minus the principal
portion of the Balloon Payment (such amount, the "Level Pay Balance") by the Due
Date immediately preceding the maturity date of the Receivable. Upon maturity of
the Receivable, the obligor thereunder will owe (assuming that all payments have
been made on their scheduled Due Dates) an amount consisting of interest for the
period from the preceding Due Date through the maturity date and the remaining
principal amount of the Receivable. The net amount actually due from an obligor
on a Balloon Payment Receivable upon maturity may be greater or less than the
Balloon Payment as a result of (a) in the case of a Simple Interest Receivable,
changes in the amortization schedule of the Receivable as a result of early or
late payments by the obligor during the term of the Receivable and the
application of certain day counting conventions, and (b) additional fees and
charges that may be owed by the obligor with respect to the Receivable or the
Financed Vehicle, including charges for excess wear and tear and excess mileage
on the Financed Vehicle.
The initial aggregate principal amount of the Notes and Certificates will be
an amount equal to the sum of the Pre-Funded Amount and the aggregate principal
amount of the Initial Receivables on the Initial Cutoff Date, including the
aggregate of the principal portions of the Balloon Payments on the Balloon
Payment Receivables. As of the Initial Cutoff Date, the Balloon Payments of the
Initial Receivables had an aggregate principal balance of $92,202,119.73.
Collections attributable to Balloon Payments, plus payments by related
obligors in respect of charges for excess wear and tear and excess mileage (but
not disposition fees, which are payable to the Servicer) with respect to any
Collection Period will be deposited by the Servicer during such Collection
Period into the Collection Account and, on the related Payment Date, will be
available to reimburse the Servicer for Advances, to pay the Total Required
Payment and to make required deposits into the Reserve Account and the
Supplemental Reserve Account. Any amount remaining will be paid in accordance
with the priority of payments described herein. See "--Description of the
Indenture Cash Flows."
Upon maturity of a Balloon Payment Receivable, the related obligor may
satisfy the amount it owes by:
(1) paying the remaining principal amount of the Receivable (which, in
the case of a Simple Interest Receivable, may be greater than or less than
the Balloon Payment), all accrued and unpaid interest, plus any fees,
charges, and other amounts then owing on the Due Date of the Balloon
Payment;
(2) refinancing the net amount then due, which may be greater or less
than the Balloon Payment, subject to certain conditions; or
(3) selling the related Motor Vehicle to MMCA or its assignee for an
amount equal to the Balloon Payment (reduced by charges for excess wear and
tear and excess mileage and by a disposition fee payable to the Servicer)
and paying any excess of the total amount owed (calculated as in clause (1))
over the Balloon Payment to MMCA.
MMCA will sell its rights to the Balloon Payment Receivables, including the
Balloon Payments and amounts paid in respect of excess wear and tear and excess
mileage (but not disposition fees), to the Seller, which will sell its rights to
the Trust.
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If the obligor sells the Motor Vehicle to MMCA (acting on behalf of the
Trust), it is anticipated that the full amount of the Balloon Payment will not
be realized upon the subsequent sale of the Motor Vehicle on behalf of the
Trust. MMCA sets the Balloon Payment for a particular model of Motor Vehicle at
the time of origination of the related retail installment sale contract by
reference to its estimate of the wholesale market value of such model at the end
of the Motor Vehicle Contract's term. However, in connection with sales
incentive programs for particular models, MMCA may increase the Balloon Payments
set forth in Motor Vehicle Contracts to levels above its estimate of the
wholesale market values of the related Motor Vehicles at the end of their
respective Motor Vehicle Contract terms, in order to stimulate sales of
particular models by reducing the amount of the monthly installments which would
be owed by obligors.
MMCA does not require the obligor under a Balloon Payment Receivable to pay
the "Gap Amount" in the event there is a total loss of the Motor Vehicle caused
by its theft or physical damage. The "Gap Amount" is the difference between the
amount owed in respect of the Balloon Payment Receivable as of the date of the
total loss and insurance proceeds (including payment by the obligor of any
applicable deductible) received with respect to the Motor Vehicle. In accordance
with its customary servicing practices and procedures, MMCA treats such Gap
Amount, if any, as a non-cash reduction of the principal of the related Balloon
Payment.
In the event that the full amount owed by an obligor under a Balloon Payment
Receivable is not collected, the shortfall will reduce the Available Funds
available to pay the Total Required Payment and to make required transfers, if
any, from the Collection Account to the Reserve Account and the Supplemental
Reserve Account. None of MMCA, the Servicer, the Seller or the Trust will have
any recourse to the obligor for any shortfall, nor will MMCA, the Servicer or
the Seller be obligated to pay any such shortfall to the Trust.
SUBORDINATION OF THE CERTIFICATES TO THE NOTES
The rights of Certificateholders to receive distributions are subordinated
to the rights of Noteholders to receive payments of interest and principal to
the extent set forth herein. Funds on deposit in the Collection Account
(including amounts deposited therein from the Reserve Account and the
Supplemental Reserve Account) will be applied to the reimbursement of Advances
made by the Servicer, the payment to the Servicer of Rule of 78's Payments and
the Total Servicing Fee, the Accrued Note Interest on the Notes and principal
payable on the Notes on such Payment Date and to making the required deposits to
the Reserve Account and the Supplemental Reserve Account before distributions on
the Certificates. In addition, following the occurrence of an Event of Default
that has resulted in an acceleration of the Notes, the Noteholders will be
entitled to be paid in full before the Certificateholders are entitled to any
distributions. The foregoing subordination of the Certificates is intended to
enhance the likelihood of receipt by Noteholders of amounts due them and to
decrease the likelihood that the Noteholders will experience losses. See
"--Description of the Indenture Cash Flows."
ADVANCES BY THE SERVICER OF AMOUNTS PAYABLE ON THE RECEIVABLES
If the collection of interest and principal on an Actuarial Receivable
(other than a Balloon Payment) with respect to a Collection Period is less than
the scheduled payment due thereon, after application of amounts on deposit in
the Payahead Account by the Indenture Trustee against such shortfall, the
Servicer will make an advance of the remaining amount (such an advance, an
"Actuarial Advance") on the related Payment Date.
The Servicer will be reimbursed for each Actuarial Advance:
(1) on each subsequent Payment Date out of any payments by or on behalf
of the related obligor to the extent such payments are allocable to the
reimbursement of the Actuarial Advance; and
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(2) on the Payment Date following the Collection Period in which the
related Actuarial Receivable becomes a Defaulted Receivable out of
collections on other Receivables to the extent the Servicer has not
previously been reimbursed for the amount of such Actuarial Advance.
In addition, the Servicer will make an advance for any portion of a Balloon
Payment on an Actuarial Receivable or a Simple Interest Receivable for the
Collection Period in which such payment becomes due from the related obligor to
the extent such payment has not been made by or on behalf of such obligor,
including amounts in the Payahead Account allocable to such Balloon Payment
(such advance, a "Balloon Payment Advance" and, together with an Actuarial
Advance, each an "Advance").
The Servicer will be reimbursed for any Balloon Payment Advance on each
Payment Date following the Payment Date on which the Balloon Payment Advance was
made:
(1) out of payments by or on behalf of the related obligor to the extent
such payments are allocable to the reimbursement of the Balloon Payment
Advance; and
(2) out of collections on other Receivables to the extent of any losses
allocable to the Balloon Payment that the Servicer has recorded in its books
and records during the preceding Collection Period, but only to the extent
the Balloon Payment and the Balloon Payment Advance has not otherwise been
reimbursed.
If MMCA is replaced in its capacity as Servicer, the successor Servicer will
not be required to make Advances. In the absence of Advances by the Servicer,
Noteholders must rely for payment of the Notes upon payments on the Receivables
(including sales proceeds of Financed Vehicles returned to the Servicer for
sale), payments under the Yield Supplement Agreement and the Yield Supplement
Account, withdrawals from the Negative Carry Account and, to the extent
available, amounts on deposit in the Reserve Account and the Supplemental
Reserve Account. See "--Description of the Indenture Cash Flows" and
"--Description of the Reserve Account and Supplemental Reserve Account."
DEPOSIT OF COLLECTIONS ON THE RECEIVABLES TO COLLECTION ACCOUNT
The Servicer will deposit all payments on the Receivables (from whatever
source) and all proceeds of the Receivables (other than disposition fees paid
with respect to Balloon Payment Receivables, late fees and certain other
administrative fees and charges (other than extension or deferral fees)
collected on the Receivables that are payable to the Servicer under the Sale and
Servicing Agreement and therefore are not required to be deposited in the
Collection Account) into the Collection Account not later than two Business Days
after receipt thereof unless (a) the Servicer shall have a rating acceptable to
each Rating Agency with respect to its short-term indebtedness, MMCA is the
Servicer, and no Events of Servicing Termination have occurred or (b) the Trust
shall have received written notice from each Rating Agency that no outstanding
rating on any class of Notes would be lowered or withdrawn as a result, in which
case such amounts will be paid into the Collection Account on the Business Day
prior to each Payment Date. The Seller and the Servicer will also deposit into
the Collection Account on each Payment Date the Purchase Amount of each
Receivable required to be repurchased or purchased by either of them pursuant to
an obligation that arose during the related Collection Period. The Servicer will
be entitled to be reimbursed for the amounts previously deposited in the
Collection Account but later determined to have resulted from mistaken deposits
or posting or checks returned unpaid for insufficient funds or other reasons
from amounts otherwise payable into the Collection Account or amounts on deposit
in the Collection Account.
In those cases where a subservicer is servicing a Receivable pursuant to a
subservicing agreement, the Servicer will cause the subservicer to remit to the
Collection Account the amounts collected by such subservicer on or with respect
to the Receivables being serviced by it, within the period after receipt, and
subject to the limitations, described above.
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As an administrative convenience, unless the Servicer is required to remit
collections within two Business Days of receipt thereof, the Servicer will be
permitted to make the deposit of collections and Purchase Amounts for or with
respect to the Collection Period net of distributions to be made to the Servicer
with respect to the Collection Period. The Servicer, however, will account to
the Indenture Trustee and the Noteholders as if all deposits, distributions and
transfers were made individually.
DESCRIPTION OF THE STATEMENTS TO NOTEHOLDERS
On or prior to each Payment Date, the Servicer will prepare and provide to
the Indenture Trustee a statement to be delivered to the Noteholders. Each such
statement to be delivered to Noteholders will include the following information
as to the Notes with respect to such Payment Date and the related Collection
Period:
(1) the amount of the payment allocable to principal of each class of
Notes;
(2) the amount of the payment allocable to interest on or with respect
to each class of Notes;
(3) the Yield Supplement Amount;
(4) the amount of the Total Servicing Fee;
(5) the aggregate outstanding principal amount of each class of the
Notes and the applicable Note Pool Factor, after giving effect to payments
allocated to principal reported under clause (1) above;
(6) the Pool Balance, the Level Pay Pool Balance and the Balloon Payment
Pool Balance (calculated as of the close of business on the last day of the
related Collection Period);
(7) the amounts of the Interest Carryover Shortfall, if any, for the
next Payment Date, and the Principal Carryover Shortfall, if any, for such
Payment Date and the portion thereof attributable to each class of Notes;
(8) the amount of the aggregate Realized Losses, if any;
(9) the balance of the Reserve Account on such Payment Date, after
giving effect to changes therein on such Payment Date;
(10) the balance of the Supplemental Reserve Account on such Payment
Date, after giving effect to changes therein on such Payment Date;
(11) the amount of Actuarial Advances and Balloon Payment Advances, if
any;
(12) the aggregate Purchase Amount of Receivables repurchased by the
Seller or purchased by the Servicer during such Collection Period;
(13) for each Payment Date during the Pre-Funding Period and the Payment
Date that is on or immediately following the end of the Pre-Funding Period,
(A) the amount, if any, withdrawn from the Pre-Funding Account to purchase
Subsequent Receivables during such Collection Period, (B) the remaining
Pre-Funded Amount, if any, (C) the Negative Carry Amount, if any, for the
related Collection Period and (D) the amount remaining on deposit in the
Negative Carry Account, if any, after all withdrawals made on such Payment
Date; and
(14) for the Payment Date on or immediately following the end of the
Pre-Funding Period, the remaining Pre-Funded Amount, if any, that has not
been used to fund the purchase of Subsequent Receivables and is being passed
through as payments of principal on the Notes.
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Each amount set forth pursuant to clauses (1), (2), (3), (4) and (7) above
will be expressed in the aggregate and as a dollar amount per $1,000 of original
denomination of the Notes or class of Notes, as applicable. Copies of such
statements may be obtained by Note Owners by a request in writing addressed to
the Indenture Trustee.
Within a reasonable period of time after the end of each calendar year, but
not later than the latest date permitted by law, the Indenture Trustee will
furnish to each person who at any time during such calendar year was a
Noteholder a statement containing the sum of the amounts described in clauses
(1), (2), (3), (4) and (7) above for the purposes of such Noteholder's
preparation of Federal income tax returns. See "Certain Federal Income Tax
Consequences" and "--Book Entry Registration of the Notes."
DESCRIPTION OF THE TERMS OF THE INDENTURE
EVENTS OF DEFAULT UNDER THE INDENTURE.
The "Events of Default" in the Indenture consist of:
(1) a default for five days or more in the payment of interest on any
Note when the same becomes due and payable;
(2) a default in the payment of principal of, or any installment of
principal of, any Note when the same becomes due and payable;
(3) a default in the observance or performance of any material covenant
or agreement of the Trust made in the Indenture, or any representation or
warranty of the Trust made in the Indenture or in any certificate or writing
delivered pursuant thereto proves to have been incorrect in any material
respect as of the time when made, and the continuation of such default for a
period of 60 days or in the case of a materially incorrect representation or
warranty, 30 days, after notice thereof is given to the Trust by the
Indenture Trustee or the Trust and the Indenture Trustee by the holders of
not less than 25% of the aggregate principal amount of the Notes of all
classes; or
(4) certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust. (Indenture, Section 5.1).
Noteholders holding not less than a majority of the aggregate principal
amount of the Notes outstanding, voting as a group, may waive any past default
or Event of Default prior to the declaration of the acceleration of the maturity
of the Notes, except a default: (a) in payment of principal of or interest on
any of the Notes; or (b) in respect of any covenant or provision in the
Indenture which cannot be modified or amended without unanimous consent of the
Noteholders. (Indenture, Section 5.12). Any such waiver could be treated, for
Federal income tax purposes, as a constructive exchange of the Notes by the
Noteholders for deemed new Notes upon which gain or loss would be recognized.
REMEDIES FOLLOWING AN EVENT OF DEFAULT UNDER THE INDENTURE. If an Event of
Default should occur and be continuing, the Indenture Trustee or the holders of
a majority of the aggregate outstanding principal amount of the Notes of all
classes, voting as a group, may declare the principal of the Notes to be
immediately due and payable. Such declaration may be rescinded by the holders of
a majority of the aggregate principal amount of the Notes before a judgment or
decree for payment of the amount due has been obtained by the Indenture Trustee
if: (a) the Trust has deposited with the Indenture Trustee an amount sufficient
to pay (x) all interest on and principal of the Notes as if the Event of Default
giving rise to such declaration had not occurred and (y) all amounts advanced by
the Indenture Trustee and its costs and expenses; and (b) all Events of Default
(other than the nonpayment of principal of the Notes that has become due solely
by such acceleration) have been cured or waived. (Indenture, Section 5.2). Any
such
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rescission could be treated, for Federal income tax purposes, as a constructive
exchange of the Notes by the Noteholders for deemed new Notes upon which gain or
loss would be recognized.
If the Notes have been declared due and payable following an Event of
Default, the Indenture Trustee may institute proceedings to collect amounts due,
exercise remedies as a secured party, including foreclosure or sale of the Trust
Property, or elect to maintain the Trust Property and continue to apply proceeds
from the Trust Property as if there had been no declaration of acceleration. The
Indenture Trustee may not, however, sell the Trust Property following an Event
of Default, other than a default in the payment of any principal or a default
for five days or more in the payment of any interest on the Notes, unless: (a)
100% of the Noteholders consent thereto; (b) the proceeds of such sale are
sufficient to pay in full the principal of and the accrued interest on the then
outstanding Notes; or (c) the Indenture Trustee determines that the Trust
Property would not be sufficient on an ongoing basis to make all payments on the
Notes as such payments would have become due if such obligations had not been
declared due and payable, and the Indenture Trustee obtains the consent of
holders of 66 2/3% of the aggregate principal amount of the outstanding Notes,
voting as a group, to such sale. The Indenture Trustee may, but need not, obtain
and rely upon an opinion of an independent accountant or investment banking firm
as to the sufficiency of the Trust Property to pay interest on and principal of
the Notes on an ongoing basis. (Indenture, Sections 5.4 and 5.5).
In the event of a sale of the Trust Property following the occurrence of an
Event of Default under the circumstances described in the preceding paragraph
pursuant to the direction of the Indenture Trustee or the Noteholders, the
proceeds of such sale will be distributed:
(1) first, to the Indenture Trustee for amounts due as compensation or
indemnity payments pursuant to the terms of the Indenture;
(2) second, to the Servicer for amounts due in respect of unpaid Total
Servicing Fees;
(3) third, to the Noteholders for interest which is due and unpaid; and
(4) fourth, to the Noteholders for principal which is due and unpaid.
Any remaining amounts will be distributed to the Certificateholders for
amounts due and unpaid in accordance with the terms of the Trust Agreement and
the Sale and Servicing Agreement. (Indenture, Section 5.4).
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, in case an Event of Default occurs and is continuing with
respect to the Notes, the Indenture Trustee will be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the Noteholders, if the Indenture Trustee reasonably
believes it will not be adequately indemnified against the costs, expenses and
liabilities which might be incurred by it in complying with such request.
(Indenture, Sections 6.1 and 6.2). Subject to such provisions for
indemnification and certain other limitations contained in the Indenture, the
holders of not less than a majority of the aggregate principal amount of the
outstanding Notes, voting as a group, will have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust power
conferred on the Indenture Trustee, and the holders of not less than a majority
of the aggregate principal amount of the outstanding Notes, voting as a group,
may, in certain cases, waive any default with respect thereto prior to the
acceleration of the maturity of Notes, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of the
Indenture that cannot be modified without the waiver or consent of all of the
holders of the outstanding Notes. (Indenture, Sections 5.11 and 5.12). Until
such time, if any, as Definitive Notes have been issued, the Indenture Trustee
will act only in accordance with the instructions of Cede, as nominee for DTC.
However, under the rules, DTC will act only in accordance with the instructions
of the DTC Participants to whom
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Notes are credited, which will in turn act in accordance with the instructions
of persons holding beneficial interests in such Notes through such DTC
Participants. Accordingly, although only Cede will be entitled to vote under the
Indenture, Note Owners will be entitled to instruct DTC as to the manner in
which to vote.
No Noteholder or Noteholders will have the right to institute any proceeding
with respect to the Indenture unless:
(1) such Noteholder or Noteholders previously has given to the Indenture
Trustee written notice of a continuing Event of Default;
(2) the holders of not less than 25% of the aggregate principal amount
of the Notes outstanding have made written request of the Indenture Trustee
to institute such proceeding in its own name as Indenture Trustee;
(3) such Noteholder or Noteholders have offered the Indenture Trustee
reasonable indemnity;
(4) the Indenture Trustee has for 60 days failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has been given
to the Indenture Trustee during such 60-day period by the holders of a
majority of the aggregate principal amount of the Notes outstanding.
(Indenture, Section 5.6).
Neither the Indenture Trustee nor the Owner Trustee in their respective
individual capacities, nor any holder of a Certificate, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns will, in the absence of an express agreement to the
contrary, be personally liable for the payment of interest on or principal of
the Notes or for the agreements of the Trust and the Owner Trustee, in its
capacity as trustee, contained in the Indenture.
CERTAIN COVENANTS BY THE TRUST UNDER THE INDENTURE. The Trust will not,
among other things:
(1) except as expressly permitted by the Indenture, the Transfer and
Servicing Agreements or certain related documents (collectively, the "Basic
Documents") sell, transfer, exchange or otherwise dispose of any of the
assets of the Trust;
(2) claim any credit on or make any deduction from the principal or
interest payable in respect of the Notes (other than amounts withheld under
the Code or applicable state law) or assert any claim against any present or
former holder of Notes because of the payment of taxes levied or assessed
upon the Trust;
(3) dissolve or liquidate in whole or in part; or
(4) permit:
(A) the validity or effectiveness of the Indenture to be impaired;
(B) any person to be released from any covenants or obligations with
respect to the Notes under the Indenture except as may be expressly
permitted thereby;
(C) 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 therefrom; or
(D) the lien of the Indenture not to constitute a valid, first
priority (other than with respect to any such tax, mechanics or other
lien) security interest in the Trust Property. (Indenture, Section 3.8).
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The Trust may not engage in any activities other than financing, acquiring,
owning, pledging and managing the Receivables as contemplated by the Basic
Documents and activities incidental thereto. (Indenture, Section 3.12).
The Trust will not incur, assume or guarantee any indebtedness other than
indebtedness incurred pursuant to the Notes, or otherwise in accordance with the
Basic Documents. (Indenture, Section 3.13).
The Trust will not make any payments to Certificateholders in respect of
their Certificates for any Collection Period unless the Accrued Note Interest,
the Principal Distribution Amount, the Total Servicing Fee and the deposits, if
any, required to be made to the Reserve Account and the Supplemental Reserve
Account have been provided for. (Indenture, Section 2.8).
The Trust will or will cause the Servicer to deliver to the Indenture
Trustee on or prior to each Payment Date the disbursement and payment
instructions as required pursuant to the Indenture. (Sale and Servicing
Agreement, Section 4.11).
REPLACEMENT OF INDENTURE TRUSTEE. Noteholders holding not less than a
majority of the aggregate principal amount of the outstanding Notes, voting as a
group, may remove the Indenture Trustee without cause by so notifying the
Indenture Trustee and the Trust, and following such removal may appoint a
successor Indenture Trustee. Any successor Indenture Trustee must at all times
satisfy the requirements of Section 310(a) of the Trust Indenture Act of 1939,
as amended, and must have a combined capital and surplus of at least $50,000,000
and a long-term debt rating of investment grade by each Rating Agency or
otherwise acceptable to each Rating Agency. (Indenture, Sections 6.8 and 6.11).
The Indenture Trustee may resign at any time by so notifying the Trust and
the Noteholders. The Trust will be required to remove the Indenture Trustee if
the Indenture Trustee:
(1) ceases to be eligible to continue as the Indenture Trustee;
(2) is adjudged to be bankrupt or insolvent;
(3) comes under the charge of a receiver or other public officer; or
(4) otherwise becomes incapable of acting.
Upon the resignation or required removal of the Indenture Trustee, or the
failure of the Noteholders to appoint a successor Indenture Trustee following
the removal without cause of the Indenture Trustee, the Trust will be required
promptly to appoint a successor Indenture Trustee. (Indenture, Section 6.8).
DUTIES OF INDENTURE TRUSTEE UNDER THE INDENTURE. Except during the
continuance of an Event of Default, the Indenture Trustee:
(1) will perform such duties and only such duties as are specifically
set forth in the Indenture;
(2) may in the absence of bad faith, rely, as to the truth of the
statements and the correctness of the opinions expressed therein, on
certificates or opinions furnished to the Indenture Trustee which conform to
the requirements of the Indenture; and
(3) will examine any such certificates and opinions which are
specifically required to be furnished to the Indenture Trustee by the
Indenture to determine whether or not they conform to the requirements of
the Indenture.
Upon the continuance of an Event of Default, the Indenture Trustee will be
required to exercise the rights and powers vested in it by the Indenture and use
the same degree of care and skill in the exercise
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thereof as a prudent person would exercise or use under the circumstances in the
conduct of such person's own affairs. (Indenture, Section 6.1).
COMPENSATION AND INDEMNITY OF THE INDENTURE TRUSTEE UNDER THE
INDENTURE. The Trust will:
(1) pay to the Indenture Trustee from time to time reasonable
compensation for its services;
(2) reimburse the Indenture Trustee for all expenses, advances and
disbursements reasonably incurred; and
(3) indemnify the Indenture Trustee for, and hold it harmless against,
any and all losses, liability or expense (including attorneys' fees)
incurred by it in connection with the performance of its duties.
The Indenture Trustee will not be indemnified against any loss, liability or
expense incurred by it through its own willful misconduct, negligence or bad
faith, except that the Indenture Trustee will not be liable:
(1) for any error of judgment made by it in good faith unless it is
proved that the Indenture Trustee was negligent in ascertaining the
pertinent facts;
(2) with respect to any action it takes or omits to take in good faith
in accordance with a direction received by it from Noteholders in accordance
with the terms of the Indenture; and
(3) for interest on any money received by it except as the Indenture
Trustee and the Trust may agree in writing.
The Indenture Trustee will not be deemed to have knowledge of any Event of
Default unless an officer of the Indenture Trustee has actual knowledge thereof
or has received written notice thereof in accordance with the provisions of the
Indenture. (Indenture, Sections 6.1 and 6.7).
INDENTURE TRUSTEE'S ACCESS TO NOTEHOLDER LISTS. If Definitive Notes are
issued in the limited circumstances described herein and the Indenture Trustee
is not the registrar for the Notes, the Trust will furnish or cause to be
furnished to the Indenture Trustee a list of the names and addresses of the
Noteholders: (a) as of each Record Date, within five days thereafter; and (b) as
of not more than 10 days prior to the time such list is furnished, within 30
days after receipt by the Trust of a written request therefor. (Indenture,
Section 7.1).
ANNUAL COMPLIANCE STATEMENT TO BE PROVIDED BY TRUST TO INDENTURE
TRUSTEE. The Trust will be required to file annually with the Indenture Trustee
a written statement as to the fulfillment of its obligations under the
Indenture. (Indenture, Section 3.9).
REQUIREMENTS FOR SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture
will be discharged with respect to the collateral securing the Notes upon the
delivery to the Indenture Trustee for cancellation of all the Notes or, with
certain limitations, including receipt of certain opinions with respect to tax
matters, upon deposit with the Indenture Trustee of funds sufficient for the
payment in full of all of the Notes (including interest and any fees due and
payable to the Owner Trustee or the Indenture Trustee). (Indenture, Section
4.1).
REQUIREMENTS FOR MODIFICATION OF INDENTURE. Without the consent of the
Noteholders, the Owner Trustee, on behalf of the Trust, and the Indenture
Trustee, upon request by the Trust, may execute a supplemental indenture for the
purpose of, among other things, 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
or questions arising under the Indenture which will not be inconsistent with
other provisions of the Indenture; provided that (a) such action will not,
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(1) as evidenced by an opinion of counsel (which may be internal counsel to the
Seller or the Servicer (an "Opinion of Counsel")), materially adversely affect
the interests of any Noteholder and (2) as confirmed by each Rating Agency
rating any class of Notes, cause the then-current rating assigned to any class
of Notes to be withdrawn, reduced or qualified and (b) an Opinion of Counsel as
to certain tax matters is delivered. (Indenture, Section 9.1).
The Owner Trustee, on behalf of the Trust, and the Indenture Trustee, upon
request by the Trust, may also enter into supplemental indentures, with the
consent of not less than a majority of the aggregate principal amount of the
outstanding Notes, voting as a group, and with prior written notice to each
Rating Agency, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of the Indenture or of modifying in
any manner the rights of Noteholders; provided, that (a) such action will not,
(1) as evidenced by an Opinion of Counsel, materially adversely affect the
interests of any Noteholder and (2) as confirmed by each Rating Agency rating
any class of Notes, cause the then- current rating assigned to any such class of
Notes to be withdrawn, reduced or qualified and (b) an Opinion of Counsel as to
certain tax matters is delivered. (Indenture, Section 9.1).
Without the consent of the holder of each outstanding Note affected thereby,
however, no supplemental indenture may:
(1) change the Final Payment Date for any class of Notes or the due date
of any installment of principal of or interest on any Note or reduce the
principal amount thereof, the interest rate specified thereon or the
redemption price with respect thereto, change the provisions of the
Indenture relating to the application of collections on, or the proceeds of
the sale of, the Trust Property to payment of principal of or interest on
the Notes, or change any place of payment where, or the coin or currency in
which, any Note or any interest thereon is payable;
(2) impair the right to institute suit for the enforcement of certain
provisions of the Indenture regarding payment;
(3) reduce the percentage of the aggregate outstanding principal amount
of the Notes the consent of the holders of which is required for any such
supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences as provided for in the Indenture;
(4) modify or alter the provisions of the Indenture regarding the voting
of Notes held by the Trust, the Seller, the Servicer, an affiliate of any of
them or any obligor on the Notes;
(5) reduce the percentage of the aggregate outstanding principal amount
of the Notes the consent of the holders of which is required to direct the
Indenture Trustee to sell or liquidate the Trust Property if the proceeds of
such sale would be insufficient to pay the principal amount and accrued but
unpaid interest on the Notes and the Certificates;
(6) modify any provision of the Indenture specifying a percentage of the
aggregate principal amount of the Notes necessary to amend the Indenture or
the other Basic Documents except to increase any percentage specified in the
Indenture or to provide that certain additional provisions of the Indenture
or the other Basic Documents cannot be modified or waived without the
consent of the holder of each outstanding Note affected thereby;
(7) modify any provisions of the Indenture in such manner as to affect
the calculation of the amount of any payment of interest or principal due on
any Note on any Payment Date or to affect the rights of the holders of Notes
to the benefit of any provisions for the mandatory redemption of the Notes
contained in the Indenture; or
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(8) permit the creation of any lien ranking prior to or on a parity with
the lien of the Indenture with respect to any of the Trust Property or,
except as otherwise permitted or contemplated in the Indenture, terminate
the lien of the Indenture on any such collateral or deprive the holder of
any Note of the security afforded by the lien of the Indenture. (Indenture,
Section 9.2).
The Trust Agreement will require the Owner Trustee to give the
Certificateholders 30 days' written notice of any proposed supplemental
indenture if it materially adversely affects the Certificateholders or if any
Noteholders' consent is required and provides that the Owner Trustee will not
enter into such amendment unless Certificateholders holding a majority of the
Certificate Balance including, for this purpose, Certificates held by the Seller
or any affiliate of the Seller, consent in writing. (Trust Agreement, Section
4.1).
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The Trust will purchase a pool of motor vehicle retail installment sale
contracts (the "Initial Receivables") on the Closing Date. It is anticipated
that the Trust will purchase additional motor vehicle retail installment sale
contracts (the "Subsequent Receivables") on one or more Subsequent Transfer
Dates with an aggregate principal balance approximately equal to the Initial
Pre-Funded Amount. The Initial Receivables and the Subsequent Receivables are
referred to collectively in this Prospectus as the "Receivables". The Servicer
will undertake to service the Receivables pursuant to the Sale and Servicing
Agreement. The Trust will be created and the Certificates will be issued
pursuant to the Trust Agreement. MMCA will undertake certain administrative
duties with respect to the Trust pursuant to the Administration Agreement
(together with the Sale and Servicing Agreement and the Trust Agreement, the
"Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part. The following summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF THE INITIAL RECEIVABLES AND THE SUBSEQUENT RECEIVABLES
Prior to the time of issuance of the Notes, pursuant to the Purchase
Agreement MMCA will sell and assign to the Seller, without recourse, its entire
right, title and interest in, to and under the Initial Receivables, including
its security interests in the related Financed Vehicles. At the time of issuance
of the Notes, the Seller will sell and assign to the Trustee, without recourse,
the Seller's entire interest in the Initial Receivables, including its security
interests in the related Financed Vehicles. Each Initial Receivable conveyed by
the Seller to the Trust will be identified in a schedule attached to the Sale
and Servicing Agreement. The Initial Receivables will be sold and assigned by
MMCA to the Seller and sold and assigned by the Seller to the Trust as of
January 1, 1999 (the "Initial Cutoff Date"). The Owner Trustee will,
concurrently with such sale and assignment of the Initial Receivables, execute,
authenticate and deliver the Certificates. The net proceeds received from the
sale of the Notes will be applied to the purchase of the Initial Receivables on
the Closing Date and to the deposits required to be made to the Reserve Account,
the Pre-Funding Account, the Negative Carry Account, the Payahead Account and
the Yield Supplement Account on the Closing Date.
It is anticipated that Subsequent Receivables will be conveyed to the Trust
monthly on dates specified by the Seller (each, a "Subsequent Transfer Date")
occurring during a period beginning on the Closing Date and ending not later
than June 30, 1999 (the "Pre-Funding Period"). The Seller will designate as a
cutoff date (each, a "Subsequent Cutoff Date" and, together with the Initial
Cutoff Date, each a "Cutoff Date") the date as of which particular Subsequent
Receivables are conveyed to the Trust. On or prior to each Subsequent Transfer
Date, MMCA will sell and assign to the Seller, without recourse, its entire
right, title and interest in, to and under the Subsequent Receivables to be
transferred by the Seller to the Trust on such date, including MMCA's security
interests in the related Financed Vehicles. On each Subsequent
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Transfer Date, subject to the conditions described below, the Seller will sell
and assign to the Trust, without recourse, the Seller's entire interest in the
Subsequent Receivables designated by the Seller as of the related Subsequent
Cutoff Date.
Upon the conveyance of Subsequent Receivables to the Trust on a Subsequent
Transfer Date:
(1) the Pool Balance will increase in an amount equal to the aggregate
principal balance of the Subsequent Receivables;
(2) an amount equal to 0.15% of the aggregate principal balance of the
Subsequent Receivables will be withdrawn from the Pre-Funding Account from
funds otherwise distributable to the Seller as payment for the Subsequent
Receivables and deposited in the Reserve Account;
(3) an amount equal to the Payaheads as of the related Subsequent Cutoff
Date of the Subsequent Receivables conveyed to the Trust on such Subsequent
Transfer Date will be withdrawn from the Pre-Funding Account from funds
otherwise distributable to the Seller as payment for the Subsequent
Receivables and deposited in the Payahead Account;
(4) an amount equal to the projected Yield Supplement Amounts for all
future Payment Dates for the Subsequent Receivables conveyed to the Trust on
such Subsequent Transfer Date will be withdrawn from the Pre-Funding Account
from funds otherwise distributable to the Seller as payment for the
Subsequent Receivables and deposited in the Yield Supplement Account unless
the Yield Supplement Account has been replaced by a Yield Supplement Letter
of Credit on or prior to such date; and
(5) an amount equal to the excess of the aggregate principal balance of
such Subsequent Receivables over the sum of the amounts described in clauses
(2), (3) and (4) will be withdrawn from the Pre-Funding Account and paid to
the Seller.
Any conveyance of Subsequent Receivables is subject to the satisfaction, on
or before the related Subsequent Transfer Date, of the following conditions
precedent, among others:
(1) each such Subsequent Receivable shall satisfy the eligibility
criteria specified in the Sale and Servicing Agreement (see "Description of
the Receivables--Selection Criteria for the Receivables");
(2) the Seller shall not have selected such Subsequent Receivables in a
manner that it believes is adverse to the interests of the Trust, the
Noteholders or the Certificateholders;
(3) as of the related Subsequent Cutoff Date, the pool of Receivables,
after giving effect to the inclusion of the Subsequent Receivables, shall
satisfy the parameters specified in the Sale and Servicing Agreement (see
"Description of the Receivables--Selection Criteria for the Receivables");
(4) the applicable Reserve Account deposit for such Subsequent Transfer
Date shall have been made;
(5) the applicable Payahead Account deposit for such Subsequent Transfer
Date shall have been made;
(6) the applicable Yield Supplement Account deposit for such Subsequent
Transfer Date shall have been made;
(7) the Seller shall have executed and delivered to the Trust (with a
copy to the Indenture Trustee) a written assignment conveying such
Subsequent Receivables to the Trust (including a schedule identifying such
Subsequent Receivables);
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(8) the Seller shall have delivered certain opinions of counsel to the
Owner Trustee, the Indenture Trustee, the Representative and the Rating
Agencies with respect to the transfer of such Subsequent Receivables; and
(9) the Owner Trustee, the Indenture Trustee and the Rating Agencies
shall have received written notification from the Seller of the addition of
all such Subsequent Receivables.
In addition, the pool of Receivables will not deviate from the following
characteristics as of each Subsequent Cutoff Date (after giving effect to
Subsequent Receivables sold to the Trust on the related Subsequent Transfer
Date):
(1) the weighted average remaining maturity of the Receivables will not
be more than 51 months; and
(2) the aggregate principal balance of the Balloon Payments as a
percentage of the Pool Balance will not be greater than 26%.
Except for the criteria described in the two preceding paragraphs, there
will be no required characteristics of the Subsequent Receivables. Therefore,
following the transfer of Subsequent Receivables to the Trust, the aggregate
characteristics of the entire pool of Receivables may vary from those of the
Initial Receivables. See "Risk Factors" and "Description of the Receivables."
In the Purchase Agreement, MMCA will represent and warrant to the Seller,
and in the Sale and Servicing Agreement the Seller will represent and warrant to
the Owner Trustee, among other things, that:
(1) the information provided in the schedule of Initial Receivables
attached to the Sale and Servicing Agreement and each schedule of Subsequent
Receivables attached to the related assignment is correct in all material
respects;
(2) MMCA shall have determined whether or not the obligor on each
Receivable has maintained physical damage insurance (which shall not be
force-placed insurance) covering the Financed Vehicle in accordance with its
normal requirements;
(3) at the Closing Date or the related Subsequent Transfer Date, as
applicable, the Receivables are free and clear of all security interests,
liens, charges, and encumbrances and no setoffs, defenses, or counterclaims
against it have been asserted or threatened;
(4) at the Closing Date or the related Subsequent Transfer Date, as
applicable, each of the Receivables is or will be secured by a perfected
first priority security interest in the Financed Vehicle in favor of MMCA;
and
(5) each Receivable, at the time it was originated, complied, and at the
Closing Date or the related Subsequent Transfer Date, as applicable,
complies or will comply in all material respects with applicable Federal and
state laws, including consumer credit, truth in lending, equal credit
opportunity and disclosure laws.
The only recourse the Noteholders, the Trust, the Indenture Trustee, the
Certificateholders or the Owner Trustee will have against MMCA and the Seller
for breach of any of the foregoing representations and warranties with respect
to a Receivable will be to require MMCA and the Seller to repurchase the
Receivable. See "--Mandatory Repurchase of Receivables." The Owner Trustee, the
Indenture Trustee, the Trust and the Servicer will covenant in the Sale and
Servicing Agreement not to institute or join in the institution of any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding,
or other similar proceeding against the Seller for a period of one year and a
day after any securities rated by a Rating Agency were issued by the Seller or
by a trust for which the Seller was the depositor.
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To assure uniform quality in servicing the Receivables and to reduce
administrative costs, the Trust will appoint the Servicer as initial custodian
of the Receivables. The Servicer, in its capacity as custodian, will hold the
Receivables and all documents and instruments relating thereto (each, a
"Receivable File"), either directly or through subservicers, on behalf of the
Trust. The Receivables will not be stamped or otherwise marked to reflect the
sale and assignment of the Receivables to the Trust and will not be segregated
from other receivables held by the Servicer or the subservicers. However,
Uniform Commercial Code financing statements reflecting the sale and assignment
of the Receivables by MMCA to the Seller and 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. See "Description of MMCA Auto Owner Trust
1999-1" and "Certain Legal Aspects of the Receivables."
DESCRIPTION OF THE PRE-FUNDING PERIOD
The Trust will pay the purchase price for Subsequent Receivables with funds
on deposit in an account to be known as the "Pre-Funding Account". The Seller
will deposit an amount equal to $118,385,086.70 (the "Initial Pre-Funded
Amount") in the Pre-Funding Account on the Closing Date. The Seller expects to
sell Subsequent Receivables to the Trust with an aggregate principal balance
approximately equal to the Initial Pre-Funded Amount. Prior to being used to
purchase Subsequent Receivables or paid to holders of the Notes as described
under "Description of the Terms of the Notes--Mandatory Redemption of the
Notes," funds on deposit in the Pre-Funding Account will be invested from time
to time in Permitted Investments. The net earnings from the investment of funds
on deposit in the Pre-Funding Account will be transferred to the Collection
Account on a monthly basis on the Business Day preceding each Payment Date.
The Pre-Funding Period will end earlier than June 30, 1999 if:
(1) the amount of funds on deposit in the Pre-Funding Account (the
"Pre-Funded Amount") is reduced to less than $100,000 because of
purchases of Subsequent Receivables;
(2) there is an Event of Default under the Indenture;
(3) there is an Event of Servicing Termination under the Sale and
Servicing Agreement; or
(4) the Seller or the Servicer becomes subject to certain insolvency
events.
Any funds remaining on deposit in the Pre-Funding Account at the end of the
Pre-Funding Period will be payable to the Noteholders as described under
"Description of the Terms of the Notes--Mandatory Redemption of the Notes."
MANDATORY REPURCHASE OF RECEIVABLES
In the event of a breach or failure to be true of any representation or
warranty with respect to the Receivables described in "--Sale and Assignment of
the Initial Receivables and the Subsequent Receivables," which breach or failure
materially and adversely affects the interest of the Trust in a Receivable, the
Seller, unless such breach or failure has been cured by the last day of the
Collection Period which includes the 60th day after the date on which the Seller
becomes aware of, or receives written notice from the Owner Trustee or the
Servicer of, such breach or failure, will be required to repurchase the
Receivable from the Trust, and MMCA will be required to repurchase such
Receivable from the Seller, for the Purchase Amount. The Purchase Amount will be
payable on the Payment Date immediately following such Collection Period. The
obligation of the Seller to repurchase a Receivable will not be conditioned on
performance by MMCA of its obligation to repurchase a Receivable. The repurchase
obligation will constitute the sole remedy available to the Noteholders, the
Trust, the Indenture Trustee, the Certificateholders or the Owner Trustee
against the Seller and MMCA for any such uncured breach or failure.
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The "Purchase Amount" means, with respect to a Payment Date and a Receivable
to be purchased or repurchased on such Payment Date by the Seller or the
Servicer, an amount equal to the sum of (a) the outstanding principal balance of
such Receivable as of the first day of the related Collection Period and (b) an
amount equal to the amount of accrued and unpaid interest on such principal
balance at the related APR from the date a payment was last made by or on behalf
of the obligor through the Due Date for such Receivable in the related
Collection Period and in the case of clauses (a) and (b), after giving effect to
the receipt of monies collected on such Receivable in such Collection Period.
DESCRIPTION OF SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables in a manner consistent with the Sale and Servicing
Agreement and will exercise the degree of skill and care that the Servicer
exercises with respect to comparable motor vehicle receivables owned and/or
serviced by the Servicer for itself or others.
Although it has no current plans to do so, the Servicer may enter into
subservicing agreements with Eligible Servicers for the subservicing of
Receivables. Any such subservicing agreements will contain provisions
substantially identical to those contained in the Sale and Servicing Agreement
and may contain such other provisions as are not inconsistent with the terms of
the Sale and Servicing Agreement. The Servicer may terminate a subservicing
agreement and either service the related Receivables directly or enter into a
new subservicing agreement for such Receivables with another subservicer,
provided that any such subservicer is an Eligible Servicer. Notwithstanding any
subservicing agreement, the Servicer will remain obligated and liable to the
Trust and the Owner Trustee for servicing and administering the Receivables in
accordance with the Sale and Servicing Agreement as if the Servicer alone were
servicing the Receivables. References herein to actions required or permitted to
be taken, or restrictions on actions to be taken, by the Servicer include such
actions by a subservicer. References herein to amounts received by the Servicer
include amounts received by a subservicer.
"Eligible Servicer" means a person which, at the time of its appointment as
Servicer or as a subservicer:
(1) has a net worth of not less than $50,000,000;
(2) is servicing a portfolio of motor vehicle retail installment sale
contracts and/or motor vehicle loans;
(3) is legally qualified, and has the capacity, to service the
Receivables;
(4) has demonstrated the ability to service a portfolio of motor vehicle
retail installment sale contracts and/or motor vehicle loans similar to the
Receivables professionally and competently in accordance with standards of
skill and care that are consistent with prudent industry standards; and
(5) is qualified and entitled to use pursuant to a license or other
written agreement, and agrees to maintain the confidentiality of, the
software which the Servicer or any subservicer uses in connection with
performing its duties and responsibilities under the Sale and Servicing
Agreement or the related subservicing agreement or obtains rights to use, or
develops at its own expense, software which is adequate to perform its
duties and responsibilities under the Sale and Servicing Agreement or the
related subservicing agreement.
The Servicer will covenant in the Sale and Servicing Agreement that:
(1) the Financed Vehicle securing each Receivable will not be released
from the security interest granted by the Receivable in whole or in part,
except as contemplated by the Sale and Servicing Agreement;
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(2) the Servicer will not (nor will it permit any subservicer to) impair
in any material respect the rights of the Trust, the Indenture Trustee, the
Noteholders, the Owner Trustee or the Certificateholders in the Receivables,
or, subject to clause (3) below, otherwise amend or alter the terms thereof
if, as a result of such amendment or alteration, the interests of the Trust,
the Noteholders, the Indenture Trustee, the Owner Trustee, or the
Certificateholders under the Sale and Servicing Agreement would be
materially adversely affected; and
(3) the Servicer will not increase or decrease the number or amount of
scheduled payments or the amount financed under a Receivable, or extend,
rewrite or otherwise modify the payment terms of a Receivable; provided,
however, that the Servicer may extend any Receivable for credit-related
reasons that would be acceptable to the Servicer with respect to comparable
motor vehicle receivables that it services for itself or others in
accordance with its customary standards if the cumulative extensions with
respect to any Receivable shall not cause the term of any such Receivable to
extend beyond the Final Scheduled Maturity Date; provided further that such
extensions, in the aggregate, do not exceed two months for each twelve
months of the original term of the Receivable.
In the event of a breach by the Servicer of any covenant described above
that materially and adversely affects the interests of the Trust in a
Receivable, the Servicer, unless such breach has been cured by the last day of
the Collection Period which includes the 60th day after the date on which the
Servicer becomes aware of, or receives written notice of, such breach, will be
required to purchase the Receivable from the Trust for the Purchase Amount on
the Payment Date immediately following such Collection Period; provided,
however, that with respect to a breach of the covenant described in clause (3)
of the preceding paragraph, the Servicer will be required to purchase the
related Receivable from the Trust at the end of the Collection Period in which
such breach occurs. The purchase obligation will constitute the sole remedy
available to the Noteholders, the Trust, the Indenture Trustee, the Owner
Trustee, or the Certificateholders against the Servicer for any such uncured
breach, except with respect to certain indemnities of the Servicer under the
Sale and Servicing Agreement related thereto.
The Sale and Servicing Agreement will also generally require the Servicer to
charge off a Receivable in conformity with its normal practice and to follow
such of its normal collection practices and procedures as it deems necessary or
advisable, and that are consistent with the standard of care required by the
Sale and Servicing Agreement, to realize upon any Receivable. Currently, MMCA
charges off a Contract at the time that the related Financed Vehicle has been
repossessed and sold, and the proceeds of sale of the Financed Vehicle are
applied against the amount owing on the Contract, or at such time as MMCA
determines that it will not recover the Financed Vehicle. The Servicer may sell
the Financed Vehicle securing such Receivable at judicial sale or take any other
action permitted by applicable law. See "Certain Legal Aspects of the
Receivables." The net proceeds of such sale will be deposited in the Collection
Account at the time and in the manner described above.
The Sale and Servicing Agreement will also require the Servicer to make
Actuarial Advances and Balloon Payment Advances for which the Servicer will be
reimbursed in the manner described under "Description of the Terms of the
Notes--Advances by the Servicer of Amounts Payable on the Receivables."
The Sale and Servicing Agreement will provide that the Servicer will defend
and indemnify the Trust, the Indenture Trustee, the Owner Trustee, the
Noteholders, the Certificateholders and the Seller against any and all costs,
expenses, losses, damages, claims, and liabilities, including reasonable fees
and expenses of counsel and expenses of litigation, arising out of or resulting
from the use, ownership or operation by the Servicer or any affiliate thereof of
any Financed Vehicle, or in respect of any negligence, willful misfeasance or
bad faith of the Servicer in the performance of its duties (other than errors in
judgment) or by reason of reckless disregard of its obligations and duties,
under any Basic Document to which it is a party. The Servicer's obligations to
indemnify the Trust, the Indenture Trustee, the Owner Trustee, the
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Noteholders, the Seller and the Certificateholders for the Servicer's actions or
omissions will survive the removal of the Servicer, but will not apply to any
action or omission of a successor Servicer.
SERVICING COMPENSATION
The Servicer will be entitled to receive a fee for servicing the Receivables
each Collection Period (the "Servicing Fee"), in an amount equal to the product
of one-twelfth of the Servicing Rate and the Pool Balance as of the first day of
such Collection Period. The "Servicing Rate" will equal 1.00% per annum. The
Servicer will also be entitled to receive, as additional servicing compensation,
earnings (net of losses and investment expenses) on amounts on deposit in the
Payahead Account, Rule of 78's Payments, all disposition fees paid with respect
to Balloon Payment Receivables and all administrative fees and charges and all
late payment fees paid with respect to the Receivables, other than fees paid in
connection with extension or deferral of payments on a Receivable, which will be
deposited in the Collection Account. The Servicing Fee, together with any
portion of the Servicing Fee that remains unpaid from prior Payment Dates (the
"Total Servicing Fee"), will be paid to the Servicer on each Payment Date out of
Total Available Funds prior to distributions to Noteholders and
Certificateholders.
The Servicing Fee and the additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of Motor
Vehicle Contracts and Truck Contracts and for administering the Receivables on
behalf of the Noteholders and the Certificateholders, including collecting
payments, accounting for collections, furnishing monthly and annual statements
to the Indenture Trustee and the Owner Trustee with respect to distributions,
responding to inquiries of obligors, investigating delinquencies, and providing
collection and repossession services in cases of obligor default. In addition,
the Servicing Fee and the additional servicing compensation will further
compensate the Servicer for certain taxes, accounting fees, outside auditor
fees, data processing costs, and other costs incurred by the Servicer under the
Sale and Servicing Agreement in connection with administering and servicing the
Receivables.
EVIDENCE TO BE PROVIDED AS TO SERVICER'S COMPLIANCE WITH ITS SERVICING
OBLIGATIONS
The Sale and Servicing Agreement will provide that a firm of independent
certified public accountants, who may provide audit and other services to the
Servicer, the Seller or MMCA, will furnish to the Indenture Trustee and the
Owner Trustee, on or before March 31 of each year, beginning March 31, 2000, a
report of examination as to compliance by the Servicer during the 12 months
ended the preceding December 31 with certain standards relating to the servicing
of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Owner Trustee, on or before March 31 of each year,
beginning March 31, 2000, of a certificate signed by an officer of the Servicer
stating that to the best of such officer's knowledge the Servicer has fulfilled
its obligations under the Sale and Servicing Agreement throughout the 12 months
ended the preceding December 31 or, if there has been a default in the
fulfillment of any such obligation, describing each such default.
Note Owners may obtain copies of such statements and certificates by written
request addressed to the Indenture Trustee.
RESIGNATION BY THE SERVICER
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder, except upon a
determination that the Servicer's performance of such duties is no longer
permissible under applicable law. No such resignation will become effective
until the Indenture Trustee or a successor servicer has assumed the Servicer's
servicing obligations and duties under the Sale and Servicing Agreement and
becomes the Administrator under the Administration Agreement.
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CONSEQUENCES OF MERGER, CONVERSION, CONSOLIDATION OR SIMILAR ACTIONS BY SERVICER
Any corporation or other entity into which the Servicer may be merged or
consolidated, or that may result from any merger, conversion or consolidation to
which the Servicer is a party, or any entity that may succeed by purchase and
assumption to all or substantially all of the business of the Servicer, where
the Servicer is not the surviving entity and where such corporation or other
entity is an Eligible Servicer and assumes the obligations of the Servicer under
the Sale and Servicing Agreement, will be the successor to the Servicer under
the Sale and Servicing Agreement.
LIMITS ON SERVICER'S LIABILITY
The Sale and Servicing Agreement will provide that the Servicer will be
liable only to the extent of the obligations specifically undertaken by it under
the Sale and Servicing Agreement and will have no other obligations or
liabilities thereunder.
LIMITS ON SERVICER'S OBLIGATIONS IN CONNECTION WITH LEGAL ACTIONS
The Sale and Servicing Agreement will also provide that the Servicer will be
under no obligation to appear in, prosecute or defend any legal action that is
not incidental to the Servicer's servicing responsibilities under the Sale and
Servicing Agreement and that, in its opinion, may cause it to incur any expense
or liability. The Servicer may, however, at its expense undertake any reasonable
action that it may deem necessary or desirable in respect of the Sale and
Servicing Agreement and the rights and duties of the parties thereto and the
interests of the Noteholders and the Certificateholders thereunder.
EVENTS OF SERVICING TERMINATION
The following events will constitute "Events of Servicing Termination" under
the Sale and Servicing Agreement:
(1) any failure by the Servicer to deliver to the Owner Trustee or the
Indenture Trustee the monthly certificate pursuant to the Sale and Servicing
Agreement detailing the collections and distributions for any Collection
Period (which failure continues beyond the earlier of three Business Days
from the date such Servicer's certificate was due to be delivered and the
related Payment Date);
(2) any failure by the Servicer to deliver to the Collection Account or
any other account, any required payment or deposit under the Sale and
Servicing Agreement, which failure continues unremedied for five Business
Days following the due date (or, in the case of a payment or deposit to be
made no later than a Payment Date, the failure to make such payment or
deposit by such Payment Date);
(3) any failure by the Servicer duly to observe or perform in any
material respect any other covenant or agreement in the Notes, the
Certificates or the Sale and Servicing Agreement, which failure materially
and adversely affects the rights of Noteholders or Certificateholders and
which continues unremedied for 30 days after written notice of such failure
is given to the Servicer by the Indenture Trustee or the Owner Trustee, as
applicable (the "Applicable Trustee"), or to the Seller, the Servicer, the
Owner Trustee and the Indenture Trustee by the holders of Notes or
Certificates, as applicable, evidencing not less than 25% in aggregate
principal amount of the outstanding Notes (voting as a group) or
Certificates;
(4) certain events of bankruptcy, receivership, insolvency, readjustment
of debt, marshalling of assets and liabilities, or similar proceedings with
respect to the Seller or the Servicer and certain actions by the Seller or
the Servicer indicating its insolvency or reorganization pursuant to
bankruptcy, receivership, conservatorship, insolvency, or similar
proceedings; and
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(5) failure of the Servicer to be an Eligible Servicer.
The holders of Notes evidencing not less than 51% of the aggregate principal
amount of the outstanding Notes (voting as a group) (or the holders of
Certificates evidencing not less than a majority of the Certificate Balance, in
the case of any default which does not adversely affect the Indenture Trustee or
the Noteholders) may, on behalf of all Noteholders and Certificateholders, waive
any Event of Servicing Termination except an event resulting from the failure to
make any required deposit to or payment from any account. For purposes of the
foregoing, Notes or Certificates owned by the Seller, the Servicer, or any
affiliate of either shall not be considered to be "outstanding."
The Indenture Trustee will have no obligation to notify Noteholders of any
event which, with lapse of time to cure, would become an Event of Servicing
Termination, until after the expiration of any applicable cure period.
RIGHTS OF INDENTURE TRUSTEE AND NOTEHOLDERS UPON AN EVENT OF SERVICING
TERMINATION
As long as an Event of Servicing Termination remains unremedied, the
Indenture Trustee or the holders of Notes evidencing not less than a majority of
the aggregate principal amount of the outstanding Notes may terminate the
Servicer's rights and obligations under the Sale and Servicing Agreement,
whereupon the Indenture Trustee or a servicer appointed by the Indenture Trustee
will succeed to all the responsibilities, duties, and liabilities of the
Servicer under the Sale and Servicing Agreement. Thereafter, the successor
Servicer will be entitled to the compensation otherwise payable to the Servicer
and will be entitled to similar compensation arrangements. In the event that the
Indenture Trustee is unwilling or legally unable so to act, the Indenture
Trustee may appoint, or petition a court of competent jurisdiction for the
appointment of, an Eligible Servicer to act as successor to the outgoing
Servicer under the Sale and Servicing Agreement. In no event may the servicing
compensation to be paid to such successor be greater than the servicing
compensation payable to the Servicer under the Sale and Servicing Agreement. In
the event of the bankruptcy of the Servicer, the bankruptcy trustee or the
Servicer, as debtor in possession, may have the power to prevent a termination
of the Servicer's rights and obligations under the Sale and Servicing Agreement.
REQUIREMENTS FOR AMENDMENTS OF THE TRANSFER AND SERVICING AGREEMENTS
The Transfer and Servicing Agreements may be amended by the parties thereto
without the consent of the Noteholders or the Certificateholders, to cure any
ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein, and to add, change or eliminate
any other provision of the applicable Transfer and Servicing Agreement which are
not inconsistent with the provisions of such Transfer and Servicing Agreement;
provided that such action will not, as evidenced by an Opinion of Counsel to the
Indenture Trustee and the Owner Trustee, materially and adversely affect the
interest of any Noteholder or Certificateholder or, with respect to the Trust
Agreement, have certain adverse tax consequences.
The Transfer and Servicing Agreements may also be amended by the parties
thereto (with, in the case of the Sale and Servicing Agreement, the consent of
the Indenture Trustee and with, in the case of the Administration Agreement, the
consent of the Seller) with the consent of the holders of Notes evidencing not
less than 51% of the aggregate principal amount of then outstanding Notes,
voting as a group (except that in the case of the Administration Agreement, the
consent of holders of Notes evidencing not less than a majority of the aggregate
principal amount of then outstanding Notes, voting as a group, will be
required), and the holders of Certificates evidencing not less than 51% of the
Certificate Balance (except that in the case of the Administration Agreement,
the consent of holders of Certificates evidencing not less than a majority of
the Certificate Balance will be required), for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Transfer and Servicing Agreements or of modifying the rights of Noteholders
or Certificateholders.
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However, no such amendment may:
(1) increase or reduce in any manner the amount of, or accelerate or
delay the timing of, or change the allocation or priority of, collections of
payments on Receivables or distributions that are required to be made on any
Note or Certificate, or change any Note Interest Rate, the Specified Reserve
Balance or the Maximum Supplemental Reserve Amount, without the consent of
all adversely affected Noteholders or Certificateholders;
(2) reduce the aforesaid percentage of the Notes and the Certificates
which is required to consent to any such amendment, without the consent of
all Noteholders or Certificateholders affected thereby; or
(3) with respect to any amendment to the Sale and Servicing Agreement or
the Trust Agreement, adversely affect the ratings of any class of Notes by
the Rating Agencies without the consent of holders of Notes evidencing not
less than 66 2/3% of the aggregate principal amount of the then outstanding
Notes of such class.
Additionally, with respect to an amendment of the Trust Agreement, an
Opinion of Counsel to the effect that such amendment will not have certain
adverse tax consequences shall be furnished to the Indenture Trustee and the
Owner Trustee. See "Description of the Terms of the Notes--Book Entry
Registration of the Notes."
REQUIREMENTS FOR TERMINATION OF THE TRUST
The Trust shall terminate and be of no further force and effect upon the
earliest of (a) payment to Noteholders and Certificateholders of all amounts
required to be paid to them pursuant to the Indenture and the Transfer and
Servicing Agreements and (b) the Payment Date next succeeding the month which is
one year after the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any property remaining
in the Trust in accordance with the terms and priorities set forth in the
Indenture and the Transfer and Servicing Agreements.
In order to avoid excessive administrative expense, the Servicer will be
permitted, at its option, in the event that the Pool Balance as of the close of
business on the last day of a Collection Period has declined to 10% or less of
the Initial Pool Balance, to purchase from the Trust, on any Payment Date
occurring in a subsequent Collection Period, all remaining Receivables in the
Trust at a purchase price equal to the outstanding principal amount of the Notes
and the Certificates, in each case plus accrued and unpaid interest thereon. The
exercise of this right will effect early retirement of the Notes and the
Certificates.
ACTIONS TO BE TAKEN BY INDENTURE TRUSTEE UPON TERMINATION OF THE TRUST
The Indenture Trustee will give written notice of termination of the Trust
to each Noteholder of record. The final distribution to any Noteholder will be
made only upon surrender and cancellation of such holder's Note (whether a
Definitive Note or the one or more physical notes representing the Notes) at the
office or agency of the Indenture Trustee specified in the notice of
termination. Any funds remaining in the Trust, after the Indenture Trustee has
taken certain measures to locate a Noteholder and such measures have failed,
will be distributed to the Seller or as otherwise provided in the Transfer and
Servicing Agreements.
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DESCRIPTION OF THE ADMINISTRATION AGREEMENT
MMCA, in its capacity as administrator (the "Administrator"), will enter
into an Administration Agreement (as amended and supplemented from time to time,
the "Administration Agreement") with the Trust and the Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in the
Administration Agreement, to provide the notices and to perform other
administrative obligations required by the Indenture. As compensation for the
performance of the Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses relating thereto, the
Administrator will be entitled to a monthly administration fee, which fee will
be paid by the Servicer.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
BANKRUPTCY CONSIDERATIONS RELATING TO THE TRANSFER OF THE RECEIVABLES BY MMCA TO
THE SELLER
It is intended by MMCA and the Seller that the transfer of the Receivables
by MMCA to the Seller on the Closing Date and each Subsequent Transfer Date
under the Purchase Agreement constitute a "true sale" of the Receivables to the
Seller. If such transfers constitute such a "true sale," the Receivables and the
proceeds thereof would not be part of MMCA's bankruptcy estate under Section 541
of the United States Bankruptcy Code should MMCA become the subject of a
bankruptcy case subsequent to the transfers of the Receivables to the Seller.
The Seller has received the advice of counsel to the effect that, subject to
certain facts, assumptions and qualifications, in the event MMCA were to become
the subject of a voluntary or involuntary case under the United States
Bankruptcy Code subsequent to the transfers of the Receivables to the Seller on
the Closing Date and each Subsequent Transfer Date, the transfers of the
Receivables by MMCA to the Seller pursuant to the Purchase Agreement would be
characterized as a "true sale" of the Receivables from MMCA to the Seller and
the Receivables and the proceeds thereof would not form part of MMCA's
bankruptcy estate pursuant to Section 541 of the United States Bankruptcy Code.
In OCTAGON GAS SYSTEMS, INC. V. RIMMER, 995 F.2d 948 (10th Cir. 1993), CERT.
DENIED, 114 S. Ct. 554 (1993), the United States Court of Appeals for the 10th
Circuit suggested that even where a transfer of accounts from a seller to a
buyer constitutes a "true sale," the accounts would nevertheless constitute
property of the seller's estate in a bankruptcy of the seller. If MMCA ever
becomes subject to a bankruptcy proceeding and the court follows the OCTAGON
court's reasoning, you could experience losses or delays in payments on your
notes. Counsel to the Seller has advised the Seller that the reasoning of the
OCTAGON case appears to be inconsistent with other precedent. In addition, the
Permanent Editorial Board of the UCC has issued an official commentary (PEB
Commentary No. 14) which characterizes the OCTAGON court's interpretation of
Article 9 of the UCC as erroneous. Such commentary states that nothing in
Article 9 is intended to prevent the transfer of ownership of accounts or
chattel paper.
TRUST'S RIGHTS IN THE RECEIVABLES
The Receivables are "chattel paper" as defined in the Uniform Commercial
Code (the "UCC"). Pursuant to the UCC, for most purposes, a sale of chattel
paper is treated in a manner similar to a transaction creating a security
interest in chattel paper. MMCA and the Seller will cause financing statements
to be filed with the appropriate governmental authorities to perfect the
interest of the Seller and the Trust, as the case may be, in its purchase of the
Receivables.
Pursuant to the Sale and Servicing Agreement, the Servicer will hold the
Receivables, either directly or through subservicers, as custodian for the
Indenture Trustee and the Trust following the sale and assignment of the
Receivables to the Trust on the Closing Date and each Subsequent Transfer Date.
The Seller will take such action as is required to perfect the rights of the
Indenture Trustee and the Trust in the Receivables. The Receivables will not be
stamped, or otherwise marked, to indicate that they have been sold to the Trust.
If, through inadvertence or otherwise, another party purchases (or takes a
security interest in) the Receivables for new value in the ordinary course of
business and takes possession of the
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Receivables without actual knowledge of the Trust's interest, the purchaser (or
secured party) will acquire an interest in the Receivables superior to the
interest of the Trust.
Under the Sale and Servicing Agreement, the Servicer will be obligated from
time to time to take such actions as are necessary to protect and perfect the
Trust's interest in the Receivables and their proceeds.
TRUST'S SECURITY INTERESTS IN THE FINANCED VEHICLES
Generally, retail installment sale contracts such as the Receivables
evidence the credit sale of automobiles and light- and medium-duty trucks by
dealers to obligors; the contracts also constitute personal property security
agreements and include grants of security interests in the vehicles under the
UCC. Perfection of security interests in motor vehicles is generally governed by
the motor vehicle registration laws of the state in which the vehicle is
located. In most states in which the Receivables have been originated (including
Alabama, California, Florida and Texas, the states in which the largest number
of Financed Vehicles are located), a security interest in the vehicle is
perfected by notation of the secured party's lien on the vehicle's certificate
of ownership or title.
MMCA's practice is to take such action as is required in order to perfect
its security interest in a Motor Vehicle or Truck under the laws of the
jurisdiction in which the Motor Vehicle or Truck is registered. If MMCA, because
of clerical error or otherwise, has failed to take such action with respect to a
Financed Vehicle, it will not have a perfected security interest in the Financed
Vehicle, and its security interest may be subordinate to the interests of, among
others, subsequent purchasers of the Financed Vehicle that give value without
notice of MMCA's security interest and to whom a certificate of ownership is
issued in such purchaser's name, holders of perfected security interests in the
Financed Vehicle, and the trustee in bankruptcy of the obligor. MMCA's security
interest may also be subordinate to such third parties in the event of fraud or
forgery by the obligor or administrative error by state recording officials or
in the circumstances noted below. As described more fully below, MMCA and the
Seller will warrant in the Purchase Agreement and the Sale and Servicing
Agreement, respectively, that an enforceable first priority perfected security
interest exists for the benefit of the Seller and the Trust, respectively, with
respect to each Financed Vehicle and will be required to repurchase the related
Receivable in the event of an uncured breach of such warranty.
Pursuant to the Purchase Agreement, MMCA will assign its security interests
in the Financed Vehicles, along with the sale and assignment of the Receivables,
to the Seller, and pursuant to the Sale and Servicing Agreement, the Seller will
assign its security interests in the Financed Vehicles, along with the sale and
assignment of the Receivables, to the Trust on the Closing Date and each
Subsequent Transfer Date. The Servicer will hold the certificates of title
relating to the Financed Vehicles, either directly or through subservicers, as
custodian for the Indenture Trustee and the Trust following such sale and
assignment. The certificates of title will not be endorsed or otherwise amended
to identify the Trust as the new secured party, however, because of the
administrative burden and expense involved. The Seller will assign its rights
under the Purchase Agreement to the Trust. See "Risk Factors--Interests of Other
Persons in Receivables and Vehicles Could Reduce the Funds Available to Make
Payments on the Notes."
In most states, an assignment of a security interest in a Financed Vehicle
along with the applicable Receivable is an effective conveyance of a security
interest without amendment of any lien noted on a vehicle's certificate of title
or ownership, and the assignee succeeds thereby to the assignor's rights as
secured party. However, because the Trust will not be identified as the secured
party on any such certificate, the security interest of the Trust in any
Financed Vehicle could be defeated through fraud, forgery, negligence or error
and may not be perfected in every state. In most states, in the absence of fraud
or forgery by the vehicle owner or of fraud, forgery, negligence or error by
MMCA or administrative error by state or local agencies, the notation of MMCA's
lien on the certificates of ownership or possession of such certificates with
such notation 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 a Financed Vehicle. If there are any Financed Vehicles as
to which the Trust fails to obtain a perfected security interest, its
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security interest would be subordinate to, among others, subsequent purchasers
of the Financed Vehicles and holders of perfected security interests.
MMCA and the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that, on the Closing
Date or the related Subsequent Transfer Date, there will exist a valid,
subsisting, and enforceable first priority perfected security interest in the
Financed Vehicle securing the Receivable (subject to any statutory or other lien
arising by operation of law after the Closing Date or the related Subsequent
Transfer Date which is prior to such security interest) and, at such time as
enforcement of such security interest is sought, there shall exist a valid,
subsisting, and enforceable first priority perfected security interest in the
Financed Vehicle for the benefit of the Seller and the Trust, respectively
(subject to any statutory or other lien arising by operation of law after the
Closing Date or the related Subsequent Transfer Date which is prior to such
security interest). In the event of an uncured breach of such warranty, MMCA and
the Seller, pursuant to the terms of the Purchase Agreement and the Sale and
Servicing Agreement, respectively, will be required to repurchase such
Receivable for its Purchase Amount. This repurchase obligation will constitute
the sole remedy available to the Trust, the Noteholders and the
Certificateholders for such breach. MMCA's and the Seller's warranties with
respect to perfection and enforceability of a security interest in a Financed
Vehicle will not cover statutory or other liens arising after the Closing Date
or the related Subsequent Transfer Date by operation of law which are prior to
such security interest. Accordingly, any such lien would not by itself give rise
to a repurchase obligation on the part of MMCA and the Seller.
Under the laws of most states, a perfected security interest in a motor
vehicle continues for four months after the motor vehicle is moved to a new
state from the one in which it was initially registered and thereafter until the
motor vehicle owner re-registers the motor vehicle in the new state, but in any
event not beyond the surrender of the certificate. A majority of states require
surrender of a certificate of title to re-register a motor vehicle and require
that notice of such surrender be given to each secured party noted on the
certificate of title. In those states, such as California, that require a
secured party to take possession of a certificate of title to perfect a security
interest, the secured party would learn of the re-registration through the
request from the obligor to surrender possession of the certificate of title. In
those states that require a secured party to note its lien on a certificate of
title to perfect a security interest but do not require possession of the
certificate of title, such as Alabama, Texas and Florida, the secured party
would learn of the re-registration through the notice from the state department
of motor vehicles that the certificate of title had been surrendered. The
requirements that a certificate of title be surrendered and that notices of such
surrender be given to each secured party also apply to re-registrations effected
following a sale of a motor vehicle. MMCA would therefore have the opportunity
to re-perfect its security interest in a Financed Vehicle in the state of
re-registration following relocation of the obligor and would be able to require
satisfaction of the related Receivable following a sale of the Financed Vehicle.
In states that do not require a certificate of title for registration of a motor
vehicle, re-registration could defeat perfection. In the ordinary course of
servicing Contracts, MMCA takes steps to effect reperfection upon receipt of
notice of re-registration or information from the obligor as to relocation.
Under the laws of many states, including Alabama, California, Florida and
Texas, liens for repairs performed on a motor vehicle and liens for unpaid taxes
take priority over a perfected security interest in the motor vehicle. MMCA and
the Seller will warrant in the Purchase Agreement and the Sale and Servicing
Agreement, respectively, that, as of the Closing Date or the related Subsequent
Transfer Date, to the best of its knowledge, no such liens are pending. In the
event of a breach of such warranty which has a material and adverse effect on
the interest of the Trust in a Receivable, MMCA and the Seller, pursuant to the
terms of the Purchase Agreement and the Sale and Servicing Agreement,
respectively, will be required to repurchase the Receivable secured by the
Financed Vehicle involved. This repurchase obligation will constitute the sole
remedy available to the Trust, the Noteholders and the Certificateholders for
such breach. Any liens for repairs or taxes arising at any time after the
Closing Date or the related Subsequent Transfer Date during the term of a
Receivable would not give rise to a repurchase obligation on the part of MMCA
and the Seller.
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REPOSSESSION OF FINANCED VEHICLES BY SERVICER ON BEHALF OF THE TRUST
In the event of a default by an obligor, the holder of a receivable has all
the remedies of a secured party under the UCC, except where specifically limited
by other state laws or by contract. The remedies of a secured party under the
UCC include the right to repossession by means of self-help, unless such means
would constitute a breach of the peace. Self-help repossession is the method
employed by MMCA in most cases, and is accomplished simply by taking possession
of the motor vehicle. Generally, where the obligor objects or raises a defense
to repossession, a court order must be obtained from the appropriate state court
and the motor vehicle must then be repossessed in accordance with that order. In
the event of a default by an obligor, many jurisdictions require that the
obligor be notified of the default and be given a time period within which he
may cure the default prior to or after repossession. Generally, this right of
reinstatement may be exercised on a limited number of occasions during the term
of a Receivable.
SERVICER'S OBLIGATION TO PROVIDE NOTICE OF SALE OF A FINANCED VEHICLE; OBLIGOR'S
REDEMPTION RIGHTS IN A FINANCED VEHICLE
The UCC and other state laws require the secured party to provide an obligor
with reasonable notice of the date, time, and place of any public sale and/or
the date after which any private sale of the collateral may be held. The obligor
generally has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal amount of the obligation, accrued and
unpaid interest, plus, in most cases, reasonable expenses for repossessing,
holding, and preparing the collateral for disposition and arranging for its sale
plus, in some jurisdictions, reasonable attorneys' fees. In some states, the
obligor has the right, prior to actual sale, to reinstatement of the original
loan terms and to return of the collateral by payment of delinquent installments
of the unpaid amount and cure any other defaults.
TRUST'S RIGHT TO DEFICIENCY JUDGMENTS AGAINST OBLIGORS
The proceeds of resale of Financed Vehicles generally will be applied first
to the expenses of repossession and resale and then to the satisfaction of the
indebtedness on the related Receivable. While some states impose prohibitions or
limitations on deficiency judgments if the net proceeds from resale do not cover
the full amount of the indebtedness, a deficiency judgment can be sought in
those states that do not prohibit or limit such judgments. Any such deficiency
judgment would be a personal judgment against the obligor for the shortfall,
however, and a defaulting obligor may have very little capital or few sources of
income available following repossession. Therefore, in many cases, it may not be
useful to seek a deficiency judgment or, if one is obtained, it may be settled
at a significant discount or not paid at all. MMCA generally seeks to recover
any deficiency existing after repossession and sale of a motor vehicle.
OBLIGOR'S RIGHT TO EXCESS PROCEEDS UPON SALE OF A FINANCED VEHICLE
Occasionally, after resale of a repossessed motor vehicle and payment of all
expenses and indebtedness, there is a surplus of funds. In that case, the UCC
requires the secured party to remit the surplus to any other holder of a lien
with respect to the motor vehicle or, if no such lienholder exists or funds
remain after paying such other lienholder, to the former owner of the motor
vehicle.
CONSUMER PROTECTION LAWS AFFECTING THE TRUST'S RIGHTS UNDER THE RECEIVABLES
Numerous Federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B, M and Z,
and other similar acts, state adaptations of the Uniform Consumer Credit Code
and state motor vehicle retail installment sale acts, and other similar laws.
Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under Federal law.
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These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect the
ability of an assignee, such as the Trust, to enforce consumer and commercial
finance contracts such as the Receivables. The "Credit Practices" Rule of the
Federal Trade Commission (the "FTC") imposes additional restrictions on contract
provisions and credit practices.
The FTC's holder-in-due-course rule (the "FTC Rule") has the effect of
subjecting a holder of an obligation created in a consumer credit transaction to
all claims and defenses which the purchaser could assert against the seller of
the goods. Liability under the FTC Rule is limited to the amounts paid by the
purchaser under the contract, and the holder of the contract may also be unable
to collect any balance remaining due thereunder from the purchaser. The FTC Rule
is generally duplicated by state statutes or the common law in certain states.
Accordingly, the Indenture Trustee and the Trust, as holders of the Receivables,
may be subject to claims or defenses, if any, that the purchaser of a Financed
Vehicle may assert against the seller of such vehicle.
Under the motor vehicle dealer licensing laws of most states, sellers of
motor vehicles are required to be licensed to sell such vehicles at retail sale
and to originate certain installment sale contracts in connection with such
sales. In addition, with respect to used motor vehicles, the FTC's Rule on Sale
of Used Vehicles requires that all sellers of used motor vehicles prepare,
complete and display a "Buyer's Guide" which explains the warranty coverage for
such vehicles. Federal Odometer Regulations promulgated under the Motor Vehicle
Information and Cost Savings Act require that all sellers of motor vehicles
furnish a written statement signed by the seller certifying the accuracy of the
odometer reading. If a seller is not properly licensed, or if either a Buyer's
Guide or Odometer Disclosure Statement was not properly provided to the
purchaser of a Financed Vehicle, such purchaser may be able to assert a defense
as to a retail installment sale contract against the seller of such vehicle or a
subsequent holder of the retail installment sale contract.
Courts have applied general equitable principles to secured parties pursuing
repossession or litigation involving deficiency balances. These equitable
principles may have the effect of relieving an obligor from some or all of the
legal consequences of a default.
MMCA and the Seller will warrant in the Purchase Agreement and the Sale and
Servicing Agreement, respectively, as to each Receivable that such Receivable
complied at the time it was originated and as of the Closing Date or the related
Subsequent Transfer Date in all material respects with all requirements of
applicable law. If, as of the related Cutoff Date, an obligor had a claim
against the Trust for violation of any law, and such claim materially and
adversely affected the Trust's interest in a Receivable, such violation would
create an obligation of MMCA and the Seller under the Purchase Agreement and the
Sale and Servicing Agreement, respectively, to repurchase the Receivable unless
the breach were cured. This repurchase obligation will constitute the sole
remedy of the Trust, the Noteholders, and the Certificateholders against the
Seller in respect of any such uncured breach. See "Description of the Transfer
and Servicing Agreements--Sale and Assignment of the Initial Receivables and the
Subsequent Receivables."
OTHER LAWS THAT IMPOSE LIMITS ON ENFORCING THE RECEIVABLES
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including insolvency laws, may interfere
with or affect the ability of a lender to realize upon collateral or enforce a
deficiency judgment. For example, in a Chapter 13 proceeding under the United
States Bankruptcy Code, a court may prevent a lender from repossessing a motor
vehicle and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the market value of such vehicle at the time of
bankruptcy (as determined by the court), leaving the party providing financing
as a general unsecured creditor for the remainder of the indebtedness. A
bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes. This
discussion is based upon current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), existing and proposed Treasury regulations
thereunder, current administrative rulings, judicial decisions and other
applicable authorities in effect as of the date hereof, all of which are subject
to change, possibly with retroactive effect. There can be no assurance that the
Internal Revenue Service ("IRS") will not challenge the conclusions reached
herein, and no ruling from the IRS has been or will be sought on any of the
issues discussed below.
This summary does not purport to deal with all aspects of Federal income
taxation that may be relevant to Note Owners in light of their personal
investment circumstances nor, except for certain limited discussions of
particular topics, to certain types of Note Owners subject to special treatment
under the Federal income tax laws (e.g., financial institutions, broker-dealers,
life insurance companies and tax-exempt organizations). This information is
directed to Note Owners who hold the Notes as "capital assets" within the
meaning of Section 1221 of the Code.
TAX TREATMENT OF THE NOTES AND THE TRUST UNDER FEDERAL INCOME TAX LAW
TAX STATUS OF THE NOTES AND THE TRUST. On the Closing Date, Skadden, Arps,
Slate, Meagher & Flom LLP ("Special Tax Counsel") will render its opinion that
for Federal income tax purposes under existing law, and subject to customary
assumptions and qualifications set forth therein: (a) the Notes will be treated
as debt, and (b) the Trust will not be classified as an association (or publicly
traded partnership) taxable as a corporation. The Seller, the Owner Trustee and
the Indenture Trustee have agreed, and the Noteholders will agree by their
purchase of Notes, to treat the Notes for Federal, state and local income and
franchise tax purposes as indebtedness of the Trust.
STATED INTEREST. Stated interest on the Notes will be taxable as ordinary
income for Federal income tax purposes when received or accrued in accordance
with a Note Owner's method of tax accounting.
ORIGINAL ISSUE DISCOUNT. A Note will be treated as issued with Original
Issue Discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a DE MINIMIS amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied by
the number of complete years (based on the anticipated weighted average life of
a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a DE MINIMIS amount determined as described above.
The issue price of a Note will generally be the initial offering price at
which a substantial amount of the Notes are sold. The Trust intends to treat the
issue price as including, in addition, the amount paid by the Noteholder for
accrued interest that relates to a period prior to the Closing Date. Under
applicable Treasury regulations governing the accrual of OID (the "OID
Regulations"), the stated redemption price at maturity is the sum of all
payments on the Note other than any "qualified stated interest" payments.
Qualified stated interest is defined as any one of a series of payments equal to
the product of the outstanding principal balance of the Note and a single fixed
rate, or certain variable rates of interest that is unconditionally payable at
least annually.
The holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a PRO RATA portion of the OID that accrued during the
relevant accrual period. In the case of an obligation the principal on which is
subject to prepayment as a result of prepayments on the underlying collateral (a
"Prepayable Obligation"), such as the Notes, OID
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is computed by taking into account the anticipated rate of prepayments assumed
in pricing the debt instrument (the "Prepayment Assumption"). The Prepayment
Assumption that will be used in determining the rate of accrual of original
issue discount, premium and market discount, if any, is 1.50% ABS. The amount of
OID that will accrue during an accrual period (generally the period between
interest payments or compounding dates) is the excess (if any) of the sum of (a)
the present value of all payments remaining to be made on the Note as of the
close of the accrual period and (b) the payments during the accrual period of
amounts included in the stated redemption price of the Note, over the "adjusted
issue price" of the Note at the beginning of the accrual period. An "accrual
period" is the period over which OID accrues, and may be of any length, provided
that each accrual period is no longer than one year and each scheduled payment
of interest or principal occurs on either the last day or the first day of an
accrual period. The Trust intends to report OID on the basis of an accrual
period that corresponds to the interval between Payment Dates. The adjusted
issue price of a Note is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to such Note in all prior
periods, other than qualified stated interest payments. The present value of the
remaining payments is determined on the basis of three factors: (a) the original
yield to maturity of the Note (determined on the basis of compounding at the end
of each accrual period and properly adjusted for the length of the accrual
period), (b) events which have occurred before the end of the accrual period and
(c) the assumption that the remaining payments will be made in accordance with
the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that Receivables will be prepaid at that
rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Notes for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note immediately after
purchase thereof over (x) the adjusted issue price of the Note, and the
denominator of which is the excess of (y) all amounts remaining to be paid on
the Note after the purchase date, other than qualified stated interest, over (z)
the adjusted issue price of the Note.
TOTAL ACCRUAL ELECTION. As an alternative to separately accruing stated
interest, OID, DE MINIMIS OID, market discount, DE MINIMIS market discount,
unstated interest, premium, and acquisition premium, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Noteholder makes this election, income on a Note will be calculated
as though (a) the issue price of the Note were equal to the Noteholder's
adjusted basis in the Note immediately after its acquisition by the Noteholder;
(b) the Note were issued on the Noteholder's acquisition date; and (c) none of
the interest payments on the Note were "qualified stated interest." A Noteholder
may make such an election for an Note that has premium or market discount,
respectively, only if the Noteholder makes, or has previously made, an election
to amortize bond premium or to include market discount in income currently. See
"--Market Discount" and "--Amortizable Bond Premium."
MARKET DISCOUNT. The Notes, whether or not issued with OID, will be subject
to the "market discount rules" of section 1276 of the Code. In general, these
rules provide that if the Note Owner purchases a Note at a market discount (that
is, a discount from its stated redemption price at maturity or, if the Notes
were issued with OID, its original issue price plus any accrued OID that exceeds
a DE MINIMIS amount specified
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in the Code) and thereafter (a) recognizes gain upon a disposition, or (b)
receives payments of principal, the lesser of (x) such gain or principal payment
or (y) the accrued market discount will be taxed as ordinary interest income.
Generally, the accrued market discount will be the total market discount on the
Note multiplied by a fraction, the numerator of which is the number of days the
Note Owner held the Note and the denominator of which is the number of days from
the date the Note Owner acquired the Note until its maturity date. The Note
Owner may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
other taxable disposition.
AMORTIZABLE BOND PREMIUM. In general, if a Note Owner purchases a Note at a
premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant-yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
DISPOSITION OF NOTES. A Note Owner's adjusted tax basis in a Note will be
its cost, increased by the amount of any OID, market discount and gain
previously included in income with respect to the Note, and reduced by the
amount of any payment on the Note that is not qualified stated interest and the
amount of bond premium previously amortized with respect to the Note. A Note
Owner will generally recognize gain or loss on the sale or retirement of a Note
equal to the difference between the amount realized on the sale or retirement
and the tax basis of the Note. Such gain or loss will be capital gain or loss
(except to the extent attributable to OID not previously accrued, accrued but
unpaid interest, or as described above under "--Market Discount") and will be
long-term capital gain or loss if the Note was held for more than one year. In
addition, if the Prepayable Obligation rules apply, any OID that has not accrued
at the time of the payment in full of a Note will be treated as ordinary income.
FEDERAL TAX CONSEQUENCES OF WAIVERS OF EVENTS OF DEFAULT AND AMENDMENTS OF NOTES
BY NOTEHOLDERS
The Indenture permits the Noteholders to waive an Event of Default or
rescind an acceleration of the Notes in some circumstances upon a vote of the
requisite percentage of Noteholders. Any such waiver or rescission, or any
amendment of the terms of the Notes, could be treated for Federal income tax
purposes as a constructive exchange by a Noteholder of the Notes for new Notes,
upon which gain or loss would be recognized.
INFORMATION REPORTING AND BACKUP WITHHOLDING OF TAXES BY INDENTURE TRUSTEE
The Indenture Trustee will be required to report annually to the IRS, and to
each Note Owner, the amount of interest paid on the Notes (and the amount
withheld for Federal income taxes, if any) for each calendar year, except as to
exempt recipients (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide
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certification as to their status). Each Note Owner (other than Note Owners who
are not subject to the reporting requirements) will be required to provide,
under penalties of perjury, a certificate containing the Note Owner's name,
address, correct Federal taxpayer identification number (which includes a social
security number) and a statement that the Note Owner is not subject to backup
withholding. Should a non-exempt Note Owner fail to provide the required
certification or should the IRS notify the Indenture Trustee or the Trust that
the Note Owner has provided an incorrect Federal taxpayer identification number
or is otherwise subject to backup withholding, the Indenture Trustee will be
required to withhold (or cause to be withheld) 31% of the interest otherwise
payable to the Note Owner, and remit the withheld amounts to the IRS as a credit
against the Note Owner's Federal income tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the U.S. Federal income tax treatment of
investors that are not U.S. persons (each, a "Foreign Person"). The term
"Foreign Person" means any person other than (a) a citizen or resident of the
United States, (b) a corporation, partnership or other entity organized in or
under the laws of the United States, any state or the District of Columbia
(unless, in the case of a partnership, Treasury regulations provide otherwise),
(c) an estate the income of which is includible in gross income for U.S. Federal
income tax purposes, regardless of its source or (d) a trust if a U.S. court is
able to exercise primary supervision over the administration of such trust and
one or more U.S. persons has authority to control all substantial decisions of
the trust.
(a) Interest paid or accrued to a Foreign Person that is not effectively
connected with the conduct of a trade or business within the United States
by the Foreign Person will generally be considered "portfolio interest" and
generally will not be subject to United States Federal income tax and
withholding tax, as long as the Foreign Person (1) is not actually or
constructively a "10 percent shareholder" of the Trust or a "controlled
foreign corporation" with respect to which the Trust is a "related person"
within the meaning of the Code, and (2) provides an appropriate statement,
signed under penalties of perjury, certifying that the Note Owner is a
Foreign Person and providing that Foreign Person's name and address. If the
information provided in this statement changes, the Foreign Person must so
inform the Indenture Trustee within 30 days of such change. The statement
generally must be provided in the year a payment occurs or in either of the
two preceding years. If such interest were not portfolio interest, then it
would be subject to United States Federal income and withholding tax at a
rate of 30 percent unless reduced or eliminated pursuant to an applicable
income tax treaty.
(b) Any capital gain realized on the sale or other taxable disposition
of a Note by a Foreign Person will be exempt from United States Federal
income and withholding tax, provided that (1) the gain is not effectively
connected with the conduct of a trade or business in the United States by
the Foreign Person, and (2) in the case of an individual Foreign Person, the
Foreign Person is not present in the United States for 183 days or more in
the taxable year and certain other requirements are met.
(c) If the interest, gain or income on a Note held by a Foreign Person
is effectively connected with the conduct of a trade or business in the
United States by the Foreign Person, the Note Owner (although exempt from
the withholding tax previously discussed if a duly executed Form 4224 is
furnished) generally will be subject to United States Federal income tax on
the interest, gain or income at regular Federal income tax rates. In
addition, if the Foreign Person is a foreign corporation, it may be subject
to a branch profits tax under the Code equal to 30 percent of its
"effectively connected earnings and profits" for the taxable year, as
adjusted for certain items, unless it qualified for a lower rate under an
applicable tax treaty.
Recent Treasury regulations could affect the procedures to be followed by a
non-U.S. Person in complying with the United States federal withholding, backup
withholding, and information reporting rules. The regulations will generally be
effective for payments made after December 31, 1999. Prospective investors are
advised to consult their own tax advisors regarding the effect, if any, of the
regulations on the purchase, ownership and disposition of the Notes.
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CERTAIN STATE TAX CONSEQUENCES
Set forth below is a summary of certain state income tax consequences of the
purchase, ownership and disposition of the Notes. Because of the variation in
each state's income tax laws, it is impossible to predict tax consequences to
Noteholders in all states. Noteholders are urged to consult their tax advisors
with respect to state tax consequences arising out of the purchase, ownership
and disposition of Notes.
The Trust has been organized as a Delaware business trust, and the Seller
and Servicer are headquartered in the State of California; however, in the
opinion of Special Tax Counsel, assuming that the Notes are treated as debt for
Federal income tax purposes, (a) the Notes will be treated as debt for Delaware
and California income and franchise tax purposes, (b) the Trust will not be
subject to Delaware or California income or franchise taxes at the entity level,
and (c) Noteholders not otherwise subject to taxation in California or Delaware,
respectively, would not become subject to taxation in California or Delaware,
respectively, solely because of a Noteholder's ownership of a Note.
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
PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF ACQUIRING, HOLDING AND
DISPOSING OF NOTES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX
LAWS.
ELIGIBILITY OF NOTES FOR PURCHASE BY MONEY MARKET FUNDS
The Class A-1 Notes are structured to be eligible for purchase by money
market funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended. A money market fund should consult its legal advisors regarding the
eligibility of the Class A-1 Notes under Rule 2a-7 and whether an investment by
the money market fund in the Class A-1 Notes satisfies the money market fund's
investment policies and objectives.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain restrictions on (a) employee benefit plans (as
defined in Section 3(3) of ERISA), (b) plans described in Section 4975(e)(1) of
the Code, including individual retirement accounts or Keogh Plans, (c) any
entities whose underlying assets include plan assets by reason of a plan's
investment in such entities (each of (a), (b) and (c) a "Benefit Plan") and (d)
persons who have certain specified relationships to a Benefit Plan
("Parties-in-Interest" under ERISA and "Disqualified Persons" under the Code).
Moreover, based on the reasoning of the United States Supreme Court in JOHN
HANCOCK MUT. LIFE INS. CO. V. HARRIS TRUST AND SAV. BANK, 114 S. Ct. 517 (1993),
the general account of an insurance company may be deemed to include assets of
Benefit Plans investing in its general account (e.g., through the purchase of an
annuity contract), and the insurance company might be treated as a
Party-in-Interest with respect to a Benefit Plan by virtue of such an
investment. ERISA also imposes certain duties on persons who are fiduciaries of
Benefit Plans subject to ERISA. In addition, ERISA and the Code prohibit certain
transactions between a Benefit Plan and Parties-in-Interest or Disqualified
Persons with respect to such Benefit Plan.
SPECIAL ERISA CONSIDERATIONS FOR EMPLOYEE BENEFIT PLANS
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Trust were
deemed to be assets of a Benefit Plan. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
Trust would be treated as plan assets of a Benefit Plan for purposes of ERISA
and the Code only if the Benefit Plan acquires an "Equity Interest" in the Trust
and none of the exceptions contained in the Plan Assets Regulation is
applicable. An Equity Interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. The Seller
believes that the Notes should be treated as indebtedness without
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<PAGE>
substantial equity features for purposes of the Plan Assets Regulation. However,
without regard to whether the Notes are treated as an Equity Interest for such
purposes, the acquisition or holding of Notes by or on behalf of a Benefit Plan
could be considered to give rise to a prohibited transaction if the Trust, the
Owner Trustee, the Indenture Trustee, any holder of the Certificates or any of
their respective affiliates, is or becomes a party in interest or a disqualified
person with respect to such Benefit Plan. In such case, certain exemptions from
the prohibited transaction rules could be applicable depending on the type and
circumstances of the Benefit Plan fiduciary making the decision to acquire a
Note. Included among these exemptions are: Prohibited Transaction Class
Exemption ("PTCE") 90-1, regarding investments by insurance company pooled
separate accounts; PTCE 91-38, regarding investments by bank collective
investment funds; PTCE 84-14, regarding transactions effected by "qualified
professional asset managers"; PTCE 95-60, regarding investments by insurance
company general accounts; and PTCE 96-23, regarding investments effected by
in-house asset managers. A violation of the prohibited transaction rules may
result in the imposition of an excise tax and other liabilities under ERISA and
the Code, unless one or more statutory or administrative exemptions is
available.
SPECIAL ERISA CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
It should be noted that 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 Code. Pursuant to
Section 401(c), the Department of Labor is required to issue final regulations
(the "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 Code. Section 401(c)
also provides that, except in the case of avoidance of the General Account
Regulation 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 person shall be subject to liability under the
fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 of the Code 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
assets of any plan invested in the separate account. Insurance companies should
consult with their counsel regarding the potential impact of Section 401(c) on
their purchase of Notes.
As of the date hereof, the Department of Labor 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" of plans holding policies issued after
December 31, 1998. The proposed regulations should not, however, adversely
affect the applicability of PTCE 95-60 to purchases of Notes.
GENERAL INVESTMENT CONSIDERATIONS FOR EMPLOYEE BENEFIT PLANS
Prior to making an investment in the Notes, prospective Benefit Plan
investors should consult with their legal advisors concerning the impact of
ERISA and the Code and the potential consequences of such investment with
respect to their specific circumstances. Moreover, each Benefit Plan fiduciary
should take into account, among other considerations, whether the fiduciary has
the authority to make the investment; the composition of the Benefit Plan's
portfolio with respect to diversification by type of asset; the Benefit Plan's
funding objectives; the tax effects of the investment; and whether under the
general fiduciary standards of investment prudence and diversification an
investment in the Notes is appropriate for the Benefit Plan, taking into account
the overall investment policy of the Benefit Plan and the composition of the
Benefit Plan's investment portfolio.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Seller has agreed to sell to each of the
Underwriters named below (collectively, the "Underwriters"), and each of the
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated is
acting as representative (the "Representative"), has severally agreed to
purchase from the Seller, the principal amount of the Notes set forth opposite
its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT AMOUNT
OF CLASS A-1 OF CLASS A-2 OF CLASS A-3 OF CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
- -------------------------------------------------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................ $ 45,500,000 $ 55,000,000 $ 60,000,000 $ 45,490,000
Lehman Brothers Inc............................... 45,500,000 55,000,000 60,000,000 45,490,000
------------- -------------- -------------- -------------
Total............................................. $ 91,000,000 $ 110,000,000 $ 120,000,000 $ 90,980,000
------------- -------------- -------------- -------------
------------- -------------- -------------- -------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all the Notes offered
hereby if any of the Notes are purchased. In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The underwriting discounts and commissions of the Underwriters, the selling
concessions that the Underwriters may allow to certain dealers and the discounts
that certain dealers may reallow to certain other dealers, each expressed as a
percentage of the principal amount of the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes, will be as follows:
<TABLE>
<CAPTION>
UNDERWRITING SELLING
DISCOUNTS AND CONCESSIONS, REALLOWANCE,
COMMISSIONS NOT TO EXCEED NOT TO EXCEED
----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Class A-1 Notes............................................ .125% .075% .045%
Class A-2 Notes............................................ .175% .105% .060%
Class A-3 Notes............................................ .225% .140% .080%
Class A-4 Notes............................................ .275% .170% .100%
</TABLE>
The transaction expenses payable by the Seller are estimated to be
$806,017.44.
Until the distribution of the Notes is completed, rules of the Commission
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
If the Underwriters create a short position in the Notes in connection with
this offering, (i.e., they sell more Notes than are set forth on the cover page
of this Prospectus), the Underwriters may reduce that short position by
purchasing Notes 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 in the
open market to reduce the Underwriters' short position or to stabilize the price
of the Notes, they may reclaim the amount of the selling concession from any
Underwriter or selling group member who sold those Notes 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
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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. 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 closing of the sale of the Notes is conditioned on the issuance of the
Certificates.
The Indenture Trustee may, from time to time, invest the funds in the Trust
Accounts in Permitted Investments acquired from 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 Servicer and its affiliates.
MMCA and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act") or to contribute to payments the Underwriters may
be required to make in respect thereof.
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 Underwriters will promptly deliver, or cause to be delivered,
without charge, a paper copy of the Prospectus.
LEGAL OPINIONS
The validity of the Notes and certain Federal income tax matters will be
passed upon for the Seller by Skadden, Arps, Slate, Meagher & Flom LLP, New
York, New York. Brown & Wood LLP, San Francisco, California, will act as counsel
to the Underwriters.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued under the limited circumstances
described under "Description of the Terms of the Notes--Issuance of Definitive
Notes Upon the Occurrence of Certain Circumstances," all notices, reports and
statements to Noteholders, including any monthly and annual reports concerning
the Trust and the Receivables, will be prepared by the Servicer and sent on
behalf of the Trust only to DTC or Cede as nominee of DTC and registered holder
of the Notes. See "Description of the Terms of the Notes--Principal Amount of
and Interest Rates on the Notes," "--Book Entry Registration of the Notes" and
"--Issuance of Definitive Notes Upon the Occurrence of Certain Circumstances."
Such notices, reports and statements will not contain audited financial
statements with respect to the Trust. The Servicer also does not intend to send
any financial reports of the Servicer or the Seller to Noteholders.
WHERE YOU CAN FIND MORE INFORMATION
The Seller, as originator of the Trust, filed with the Securities and
Exchange Commission (the "Commission") a registration statement under the
Securities Act relating to the Notes. This Prospectus is part of the
registration statement, but the registration statement includes additional
information.
The Servicer, on behalf of the Seller in its capacity as originator of the
Trust, will file or cause to be filed with the Commission such periodic reports
with respect to the Trust as may be required under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder.
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You may read and copy any notices, reports, statements or other information
the Servicer files or causes to be filed at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies
of these documents, upon payment of a duplicating fee, by writing to the
Commission. Please call the Commission at (800) SEC-0330 for further information
on the operation of the public reference rooms. Our filings with the Commission
are also available to the public on the Commission's Internet site
(http://www.sec.gov), which contains reports, proxy and information statements,
and other information regarding issuers that file publicly with the Commission.
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ABS...................................................................................................... 24
ABS Tables............................................................................................... 24
accrual period........................................................................................... 76
Accrued Note Interest.................................................................................... 45
Actuarial Advance........................................................................................ 51
Actuarial Receivables.................................................................................... 22
Administration Agreement................................................................................. 70
Administrator............................................................................................ 70
Advance.................................................................................................. 52
Applicable Trustee....................................................................................... 67
APR...................................................................................................... 17
Available Funds.......................................................................................... 43
Balloon Payment.......................................................................................... 50
Balloon Payment Advance.................................................................................. 52
Balloon Payment Pool Balance............................................................................. 18
Balloon Payment Receivables.............................................................................. 50
Basic Documents.......................................................................................... 56
Benefit Plan............................................................................................. 79
Business Day............................................................................................. 37
Capped Receivables....................................................................................... 23
Cede..................................................................................................... 33
Cedel.................................................................................................... 33
Cedel Participants....................................................................................... 35
Certificate Balance...................................................................................... 45
Certificate Distribution Account......................................................................... 40
Certificateholders....................................................................................... 40
Certificates............................................................................................. 10
Class A-1 Final Payment Date............................................................................. 38
Class A-1 Notes.......................................................................................... 32
Class A-1 Rate........................................................................................... 37
Class A-2 Final Payment Date............................................................................. 38
Class A-2 Notes.......................................................................................... 32
Class A-2 Rate........................................................................................... 37
Class A-3 Final Payment Date............................................................................. 39
Class A-3 Notes.......................................................................................... 32
Class A-3 Rate........................................................................................... 37
Class A-4 Final Payment Date............................................................................. 39
Class A-4 Notes.......................................................................................... 32
Class A-4 Rate........................................................................................... 37
Closing Date............................................................................................. 17
Code..................................................................................................... 75
Collection Account....................................................................................... 39
Collection Period........................................................................................ 43
Commission............................................................................................... 82
Contracts................................................................................................ 12
Cooperative.............................................................................................. 36
Cutoff Date.............................................................................................. 60
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Dealer................................................................................................... 12
Dealer Agreement......................................................................................... 12
Defaulted Receivable..................................................................................... 44
Definitive Notes......................................................................................... 36
Depositaries............................................................................................. 35
Depositary............................................................................................... 35
Determination Date....................................................................................... 42
Direct Participants...................................................................................... 33
Disqualified Persons..................................................................................... 79
DTC...................................................................................................... 33
DTC Participants......................................................................................... 33
Due Date................................................................................................. 13
Eligible Servicer........................................................................................ 64
Equity Interest.......................................................................................... 79
ERISA.................................................................................................... 79
Euroclear................................................................................................ 36
Euroclear Operator....................................................................................... 36
Euroclear Participants................................................................................... 35
Events of Default........................................................................................ 54
Events of Servicing Termination.......................................................................... 67
Exchange Act............................................................................................. 82
Final Payment Date....................................................................................... 39
Final Scheduled Maturity Date............................................................................ 17
Financed Vehicles........................................................................................ 17
Foreign Person........................................................................................... 78
FTC...................................................................................................... 74
FTC Rule................................................................................................. 74
Gap Amount............................................................................................... 51
General Account Regulations.............................................................................. 80
Indenture................................................................................................ 32
Indenture Trustee........................................................................................ 32
Indirect Participants.................................................................................... 33
Initial Cutoff Date...................................................................................... 60
Initial Pool Balance..................................................................................... 17
Initial Pre-Funded Amount................................................................................ 63
Initial Receivables...................................................................................... 60
Insolvency Laws.......................................................................................... 31
Interest Carryover Shortfall............................................................................. 45
Interest Period.......................................................................................... 37
IRS...................................................................................................... 75
Level Pay Balance........................................................................................ 50
Level Pay Pool Balance................................................................................... 18
Liquidation Proceeds..................................................................................... 43
Maximum Negative Carry Amount............................................................................ 47
Maximum Supplemental Reserve Amount...................................................................... 49
Mitsubishi Motors........................................................................................ 32
MMCA..................................................................................................... 4, 32
MMSA..................................................................................................... 32
Monthly Accrued Note Interest............................................................................ 45
Moody's.................................................................................................. 40
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Motor Vehicle............................................................................................ 12
Motor Vehicle Contracts.................................................................................. 12
Negative Carry Account................................................................................... 47
Negative Carry Account Initial Deposit................................................................... 47
Negative Carry Amount.................................................................................... 47
Note Interest Rate....................................................................................... 45
Note Interest Rates...................................................................................... 37
Note Owner............................................................................................... 33
Note Payment Account..................................................................................... 40
Note Percentage.......................................................................................... 47
Note Pool Factor......................................................................................... 31
Noteholders.............................................................................................. 37
Notes.................................................................................................... 32
OID...................................................................................................... 75
OID Regulations.......................................................................................... 75
Opinion of Counsel....................................................................................... 59
Owner Trustee............................................................................................ 10
Parties-in-Interest...................................................................................... 79
Payahead Account......................................................................................... 40
Payaheads................................................................................................ 40
Payment Date............................................................................................. 37
Permitted Investments.................................................................................... 41
Plan Assets Regulation................................................................................... 79
Pool Balance............................................................................................. 17
Pre-Funded Amount........................................................................................ 63
Pre-Funded Percentage.................................................................................... 47
Pre-Funding Account...................................................................................... 40, 63
Pre-Funding Period....................................................................................... 60
Prepayable Obligation.................................................................................... 75
Prepayment Assumption.................................................................................... 76
Principal Carryover Shortfall............................................................................ 45
Principal Distribution Amount............................................................................ 45
PTCE..................................................................................................... 80
Purchase Agreement....................................................................................... 17
Purchase Amount.......................................................................................... 64
Qualified Institution.................................................................................... 40
Qualified Trust Institution.............................................................................. 40
Rating Agency............................................................................................ 40
Realized Losses.......................................................................................... 46
Receivable File.......................................................................................... 63
Receivables.............................................................................................. 11, 60
Record Date.............................................................................................. 37
Recoveries............................................................................................... 43
Representative........................................................................................... 81
Reserve Account.......................................................................................... 48
Required Negative Carry Account Balance.................................................................. 48
Rule of 78's............................................................................................. 22
Rule of 78's Payment..................................................................................... 22
Sale and Servicing Agreement............................................................................. 17
Scheduled Principal...................................................................................... 46
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Securities Act........................................................................................... 82
Seller................................................................................................... 31
Servicer................................................................................................. 32
Servicing Fee............................................................................................ 66
Servicing Rate........................................................................................... 66
Simple Interest Receivables.............................................................................. 22
Special Tax Counsel...................................................................................... 75
Specified Reserve Balance................................................................................ 49
Standard & Poor's........................................................................................ 40
Subsequent Cutoff Date................................................................................... 60
Subsequent Receivables................................................................................... 60
Subsequent Transfer Date................................................................................. 60
Supplemental Reserve Account............................................................................. 48
Terms and Conditions..................................................................................... 36
Total Available Funds.................................................................................... 44
Total Required Payment................................................................................... 46
Total Servicing Fee...................................................................................... 66
Transfer and Servicing Agreements........................................................................ 60
Truck.................................................................................................... 12
Truck Contracts.......................................................................................... 12
Trust.................................................................................................... 10
Trust Accounts........................................................................................... 40
Trust Agreement.......................................................................................... 10
Trust Property........................................................................................... 11
U.S. Person.............................................................................................. 91
UCC...................................................................................................... 70
Underwriters............................................................................................. 81
Underwriting Agreement................................................................................... 81
Weighted Average Rate.................................................................................... 41
Yield Supplement Account................................................................................. 41
Yield Supplement Agreement............................................................................... 41
Yield Supplement Amount.................................................................................. 41
Yield Supplement Letter of Credit........................................................................ 41
</TABLE>
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ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered MMCA Auto
Owner Trust 1999-1 Asset Backed Notes will be available only in book-entry form.
Investors in the Notes may hold such Notes through any of DTC, Cedel, or
Euroclear. The Notes 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.
Secondary market trading between investors holding Notes through Cedel and
Euroclear will be conducted in the ordinary way in accordance with their normal
rules and operating procedures and in accordance with conventional eurobond
practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Notes directly through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Notes 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.
INITIAL SETTLEMENT
All Notes will be held in book-entry form by DTC in the name of Cede & Co.
as nominee of DTC. Investors' interests in the Notes will be represented through
financial institutions acting on their behalf as DTC Participants. As a result,
Cedel and Euroclear will hold positions on behalf of their participants through
their respective Depositaries, which in turn will hold such positions in
accounts as DTC Participants.
Investors electing to hold their Notes through DTC will follow the
settlement practices applicable 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 Notes through Cedel or Euroclear accounts
will follow the settlement procedures applicable to conventional eurobonds,
except that there will be no temporary global security and no "lock-up" or
restricted period. Notes will be credited to the securities custody accounts on
the settlement date against payment in the same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Notes are
to be transferred from the account of a DTC Participant to the accounts of a
Cedel Participant or a Euroclear Participant, the purchaser will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear,
as the case may be, will instruct the respective Depositary to receive the Notes
against payment. Payment will include interest accrued on the Notes from and
including the last coupon payment date to and excluding the settlement date,
which with respect to the Class A-1 Notes will be on the basis of a 360-day year
and the actual number of days elapsed and with respect to the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes will be on the basis of a 360-day
year consisting of twelve 30-day months. Payment will then be made by the
Depositary to the DTC Participant's account against delivery of the Notes. After
settlement has been completed, the Notes will be credited to the respective
clearing system and by the clearing system, in accordance with its usual
procedures, to the Cedel Participant's or Euroclear Participant's account. The
Notes credit will appear the next day (European time) and the cash debit will be
back-valued to, and the interest on the Notes will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Cedel or Euroclear cash debit will be valued instead as of the actual
settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Notes are
credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon the finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Notes
would incur overdraft charges for one day, assuming they cleared the overdraft
when the Notes were credited to their accounts. However, interest on the Notes
would accrue from the value date. Therefore, in many cases the investment income
on the Notes earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although this result will depend on
each Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Notes to the
respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participants a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Notes are to be
transferred by the respective clearing system, through the respective
Depositary, to a DTC Participant. The seller will send instructions to Cedel or
Euroclear through a Cedel Participant or Euroclear Participant at least one
business day prior to settlement. In these cases, Cedel or Euroclear will
instruct the respective Depositary, as appropriate, to deliver the bonds to the
DTC Participant's account against payment. Payment will include interest accrued
on the Notes from and including the last coupon payment date to and excluding
the settlement date, which with respect to the Class A-1 Notes will be on the
basis of a 360-day year and the actual number of days elapsed and with respect
to the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes will be on
the basis of a 360-day year consisting of twelve 30-day months. The payment will
then be reflected in the account of the Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of
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receipt of the sale proceeds in its account, the back-valuation will extinguish
any overdraft charges incurred over that one-day period. If settlement is not
completed on the intended value date (i.e., the trade fails), receipt of the
cash proceeds in the Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Notes
from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action were taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Notes in the U.S. from a DTC Participant no later than
one day prior to settlement, which would give the Notes sufficient time to
be reflected in their Cedel or Euroclear account in order to settle the sale
side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Notes holding securities through Cedel or Euroclear
(or through DTC if the holder has an address outside the U.S.) will be subject
to the 30% U.S. withholding tax that generally applies to payments of interest
(including original issue discount) on registered debt issued by U.S. Persons,
unless (a) each clearing system, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(b) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Notes that
are non-U.S. Persons can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Note Owners residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Note Owner or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
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U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The Note Owner or, in the case
of a Form 1001 or a Form 4224 filer, his agent, files by submitting the
appropriate form to the person through whom it holds (the clearing agency, in
the case of persons holding directly on the books of the clearing agency). Form
W-8 and Form 1001 are effective for three calendar years and Form 4224 is
effective for one calendar year.
The term "U.S. Person" means (a) a citizen or resident of the United States,
(b) a corporation or partnership (including an entity treated as a corporation
or partnership) organized in or under the laws of the United States or any state
or the District of Columbia (unless, in the case of a partnership, Treasury
regulations provide otherwise), (c) an estate the income of which is includible
in gross income for United States tax purposes, regardless of its source, or
(iv) a trust if a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons has the authority to
control all substantial decisions of the trust. This summary does not deal with
all aspects of U.S. Federal income tax withholding that may be relevant to
foreign holders of the Notes. Investors are advised to consult their own tax
advisors for specific tax advice concerning their holding and disposing of the
Notes.
Recent Treasury regulations could affect the procedures to be followed by a
non-U.S. Person in complying with the United States federal withholding, backup
withholding, and information reporting rules. The regulations generally will be
effective for payments made after December 31, 1999. Prospective investors are
advised to consult their own tax advisors regarding the effect, if any, of the
regulations on the purchase, ownership and disposition of the Notes.
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PROSPECTUS
$411,980,000
MMCA AUTO OWNER TRUST 1999-1
$91,000,000 5.066% CLASS A-1 ASSET BACKED NOTES
$110,000,000 5.43% CLASS A-2 ASSET BACKED NOTES
$120,000,000 5.50% CLASS A-3 ASSET BACKED NOTES
$90,980,000 5.63% CLASS A-4 ASSET BACKED NOTES
MMCA AUTO RECEIVABLES, INC.
SELLER
[LOGO]
SERVICER
UNDERWRITERS OF THE NOTES
MERRILL LYNCH & CO. LEHMAN BROTHERS
You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information.
We are not offering the notes in any state where the offer of the notes is
not permitted.
We do not claim the accuracy of the information in this prospectus as of any
date other than the date stated on the cover of this prospectus.
Dealers will deliver a prospectus when acting as underwriters of the notes
and with respect to their unsold allotments or subscriptions. In addition, all
dealers that effect transactions in the notes, whether or not participating in
the offering of the notes, will be required to deliver a prospectus until April
12, 1999.
