<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
May 20, 1996
------------
BEAR STEARNS ASSET BACKED SECURITIES, INC.
--------------------------------------------------
(Exact name of Registrant as Specified in Charter)
Delaware 333-2180 13-3836437
--------------- ------------ -------------------
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
245 Park Avenue, New York, New York 10167
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (212) 272-4095
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 5. OTHER EVENTS.
FILING OF CONSENT AND FINANCIAL STATEMENTS
The financial statements of Capital Markets Assurance Corporation as of December
31, 1995 and 1994 that are included in the Prospectus Supplement dated May 17,
1996 (the "Prospectus Supplement") have been audited by KPMG Peat Marwick LLP.
The consent of KPMG Peat Marwick LLP to be named as "experts in the Prospectus
Supplement is attached hereto as Exhibit 23.1
The financial statements of Capital Markets Assurance Corporation as of December
31, 1995 and 1994 are attached hereto as Exhibit 99.1. In addition, the
unaudited financial statements of Capital Markets Assurance Corporation as of
March 31, 1996 are attached hereto as Exhibit 99.2.
FILING OF COMPUTATIONAL MATERIALS*
Pursuant to Rule 424(b) under the Securities Act of 1933, Bear Stearns
Asset Backed Securities, Inc. (the "Depositor") is filing a prospectus and
prospectus supplement with the Securities and Exchange Commission relating to
Champion Home Equity Loan Asset-Backed Certificates, Series 1996-2.
In connection with the offering of the Champion Home Equity Loan Asset-
Backed Certificates, Series 1996-2, Bear, Stearns & Co. Inc., the underwriter of
the Offered Certificates (the "Underwriter"), has prepared certain materials
(the "Computational Materials") for distribution to its potential investors.
Although Champion Mortgage Co., Inc. (the "Seller") provided the Underwriter
with certain information regarding the characteristics of the Home Equity Loans
in the related portfolio, it did not participate in the preparation of the
Computational Materials. The Computational Materials are attached hereto as
Exhibit 99.3.
- ---------------
* Capitalized terms used and not otherwise defined herein shall have the
meanings assigned to them in the Prospectus dated May 17, 1996, and
Prospectus Supplement dated May 17, 1996, relating to the Champion Home
Equity Loan Asset-Backed Certificates, Series 1996-2.
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits:
23.1. Consent of KPMG Peat Marwick LLP in connection with the financial
statements of Capital Markets Assurance Corporation.
99.1. Financial statements of Capital Markets Assurance Corporation as
of December 31, 1995 and 1994.
99.2. Unaudited financial statements of Capital Markets Assurance
Corporation as of March 31, 1996.
99.3 Computational Materials.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BEAR STEARNS ASSET BACKED SECURITIES, INC.
(Registrant)
Date: May 20, 1996 By: /s/ Patricia Jehle
----------------------
Name: Patricia Jehle
Title: President
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Number Description Numbered Page
- -------------- ----------- -------------
23.1. Consent of KPMG Peat Marwick LLP in connection with the
financial statements of Capital Markets Assurance
Corporation.
99.1. Financial statements of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994.
99.2. Unaudited financial statements of Capital Markets Assurance
Corporation as of March 31, 1996.
99.3 Computational Materials.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Capital Markets Assurance Corporation:
We consent to the use of our report included in the Form 8-K of Champion Home
Equity Loan Trust 1996-2, and to the reference to our firm under the heading
"Experts" in the Prospectus Supplement.
Our report dated January 25, 1996, refers to the Company's adoption at
December 31, 1993 of Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 115, "ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES".
KPMG PEAT MARWICK LLP
New York, New York
May 21, 1996
<PAGE>
EXHIBIT 99.1
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capital Markets Assurance Corporation:
We have audited the accompanying balance sheets of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the related statements of
income, stockholder's equity and cash flows for each of the years in the
three-year period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Markets Assurance
Corporation as of December 31, 1995 and 1994 and the results of its operations
and its cash flows for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting principles.
As discussed in note 2, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115, "ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES," at December 31, 1993.
KPMG Peat Marwick LLP
January 25, 1996
2
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $210,651 at December 31, 1995 and $178,882 at December
31, 1994)................................................................................. $ 215,706 $ 172,016
Short-term investments (at amortized cost which approximates fair value)................... 68,646 2,083
Mutual funds at fair value (cost $16,434 at December 31, 1994)............................. -- 14,969
--------- ---------
Total investments........................................................................ 284,352 189,068
Cash......................................................................................... 344 85
Accrued investment income.................................................................... 3,136 2,746
Deferred acquisition costs................................................................... 35,162 24,860
Premiums receivable.......................................................................... 3,540 3,379
Prepaid reinsurance.......................................................................... 13,171 5,551
Other assets................................................................................. 3,428 3,754
--------- ---------
Total assets............................................................................. $ 343,133 $ 229,443
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums.......................................................................... $ 45,767 $ 25,905
Reserve for losses and loss adjustment expenses............................................ 6,548 5,191
Ceded reinsurance.......................................................................... 2,469 1,497
Accounts payable and other accrued expenses................................................ 10,844 10,372
Current income taxes....................................................................... 136 --
Deferred income taxes...................................................................... 11,303 3,599
--------- ---------
Total liabilities........................................................................ 77,067 46,564
Stockholder's Equity:
Common stock............................................................................... 15,000 15,000
Additional paid-in capital................................................................. 205,808 146,808
Unrealized appreciation (depreciation) on investments, net of tax.......................... 3,286 (5,499)
Retained earnings.......................................................................... 41,972 26,570
--------- ---------
Total stockholder's equity............................................................... 266,066 182,879
--------- ---------
Total liabilities and stockholder's equity............................................... $ 343,133 $ 229,443
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Direct premiums written........................................................... $ 56,541 $ 43,598 $ 24,491
Assumed premiums written.......................................................... 935 1,064 403
Ceded premiums written............................................................ (15,992) (11,069) (3,586)
--------- --------- ---------
Net premiums written............................................................ 41,484 33,593 21,308
Increase in unearned premiums..................................................... (12,242) (10,490) (3,825)
--------- --------- ---------
Net premiums earned............................................................... 29,242 23,103 17,483
Net investment income............................................................. 11,953 10,072 10,010
Net realized capital gains........................................................ 1,301 92 1,544
Other income...................................................................... 2,273 120 354
--------- --------- ---------
Total revenues.................................................................. 44,769 33,387 29,391
--------- --------- ---------
Expenses:
Losses and loss adjustment expenses............................................... 3,141 1,429 902
Underwriting and operating expenses............................................... 13,808 11,833 11,470
Policy acquisition costs.......................................................... 7,203 4,529 2,663
--------- --------- ---------
Total expenses.................................................................. 24,152 17,791 15,035
--------- --------- ---------
Income before income taxes...................................................... 20,617 15,596 14,356
--------- --------- ---------
Income Taxes:
Current income tax................................................................ 2,113 865 1,002
Deferred income tax............................................................... 3,102 2,843 2,724
--------- --------- ---------
Total income taxes.............................................................. 5,215 3,708 3,726
--------- --------- ---------
NET INCOME...................................................................... $ 15,402 $ 11,888 $ 10,630
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Common stock:
Balance at beginning of period................................................... $ 15,000 $ 15,000 $ 15,000
--------- --------- ---------
Balance at end of period....................................................... 15,000 15,000 15,000
--------- --------- ---------
Additional paid-in capital:
Balance at beginning of period................................................... 146,808 146,808 146,808
Paid-in capital.................................................................. 59,000 -- --
--------- --------- ---------
Balance at end of period....................................................... 205,808 146,808 146,808
--------- --------- ---------
Unrealized (depreciation) appreciation on investments,
net of tax:
Balance at beginning of period................................................... (5,499) 3,600 --
Unrealized appreciation (depreciation) on investments............................ 8,785 (9,099) 3,600
--------- --------- ---------
Balance at end of period....................................................... 3,286 (5,499) 3,600
--------- --------- ---------
Retained earnings:
Balance at beginning of period................................................... 26,570 14,682 4,052
Net income....................................................................... 15,402 11,888 10,630
--------- --------- ---------
Balance at end of period....................................................... 41,972 26,570 14,682
--------- --------- ---------
Total stockholder's equity..................................................... $ 266,066 $ 182,879 $ 180,090
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................................... $ 15,402 $ 11,888 $ 10,630
--------- --------- ---------
Adjustments to reconcile net income to net cash provided (used) by operating
activities:
Reserve for losses and loss adjustment expenses................................ 1,357 1,429 902
Unearned premiums.............................................................. 19,862 15,843 4,024
Deferred acquisition costs..................................................... (10,302) (9,611) (9,815)
Premiums receivable............................................................ (161) (2,103) (432)
Accrued investment income...................................................... (390) (848) (110)
Income taxes payable........................................................... 3,621 2,611 2,872
Net realized capital gains..................................................... (1,301) (92) (1,544)
Accounts payable and other accrued expenses.................................... 472 3,726 1,079
Prepaid reinsurance............................................................ (7,620) (5,352) (199)
Other, net..................................................................... 992 689 1,201
--------- --------- ---------
Total adjustments............................................................ 6,530 6,292 (2,022)
--------- --------- ---------
Net cash provided by operating activities.................................... 21,932 18,180 8,608
--------- --------- ---------
Cash flows from investing activities:
Purchases of investments....................................................... (158,830) (77,980) (139,061)
Proceeds from sales of investments............................................. 49,354 39,967 24,395
Proceeds from maturities of investments........................................ 28,803 19,665 106,042
--------- --------- ---------
Net cash used in investing activities........................................ (80,673) (18,348) (8,624)
--------- --------- ---------
Cash flows from financing activities:
Capital contribution........................................................... 59,000 -- --
--------- --------- ---------
Net cash provided by financing activities.................................... 59,000 -- --
--------- --------- ---------
Net increase (decrease) in cash................................................ 259 (168) (16)
Cash balance at beginning of period............................................ 85 253 269
--------- --------- ---------
Cash balance at end of period................................................ $ 344 $ 85 $ 253
--------- --------- ---------
--------- --------- ---------
Supplemental disclosure of cash flow information:
Income taxes paid.............................................................. $ 1,450 $ 1,063 $ 833
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1) BACKGROUND
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guaranty and surety insurance. CapMAC is a wholly-owned
subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed in all 50
states in addition to the District of Columbia, the Commonwealth of Puerto Rico
and the territory of Guam. CapMAC insures structured asset-backed, corporate,
municipal and other financial obligations in the U.S. and international capital
markets. CapMAC also provides financial guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations written by
other major insurance companies.
CapMAC's claims-paying ability is rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's"), "AAA" by S&P Ratings Group ("S&P"), "AAA" by Duff & Phelps
Credit Rating Co. ("Duff & Phelps"), and "AAA" by Nippon Investors Service,
Inc., a Japanese rating agency. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies.
2) SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies used in the preparation of the accompanying
financial statements are as follows:
A) BASIS OF PRESENTATION
The accompanying financial statements are prepared on the basis of
generally accepted accounting principles ("GAAP"). Such accounting
principles differ from statutory reporting practices used by insurance
companies in reporting to state regulatory authorities.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Management believes the most significant
estimates relate to deferred acquisition costs, reserve for losses and loss
adjustment expenses and disclosures of financial guarantees outstanding.
Actual results could differ from those estimates.
B) INVESTMENTS
At December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 115, "ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES." Under SFAS No. 115, the Company
can classify its debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading
securities are bought and held principally for the purpose of selling them
in the near term. Held-to-maturity securities are those securities in which
the Company has the ability and intent to hold the securities until
maturity. All other securities not included in trading or held-to-maturity
are classified as available-for-sale. As of December 31, 1995 and 1994, all
of the Company's securities have been classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Fair value is
based upon quoted market prices. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
earnings and are reported as a separate component of stockholder's equity
until realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
7
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A decline in the fair value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings resulting in
the establishment of a new cost basis for the security.
Short-term investments are those investments having a maturity of less
than one year at purchase date. Short-term investments are carried at
amortized cost which approximates fair value.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned. Realized
gains and losses are included in earnings and are derived using the FIFO
(first-in, first-out) method for determining the cost of securities sold.
C) REVENUE RECOGNITION
Premiums which are payable monthly to CapMAC are reflected in income
when due, net of amounts payable to reinsurers. Premiums which are payable
quarterly, semi-annually or annually are reflected in income, net of amounts
payable to reinsurers, on an equal monthly basis over the corresponding
policy term. Premiums that are collected as a single premium at the
inception of the policy and have a term longer than one year are earned, net
of amounts payable to reinsurers, by allocating premium to each bond
maturity based on the principal amount and earning it straight-line over the
term of each bond maturity. For the year ended December 31, 1995, 91% of net
premiums earned were attributable to premiums payable in installments and 9%
were attributable to premiums collected on an upfront basis.
D) DEFERRED ACQUISITION COSTS
Certain costs incurred by CapMAC, which vary with and are primarily
related to the production of new business, are deferred. These costs include
direct and indirect expenses related to underwriting, marketing and policy
issuance, rating agency fees and premium taxes. The deferred acquisition
costs are amortized over the period in proportion to the related premium
earnings. The actual amount of premium earnings may differ from projections
due to various factors such as renewal or early termination of insurance
contracts or different run-off patterns of exposure resulting in a
corresponding change in the amortization pattern of the deferred acquisition
costs.
E) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a
Supplemental Loss Reserve ("SLR") and a case basis loss reserve. The SLR is
established based on expected levels of defaults resulting from credit
failures on currently insured issues. This SLR is based on estimates of the
portion of earned premiums required to cover those claims.
A case basis loss reserve is established for insured obligations when,
in the judgement of management, a default in the timely payment of debt
service is imminent. For defaults considered temporary, a case basis loss
reserve is established in an amount equal to the present value of the
anticipated defaulted debt service payments over the expected period of
default. If the default is judged not to be temporary, the present value of
all remaining defaulted debt service payments is recorded as a case basis
loss reserve. Anticipated salvage recoveries are considered in establishing
case basis loss reserves when such amounts are reasonably estimable.
Management believes that the current level of reserves is adequate to
cover the estimated liability for claims and the related adjustment expenses
with respect to financial guaranties issued by
8
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CapMAC. The establishment of the appropriate level of loss reserves is an
inherently uncertain process involving numerous estimates and subjective
judgments by management, and therefore there can be no assurance that losses
in CapMAC's insured portfolio will not exceed the loss reserves.
F) DEPRECIATION
Leasehold improvements, furniture and fixtures are being depreciated
over the lease term or useful life, whichever is shorter, using the
straight-line method.
G) INCOME TAXES
Deferred income taxes are provided with respect to temporary differences
between the financial statement and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse.
H) RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the
current year presentation.
3) INSURED PORTFOLIO
At December 31, 1995 and 1994, the principal amount of financial obligations
insured by CapMAC was $16.9 billion and $11.6 billion, respectively, and net of
reinsurance (net principal outstanding), was $12.6 billion and $9.4 billion,
respectively, with a weighted average life of 6.0 years and 5.0 years,
respectively. CapMAC's insured portfolio was broadly diversified by geographic
distribution and type of insured obligations, with no single insured obligation
in excess of statutory single risk limits, after giving effect to any
reinsurance and collateral, which are a function of CapMAC's statutory qualified
capital (the sum of statutory capital and surplus and mandatory contingency
reserve). At December 31, 1995 and 1994, the statutory qualified capital was
approximately $240 million and $170 million, respectively.
<TABLE>
<CAPTION>
NET PRINCIPAL OUTSTANDING
------------------------------------------
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------- --------------------
TYPE OF OBLIGATIONS INSURED ($ IN MILLIONS) AMOUNT % AMOUNT %
- ----------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Consumer receivables................................. $ 6,959 55.1 $ 4,740 50.4
Trade and other corporate obligations................ 4,912 38.9 4,039 43.0
Municipal/government obligations..................... 757 6.0 618 6.6
--------- --------- --------- ---------
Total............................................ $ 12,628 100.0 $ 9,397 100.0
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
At December 31, 1995, approximately 85% of CapMAC's insured portfolio was
comprised of structured asset-backed transactions. Under these structures, a
pool of assets covering at least 100% of the principal amount guaranteed under
its insurance contract is sold or pledged to a special purpose bankruptcy remote
entity. CapMAC's primary risk from such insurance contracts is the impairment of
cash flows due to delinquency or loss on the underlying assets. CapMAC,
therefore, evaluates all the factors affecting past and future asset performance
by studying historical data on losses, delinquencies and recoveries of the
underlying assets. Each transaction is reviewed to ensure that an appropriate
legal structure is used to protect against the bankruptcy risk of the originator
of the assets. Along with the legal structure, an additional level of first loss
protection is also created to protect against losses due to credit or dilution.
This first level of loss protection is usually available from reserve funds,
excess cash flows, overcollateralization, or recourse to a third party. The
level of first loss protection depends upon the historical losses and dilution
of the underlying assets, but is typically several times the normal historical
loss experience for the underlying type of assets.
9
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3) INSURED PORTFOLIO (CONTINUED)
During 1995, the Company sold without recourse its interest in potential
cash flows from transactions included in its insured portfolio and recognized
$2,200,000 of income which has been included in other income in the accompanying
financial statements.
The following entities each accounted for, through referrals and otherwise,
10% or more of total revenues for each of the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
- ------------------------------------- ------------------------------------- -------------------------------------
% OF % OF % OF
NAME REVENUES NAME REVENUES NAME REVENUES
- ------------------------ ----------- ------------------------ ----------- ------------------------ -----------
<S> <C> <C> <C> <C> <C>
Citicorp................ 15.2 Citicorp................ 16.3 Citicorp................ 13.7
Merrill Lynch & Co...... 14.1
</TABLE>
4) INVESTMENTS
At December 31, 1995 and 1994, all of the Company's investments were
classified as available-for-sale securities. The amortized cost, gross
unrealized gains, gross unrealized losses and estimated fair value for
available-for-sale securities by major security type at December 31, 1995 and
1994 were as follows ($ in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- ------------------------------------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations.............................. $ 4,153 $ 55 $ -- $ 4,208
Mortgage-backed securities of U.S. government
instrumentalities and agencies........................ 100,628 313 79 100,862
Obligations of states, municipalities and political
subdivisions.......................................... 166,010 4,809 82 170,737
Corporate and asset-backed securities.................. 8,506 45 6 8,545
---------- ----------- ----------- ----------
Total.............................................. $ 279,297 $ 5,222 $ 167 $ 284,352
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SECURITIES AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
- ------------------------------------------------------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury obligations.............................. $ 4,295 $ -- $ 153 $ 4,142
Mortgage-backed securities of U.S. government
instrumentalities and agencies........................ 40,973 -- 2,986 37,987
Obligations of states, municipalities and political
subdivisions.......................................... 128,856 364 3,994 125,226
Corporate and asset-backed securities.................. 6,841 15 112 6,744
Mutual funds........................................... 16,434 -- 1,465 14,969
---------- ----------- ----------- ----------
Total.............................................. $ 197,399 $ 379 $ 8,710 $ 189,068
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
The Company's investment in mutual funds in 1994 represents an investment in
an open-end management investment company which invests primarily in
investment-grade fixed-income securities denominated in foreign and United
States currencies.
10
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4) INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of investments in debt
securities at December 31, 1995 by contractual maturity are shown below ($ in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------
AMORTIZED ESTIMATED
SECURITIES AVAILABLE-FOR-SALE COST FAIR VALUE
- ------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Less than one year to maturity..................................... $ 5,569 $ 5,572
One to five years to maturity...................................... 37,630 38,553
Five to ten years to maturity...................................... 99,567 102,264
Greater than ten years to maturity................................. 35,903 37,101
---------- ----------
Sub-total...................................................... 178,669 183,490
Mortgage-backed securities......................................... 100,628 100,862
---------- ----------
Total.......................................................... $ 279,297 $ 284,352
---------- ----------
---------- ----------
</TABLE>
Actual maturities may differ from contractual maturities because borrowers
may call or prepay obligations with or without call or prepayment penalties.
Proceeds from sales of investment securities were approximately $49 million,
$40 million and $24 million in 1995, 1994 and 1993, respectively. Gross realized
capital gains of $1,320,000, $714,000 and $1,621,000, and gross realized capital
losses of $19,000, $622,000 and $77,000 were realized on those sales for the
years ended December 31, 1995, 1994 and 1993, respectively.
Investments include bonds having a fair value of approximately $3,985,000
and $3,873,000 (amortized cost of $3,970,000 and $4,011,000) which are on
deposit at December 31, 1995 and 1994, respectively, with state regulators as
required by law.
Investment income is comprised of interest and dividends, net of related
expenses, and is applicable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
$ IN THOUSANDS 1995 1994 1993
- ----------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Bonds...................................................... $ 11,105 $ 9,193 $ 7,803
Short-term investments..................................... 1,245 484 572
Mutual funds............................................... (162) 579 1,801
Investment expenses........................................ (235) (184) (166)
--------- --------- ---------
Total.................................................. $ 11,953 $ 10,072 $ 10,010
--------- --------- ---------
--------- --------- ---------
</TABLE>
The change in unrealized appreciation (depreciation) on available-for-sale
securities is included in a separate component of stockholder's equity as shown
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
$ IN THOUSANDS 1995 1994
- -------------------------------------------------------------------- --------- ----------
<S> <C> <C>
Balance at beginning of period...................................... $ (5,499) $ 3,600
Change in unrealized appreciation (depreciation).................... 13,386 (13,786)
Income tax effect................................................... (4,601) 4,687
--------- ----------
Net change.......................................................... 8,785 (9,099)
--------- ----------
Balance at end of period........................................ $ 3,286 $ (5,499)
--------- ----------
--------- ----------
</TABLE>
11
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4) INVESTMENTS (CONTINUED)
No single issuer, except for investments in U.S. Treasury and U.S.
government agency securities, exceeds 10% of stockholder's equity as of December
31, 1995.
5) DEFERRED ACQUISITION COSTS
The following table reflects acquisition costs deferred by CapMAC and
amortized in proportion to the related premium earnings:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
$ IN THOUSANDS 1995 1994 1993
- ----------------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............................. $ 24,860 $ 15,249 $ 5,434
Additions.................................................. 17,505 14,140 12,478
Amortization (policy acquisition costs).................... (7,203) (4,529) (2,663)
--------- --------- ---------
Balance at end of period............................... $ 35,162 $ 24,860 $ 15,249
--------- --------- ---------
--------- --------- ---------
</TABLE>
6) EMPLOYEE BENEFITS
On June 25, 1992, CapMAC entered into a Service Agreement with CapMAC
Financial Services, Inc. ("CFS"), which was then a newly formed wholly-owned
subsidiary of Holdings. Under the Service Agreement, CFS has agreed to provide
various services, including underwriting, reinsurance, data processing and other
services to CapMAC in connection with the operation of CapMAC's insurance
business. CapMAC pays CFS an arm's length fee for providing such services, but
not in excess of CFS's cost for such services. CFS incurred, on behalf of
CapMAC, total compensation expenses, excluding bonuses, of $13,484,000,
$11,081,000 and $9,789,000 in 1995, 1994 and 1993, respectively.
CFS maintains an incentive compensation plan for its employees. The plan is
an annual discretionary bonus award based upon Holdings' and an individual's
performance. CFS also has a health and welfare plan and a 401(k) plan to cover
substantially all of its employees. CapMAC reimburses CFS for all out-of-pocket
expenses incurred by CFS in providing services to CapMAC, including awards given
under the incentive compensation plan and benefits provided under the health and
welfare plan. For the years ended December 31, 1995, 1994 and 1993, the Company
had provided approximately $7,804,000, $5,253,000 and $3,528,000, respectively,
for the annual discretionary bonus plan.
On June 25, 1992, certain officers of CapMAC were granted 182,633 restricted
stock units ("RSU") at $13.33 a share in respect of certain deferred
compensation. On December 7, 1995, the RSU's were converted to cash in the
amount of approximately $3.7 million, and such officers agreed to defer receipt
of such cash amount in exchange for receiving the same number of new shares of
restricted stock of Holdings as the number of RSU's such officers previously
held. The cash amount will be held by Holdings and invested in accordance with
certain guidelines. Such amount, including the investment earnings thereon, will
be paid to each officer upon the occurrence of certain events but no later than
December, 2000.
7) EMPLOYEE STOCK OWNERSHIP PLAN
On June 25, 1992, Holdings adopted an Employee Stock Ownership Plan ("ESOP")
to provide its employees the opportunity to obtain beneficial interests in the
stock of Holdings through a trust (the "ESOP Trust"). The ESOP Trust purchased
750,000 shares at $13.33 per share of Holdings' stock. The ESOP Trust financed
its purchase of common stock with a loan from Holdings in the amount of $10
million. The ESOP loan is evidenced by a promissory note delivered to Holdings.
An amount representing unearned employee compensation, equivalent in value to
the unpaid balance of the ESOP loan, is recorded as a deduction from
stockholder's equity (unallocated ESOP shares).
12
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7) EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
CFS is required to make contributions to the ESOP Trust, which enables the
ESOP Trust to service its loan to Holdings. The ESOP expense is calculated using
the shares allocated method. Shares are released for allocation to the
participants and held in trust for the employees based upon the ratio of the
current year's principal and interest payment to the sum of principal and
interest payments estimated over the life of the loan. As of December 31, 1995
approximately 262,800 shares were allocated to the participants. Compensation
expense related to the ESOP was approximately $2,087,000, $2,086,000 and
$1,652,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
8) RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The reserve for losses and loss adjustment expenses consists of a case basis
loss reserve and the SLR.
In 1995 CapMAC incurred its first claim on a financial guaranty policy.
Based on its current estimate, the Company expects the aggregate amount of
claims and related expenses not to exceed $2.7 million, although no assurance
can be given that such claims and related expenses will not exceed that amount.
Such loss amount was covered through a recovery under a quota share reinsurance
agreement of $0.2 million and a reduction in the SLR of $2.5 million. The
portion of such claims and expenses not covered under the quota share agreement
is being funded through payments to CapMAC from the Lureco Trust Account (see
note 12).
The following is a summary of the activity in the case basis loss reserve
account and the components of the liability for losses and loss adjustment
expenses ($ in thousands):
<TABLE>
<S> <C>
Case Basis Loss Reserve:
Net balance at January 1, 1995....................... $ --
---------
Incurred related to:
Current year......................................... 2,473
Prior years.......................................... --
---------
Total incurred..................................... 2,473
---------
Paid incurred to:
Current year......................................... 1,853
Prior years.......................................... --
---------
Total paid......................................... 1,853
---------
Balance at December 31, 1995........................... 620
---------
Reinsurance recoverable................................ 69
---------
Supplemental loss reserve.............................. 5,859
---------
Total.............................................. $ 6,548
---------
---------
</TABLE>
9) INCOME TAXES
Pursuant to a tax sharing agreement with Holdings, the Company is included
in Holdings' consolidated U.S. Federal income tax return. The Company's annual
Federal income tax liability is determined by computing its pro rata share of
the consolidated group Federal income tax liability.
13
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9) INCOME TAXES (CONTINUED)
Total income tax expense differed from the amount computed by applying the
U.S. Federal income tax rate of 35% in 1995 and 34% in 1994 and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1994 1993
-------------------- -------------------- --------------------
$ IN THOUSANDS AMOUNT % AMOUNT % AMOUNT %
- ------------------------------------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Expected tax expense computed at the statutory
rate............................................ $ 7,216 35.0 $ 5,303 34.0 $ 4,881 34.0
Increase (decrease) in tax resulting from:
Tax-exempt interest............................ (2,335) (11.3) (1,646) (10.6) (1,140) (7.9)
Other, net..................................... 334 1.6 51 0.4 (15) (0.1)
--------- --------- --------- --------- --------- ---
Total income tax expense..................... $ 5,215 25.3 $ 3,708 23.8 $ 3,726 26.0
--------- --------- --------- --------- --------- ---
--------- --------- --------- --------- --------- ---
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred Federal income tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
$ IN THOUSANDS 1995 1994
- ---------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
Deferred tax assets:
Unrealized capital losses on investments........................................ $ -- $ (2,833)
Deferred compensation........................................................... (1,901) (1,233)
Losses and loss adjustment expenses............................................. (1,002) (936)
Unearned premiums............................................................... (852) (762)
Other, net...................................................................... (98) (228)
--------- ---------
Total gross deferred tax assets............................................... (3,853) (5,992)
--------- ---------
Deferred tax liabilities:
Deferred acquisition costs...................................................... 12,307 8,453
Unrealized capital gains on investments......................................... 1,769 --
Deferred capital gains on investments........................................... 654 726
Other, net...................................................................... 426 412
--------- ---------
Total gross deferred tax liabilities.......................................... 15,156 9,591
--------- ---------
Net deferred tax liability.................................................... $ 11,303 $ 3,599
--------- ---------
--------- ---------
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax assets will not be realized. Management believes
that the deferred tax assets will be fully realized in the future.
10) INSURANCE REGULATORY RESTRICTIONS
CapMAC is subject to insurance regulatory requirements of the State of New
York and other states in which it is licensed to conduct business. Generally,
New York insurance laws require that dividends be paid from earned surplus and
restrict the amount of dividends in any year that may be paid without obtaining
approval for such dividends from the Superintendent of Insurance to the lower of
(i) net investment income as defined or (ii) 10% of statutory surplus as of
December 31 of the preceding year. No dividends were paid by CapMAC to Holdings
during the years ended December 31, 1995, 1994 and 1993. No dividends could be
paid during these periods because CapMAC had negative earned surplus. Statutory
surplus at December 31, 1995 and 1994 was approximately $195,018,000 and
$139,739,000, respectively. Statutory surplus differs from
14
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10) INSURANCE REGULATORY RESTRICTIONS (CONTINUED)
stockholder's equity determined under GAAP principally due to the mandatory
contingency reserve required for statutory accounting purposes and differences
in accounting for investments, deferred acquisition costs, SLR and deferred
taxes provided under GAAP. Statutory net income was $9,000,000, $4,543,000 and
$4,528,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Statutory net income differs from net income determined under GAAP principally
due to deferred acquisition costs, SLR and deferred income taxes.
11) COMMITMENTS AND CONTINGENCIES
On January 1, 1988, the Company assumed from Citibank, N.A. the obligations
of a sublease agreement for space occupied in New York. On November 21, 1993,
the sublease was terminated and a new lease was negotiated which expires on
November 20, 2008. CapMAC has a lease agreement for its London office beginning
October 1, 1992 and expiring October 1, 2002. As of December 31, 1995, future
minimum payments under the lease agreements are as follows:
<TABLE>
<CAPTION>
$ IN THOUSANDS PAYMENT
- -------------------------------------------------------------------------------- ---------
<S> <C>
1996............................................................................ $ 2,255
1997............................................................................ 2,948
1998............................................................................ 3,027
1999............................................................................ 3,476
2000 and thereafter............................................................. 36,172
---------
Total....................................................................... $ 47,878
---------
---------
</TABLE>
Rent expense, commercial rent taxes and electricity for the years ended
December 31, 1995, 1994 and 1993 amounted to $1,939,000, $2,243,000 and
$2,065,000, respectively.
CapMAC has available a $100,000,000 standby corporate liquidity facility
(the "Liquidity Facility") provided by a consortium of banks, headed by Bank of
Montreal, as agent, which is rated "A-1+" and "P-1" by S&P and Moody's,
respectively. Under the Liquidity Facility, CapMAC will be able, subject to
satisfying certain conditions, to borrow funds from time to time in order to
enable it to fund any claim payments or payments made in settlement or
mitigation of claim payments under its insurance contracts. For the years ended
December 31, 1995, 1994 and 1993, no draws had been made under the Liquidity
Facility.
12) REINSURANCE
In the ordinary course of business, CapMAC cedes exposure under various
treaty, pro rata and excess of loss reinsurance contracts primarily designed to
minimize losses from large risks and protect the capital and surplus of CapMAC.
The effect of reinsurance on premiums written and earned was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- --------------------
$ IN THOUSANDS WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
- ------------------------- ---------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Direct................... $ 56,541 $ 36,853 $ 43,598 $ 28,561 $ 24,491 $ 20,510
Assumed.................. 935 761 1,064 258 403 364
Ceded.................... (15,992) (8,372) (11,069) (5,716) (3,586) (3,391)
---------- --------- ---------- --------- --------- ---------
Net Premiums............. $ 41,484 $ 29,242 $ 33,593 $ 23,103 $ 21,308 $ 17,483
---------- --------- ---------- --------- --------- ---------
---------- --------- ---------- --------- --------- ---------
</TABLE>
15
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12) REINSURANCE (CONTINUED)
Although the reinsurance of risk does not relieve the ceding insurer of its
original liability to its policyholders, it is the industry practice of insurers
for financial statement purposes to treat reinsured risks as though they were
risks for which the ceding insurer was only contingently liable. A contingent
liability exists with respect to the aforementioned reinsurance arrangements
which may become a liability of CapMAC in the event the reinsurers are unable to
meet obligations assumed by them under the reinsurance contracts. At December
31, 1995 and 1994, CapMAC had ceded loss reserves of $69,000 and $0,
respectively and had ceded unearned premiums of $13,171,000 and $5,551,000,
respectively.
In 1994, CapMAC entered into a reinsurance agreement (the "Lureco Treaty")
with Luxembourg European Reinsurance LURECO S.A. ("Lureco"), a European-based
reinsurer. The agreement is renewable annually at the Company's option, subject
to satisfying certain conditions. The agreement reinsured and indemnified the
Company for any loss incurred by CapMAC during the agreement period up to the
limits of the agreement. The Lureco Treaty provides that the annual reinsurance
premium payable by CapMAC to Lureco, after deduction of the reinsurer's fee
payable to Lureco, be deposited in a trust account (the "Lureco Trust Account")
to be applied by CapMAC, at its option, to offset losses and loss expenses
incurred by CapMAC in connection with incurred claims. Amounts on deposit in the
Lureco Trust Account which have not been applied against claims are
contractually due to CapMAC at the termination of the treaty.
The premium deposit amounts in the Lureco Trust Account have been reflected
as assets by CapMAC during the term of the agreement. Premiums in excess of the
deposit amounts have been recorded as ceded premiums in the statements of
income. In the 1994 policy year, the agreement provided $5 million of loss
coverage in excess of the premium deposit amounts of $2 million retained in the
Lureco Trust Account. No losses were applied against the Lureco Trust Account or
ceded to the Lureco Treaty in 1994. The agreement was renewed for the 1995
policy year and provides $5 million of loss coverage in excess of the premium
deposit amount of $4.5 million retained in the Lureco Trust Account. Additional
coverage is provided for losses incurred in excess of 200% of the net premiums
earned up to $4 million for any one agreement year. In September 1995, a claim
of approximately $2.5 million on an insurance policy was applied against the
Lureco Trust Account.
In addition to its capital (including statutory contingency reserves) and
other reinsurance available to pay claims under its insurance contracts, on June
25, 1992, CapMAC entered into a Stop Loss Reinsurance Agreement (the "Stop-loss
Agreement") with Winterthur Swiss Insurance Company ("Winterthur") which is
rated "AAA" by S&P and "Aaa" by Moody's. At the same time, CapMAC and Winterthur
also entered into a Quota Share Reinsurance Agreement (the "Winterthur Quota
Share Agreement") pursuant to which Winterthur had the right to reinsure on a
quota share basis 10% of each policy written by CapMAC.
The Winterthur Stop-loss Agreement had an original term of seven years and
was renewable for successive one-year periods. In April 1995, Winterthur
notified CapMAC that it was canceling the Winterthur Stop-loss Agreement and the
Winterthur Quota Share Agreement effective June 30, 1996.
CapMAC elected to terminate the Winterthur Stop-loss Agreement effective
November 30, 1995 and, on the same date, entered into a Stop-loss Reinsurance
Agreement with Mitsui Marine (the "Mitsui Stop-loss Agreement"). Under the
Mitsui Stop-loss Agreement, Mitsui Marine would be required to pay any losses in
excess of $100 million in the aggregate incurred by CapMAC during the term of
the Mitsui Stop-loss Agreement on the insurance policies in effect on December
1, 1995 and written during the one-year period thereafter, up to an aggregate
limit payable under the Mitsui Stop-loss Agreement of $50 million. The Mitsui
Stop-loss Agreement has a term of seven years and is subject to early
termination by CapMAC in certain circumstances.
16
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
12) REINSURANCE (CONTINUED)
The Winterthur Quota Share Agreement was canceled November 30, 1995. On
January 1, 1996, CapMAC will reassume the liability, principally unearned
premium, for all policies reinsured by Winterthur. As a result, CapMAC will
reassume approximately $1.4 billion of principal insured by Winterthur as of
December 31, 1995. In connection with the commutation, Winterthur will return
the unearned premiums as of December 31, 1995, net of ceding commission and
federal excise tax. Such amount is expected to total approximately $2.0 million.
13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995 and 1994. SFAS No.
107, "Disclosures About Fair Value of Financial Instruments," defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1994
---------------------- ----------------------
CARRYING ESTIMATED CARRYING ESTIMATED
$ IN THOUSANDS AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- ----------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Investments........................................ $ 284,352 $ 284,352 $ 189,068 $ 189,068
Off-Balance-Sheet Instruments:
Financial Guarantees Outstanding................... $ -- 147,840 $ -- 93,494
Ceding Commission.................................. $ -- $ 44,352 $ -- $ 28,048
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments summarized above:
INVESTMENTS
The fair values of fixed maturities and mutual funds are based upon quoted
market prices. The fair value of short-term investments approximates amortized
cost.
FINANCIAL GUARANTEES OUTSTANDING
The fair value of financial guarantees outstanding consists of (1) the
current unearned premium reserve, net of prepaid reinsurance and (2) the fair
value of installment revenue which is derived by calculating the present value
of the estimated future cash inflow to CapMAC of policies in force having
installment premiums, net of amounts payable to reinsurers, at a discount rate
of 7% at December 31, 1995 and 1994. The amount calculated is equivalent to the
consideration that would be paid under market conditions prevailing at the
reporting dates to transfer CapMAC's financial guarantee business to a third
party under reinsurance and other agreements. Ceding commission represents the
expected amount that would be paid to CapMAC to compensate CapMAC for
originating and servicing the insurance contracts. In constructing estimated
future cash inflows, management makes assumptions regarding prepayments for
amortizing asset-backed securities which are consistent with relevant historical
experience. For revolving programs, assumptions are made regarding program
utilization based on discussions with program users. The amount of installment
premium actually realized by the Company could be reduced in the future due to
factors such as early termination of insurance contracts, accelerated
prepayments of underlying obligations or lower than anticipated utilization of
insured structured programs, such as commercial paper conduits. Although
increases in future installment revenue due to renewals of existing insurance
contracts historically have been greater than reductions in future installment
revenue due to factors such as those described above, there can be no assurance
that future circumstances might not cause a net reduction in installment
revenue, resulting in lower revenues.
17
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
14) CAPITALIZATION
The Company's certificate of incorporation authorizes the issuance of
15,000,000 shares of common stock, par value $1.00 per share. Authorized, issued
and outstanding shares at December 31, 1995 and 1994 were 15,000,000 at $1.00
per share.
In 1995, $59.0 million of the proceeds received by Holdings from the sale of
shares in connection with an Initial Public Offering and private placements were
contributed to CapMAC.
18
<PAGE>
EXHIBIT 99.2
CAPITAL MARKETS ASSURANCE CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
1
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1995
MARCH 31, ------------
1996
-----------
(UNAUDITED)
<S> <C> <C>
Investments:
Bonds at fair value (amortized cost $258,874 at March 31, 1996 and $210,651 at
December 31, 1995)................................................................. $ 259,226 $ 215,706
Short-term investments (at amortized cost which approximates fair value)............ 28,636 68,646
----------- ------------
Total investments................................................................. 287,862 284,352
Cash.................................................................................. 389 344
Accrued investment income............................................................. 3,356 3,136
Deferred acquisition costs............................................................ 37,559 35,162
Premiums receivable................................................................... 3,463 3,540
Prepaid reinsurance................................................................... 13,379 13,171
Other assets.......................................................................... 3,477 3,428
----------- ------------
Total assets...................................................................... $ 349,485 $ 343,133
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned premiums................................................................... $ 50,266 $ 45,767
Reserve for losses and loss adjustment expenses..................................... 7,261 6,548
Ceded reinsurance................................................................... 2,773 2,469
Accounts payable and other accrued expenses......................................... 7,288 10,844
Current income taxes................................................................ 260 136
Deferred income taxes............................................................... 11,657 11,303
----------- ------------
Total liabilities................................................................. 79,505 77,067
Stockholder's Equity:
Common stock........................................................................ 15,000 15,000
Additional paid-in capital.......................................................... 208,475 205,808
Unrealized appreciation on investments, net of tax.................................. 229 3,286
Retained earnings................................................................... 46,276 41,972
----------- ------------
Total stockholder's equity........................................................ 269,980 266,066
----------- ------------
Total liabilities and stockholder's equity........................................ $ 349,485 $ 343,133
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenues:
Direct premiums written................................................................. $ 14,155 $ 16,838
Assumed premiums written................................................................ 874 154
Ceded premiums written.................................................................. (1,910) (3,093)
---------- ----------
Net premiums written.................................................................. 13,119 13,899
Increase in unearned premiums........................................................... (4,291) (6,798)
---------- ----------
Net premiums earned..................................................................... 8,828 7,101
Net investment income................................................................... 3,877 2,637
Net realized capital gains.............................................................. 149 65
Other income............................................................................ 54 12
---------- ----------
Total revenues........................................................................ 12,908 9,815
---------- ----------
Expenses:
Losses and loss adjustment expenses..................................................... 1,075 696
Underwriting and operating expenses..................................................... 3,978 3,738
Policy acquisition costs................................................................ 2,064 1,725
---------- ----------
Total expenses........................................................................ 7,117 6,159
---------- ----------
Income before income taxes............................................................ 5,791 3,656
---------- ----------
---------- ----------
Income Taxes:
Current federal income tax.............................................................. 664 320
Deferred federal income tax............................................................. 823 519
---------- ----------
Total income taxes.................................................................... 1,487 839
---------- ----------
NET INCOME............................................................................ $ 4,304 $ 2,817
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENT OF STOCKHOLDER'S EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996
-------------------
<S> <C>
Common stock:
Balance at beginning of period............................................................. $ 15,000
--------
Balance at end of period................................................................. 15,000
--------
Additional paid-in capital:
Balance at beginning of period............................................................. 205,808
Capital contribution....................................................................... 2,667
--------
Balance at end of period................................................................. 208,475
--------
Unrealized (depreciation) appreciation on investments,
net of tax:
Balance at beginning of period............................................................. 3,286
Unrealized depreciation on investments..................................................... (3,057)
--------
Balance at end of period................................................................. 229
--------
Retained earnings:
Balance at beginning of period............................................................. 41,972
Net income................................................................................. 4,304
--------
Balance at end of period................................................................. 46,276
--------
Total stockholder's equity............................................................... $ 269,980
--------
--------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 4,304 $ 2,817
-------- --------
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Reserve for losses and loss adjustment expenses...................... 713 696
Unearned premiums.................................................... 4,499 8,075
Deferred acquisition costs........................................... (2,397) (2,662)
Premiums receivable.................................................. 77 (3,241)
Accrued investment income............................................ (220) 400
Income taxes payable................................................. 947 839
Net realized capital gains........................................... (149) (65)
Accounts payable and other accrued expenses.......................... 287 4,364
Prepaid reinsurance.................................................. (208) (1,277)
Other, net........................................................... 89 1,355
-------- --------
Total adjustments.................................................. 3,638 8,484
-------- --------
Net cash provided by operating activities.......................... 7,942 11,301
-------- --------
Cash flows from investing activities:
Purchases of investments............................................. (87,335) (18,235)
Proceeds from sale of investments.................................... 6,158 4,072
Proceeds from maturities of investments.............................. 73,280 3,391
-------- --------
Net cash used in investing activities.............................. (7,897) (10,772)
-------- --------
Net increase in cash................................................. 45 529
Cash balance at beginning of period.................................. 344 85
-------- --------
Cash balance at end of period...................................... $ 389 $ 614
-------- --------
-------- --------
Supplemental disclosures of cash flow information:
Income taxes paid $ 525 --
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CAPITAL MARKETS ASSURANCE CORPORATION
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 1996
1. BACKGROUND
Capital Markets Assurance Corporation ("CapMAC" or "the Company") is a New
York-domiciled monoline stock insurance company which engages only in the
business of financial guaranty and surety insurance. CapMAC is a wholly-owned
subsidiary of CapMAC Holdings Inc. ("Holdings"). CapMAC is licensed in all 50
states in addition to the District of Columbia, the Commonwealth of Puerto Rico
and the territory of Guam. CapMAC insures structured asset-backed, corporate,
municipal and other financial obligations in the U.S. and international capital
markets. CapMAC also provides financial guaranty reinsurance for structured
asset-backed, corporate, municipal and other financial obligations written by
other major insurance companies.
CapMAC's claims-paying ability is rated triple-A by Moody's Investors
Service, Inc., Standard & Poor's Ratings Services, Duff & Phelps Credit Rating
Co., and Nippon Investors Service, Inc., a Japanese rating agency. Such ratings
reflect only the views of the respective rating agencies, are not
recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by such rating agencies.
2. BASIS OF PRESENTATION
The Company's unaudited interim financial statements have been prepared on
the basis of generally accepted accounting principles and, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
CapMAC's financial condition, results of operations and cash flows for the
periods presented. The results of operations for the three months ended March
31, 1996 may not be indicative of the results that may be expected for the full
year ending December 31, 1996. These financial statements and notes should be
read in conjunction with the financial statements and notes included in the
audited financial statements of CapMAC as of December 31, 1995 and 1994, and for
each of the years in the three-year period ended December 31, 1995.
3. RECLASSIFICATIONS
Certain prior period balances have been reclassified to conform to the
current period presentation.
6
<PAGE>
***CHAMPION HOME EQUITY LOAN TRUST 1996-2***
COMPUTATIONAL MATERIAL
[LETTER HEAD]
STATEMENT REGARDING ASSUMPTIONS AS TO SECURITIES,
PRICING ESTIMATES AND OTHER INFORMATION
The information contained in the attached materials (the "Information") may
include various forms of performance analysis, security characteristics and
securities pricing estimates for the securities addressed. Please read and
understand this entire statement before utilizing the Information. Should
you receive Information that refers to the "Statement Regarding Assumptions
and Other Information", please refer to this statement instead.
The Information is illustrative and is not intended to predict actual results
which may differ substantially from those reflected in the Information.
Performance analysis is based on certain assumptions with respect to
significant factors that may prove not to be as assumed. You should
understand the assumptions and evaluate whether they are appropriate for your
purposes. Performance results are based on mathematical models that use inputs
to calculate results. As with all models, results may vary significantly
depending upon the value of the inputs given. Inputs to these models include
but are not limited to: prepayment expectations (econometric prepayment
models, single expected lifetime prepayments or a vector of periodic
prepayments), interest rate assumptions (parallel and nonparallel changes for
different maturity instruments), collateral assumptions (actual pool level
data, aggregated pool level data, reported factors or imputed factors),
volatility assumptions (historically observed or implied current) and
reported information (paydown factors, rate resets and trustee statements).
Models used in any analysis may be proprietary making the results difficult
for any third party to reproduce. Contact your registered representative for
detailed explanations of any modelling techniques employed in the Information.
The Information addresses only certain aspects of the applicable security's
characteristics and thus does not provide a complete assessment. As such,
the Information may not reflect the impact of all structural characteristics
of the security, including call events and cash flow priorities at all
prepayment speeds and/or interest rates. You should consider whether the
behavior of these securities should be tested at assumptions different from
those included in the Information. The assumptions underlying the
Information, including structure and collateral, may be modified from time to
time to reflect changed circumstances. Any investment decision should be
based only on the data in the prospectus and the prospectus supplement or
private placement memorandum (Offering Documents) and the then current
version of the Information. Offering Documents contain data that is current
as of their publication dates and after publication may no longer be complete
or current. The Information is provided solely by Bear Stearns, not as agent
for any issuer, and although it may be based on data supplied to it by an
issuer, the issuer has not participated in its preparation and makes no
representations regarding its accuracy or completeness. Contact your
registered representative for Offering Documents, current Information or
additional materials, including other models for performance analysis, which
are likely to produce different results, and any further explanation
regarding the Information.
Any pricing estimates Bear Stearns has supplied at your request (a) represent
our view, at the time determined, of the investment value of the securities
between the estimated bid and offer levels, the spread between which may be
significant due to market volatility or illiquidity, (b) do not constitute a
bid by any person for any security, (c) may not constitute prices at which the
securities could have been purchased or sold in any market, (d) have not been
confirmed by actual trades, may vary from the value Bear Stearns assigns any
such security while in its inventory, and may not take into account the size
of a position you have in the security, and (e) may have been derived from
matrix pricing that uses data relating to other securities whose prices are
more readily ascertainable to produce a hypothetical price based on the
estimated yield spread relationship between the securities.
General Information: The data underlying the Information has been obtained
from sources that we believe are reliable, but we do not guarantee the
accuracy of the underlying data or computations based thereon. Bear Stearns
and/or individuals thereof may have positions in these securities while the
Information is circulating or during such period may engage in transactions
with the issuer or its affiliates. We act as principal in transactions with
you, and accordingly, you must determine the appropriateness for you of such
transactions and address any legal, tax or accounting considerations
applicable to you. Bear Stearns shall not be a fiduciary or advisor unless we
have agreed in writing to receive compensation specifically to act in such
capacities. If you are subject to ERISA, the Information is being furnished
on the condition that it will not form a primary basis for any investment
decision. The Information is not a solicitation of any transaction in
securities which may be made only by prospectus when required by law, in
which event you may obtain such prospectus from Bear Stearns.
<PAGE>
CHAMPION HOME EQUITY LOAN TRUST 1996-2
Information Relating to the Certificates (PAGE 1 OF 3)
TRANSACTION SUMMARY (a), (b), (c)
<TABLE>
<CAPTION>
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ESTIMATED ESTIMATED ESTIMATED
ESTIMATED MODIFIED PRINCIPAL PRINCIPAL EXPECTED
APPROXIMATE LOAN WAL DURATION LOCKOUT WINDOW RATINGS
CERTIFICATE SIZE GROUP COUPON (YEARS) (YEARS) (MONTHS) (MONTHS) (MOODY'S/S&P)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A-1 $ 21,712,000 I Fixed 1.10 1.02 none 23 Aaa/AAA (d)
CLASS A-2 $ 22,699,000 I Fixed 3.10 2.69 22 33 Aaa/AAA (d)
CLASS A-3 $ 20,589,000 I Fixed 7.77 5.47 54 128 Aaa/AAA (d)
CLASS A-4 $ 35,000,000 II Adj 3.67 2.96 none 108 Aaa/AAA (d)
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</TABLE>
NOTES: (a) Loan Group I: Fixed Rate Home Equity Loans
Loan Group II: 1-year CMT Indexed Home Equity Loans
(b) Loan Group I: 100% Prepayment Assumption: 4.0% CPR in month 0,
and an additional 1.286% per annum in each month
thereafter until month 14. On and after month 14,
22% CPR.
Loan Group II: 100% Prepayment Assumption: 20% CPR.
(c) Class A-4 is expected to be priced to the 10% clean-up call. All
of the other Classes will be priced to maturity.
(d) CapMAC surety bond.
CLASS A-1 (TO MATURITY)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 11% 16.5% 22% 27.5% 33%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 5.68 1.68 1.31 1.10 0.96 0.87
MODIFIED DURATION (YEARS) 4.40 1.53 1.21 1.02 0.90 0.81
FIRST PRINCIPAL PAYMENT 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96
LAST PRINCIPAL PAYMENT 8/25/06 8/25/99 10/25/98 4/25/98 1/25/98 10/25/97
PRINCIPAL LOCKOUT (MONTHS) none none none NONE none none
PRINCIPAL WINDOW (MONTHS) 123 39 29 23 20 17
ILLUSTRATIVE YIELD @ PAR (30/360) 6.652% 6.463% 6.386% 6.320% 6.261% 6.208%
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</TABLE>
CLASS A-2 (TO MATURITY)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 11% 16.5% 22% 27.5% 33%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 13.41 5.34 3.92 3.10 2.58 2.21
MODIFIED DURATION (YEARS) 8.38 4.27 3.30 2.69 2.27 1.98
FIRST PRINCIPAL PAYMENT 8/25/06 8/25/99 10/25/98 4/25/98 1/25/98 10/25/97
LAST PRINCIPAL PAYMENT 4/25/11 4/25/04 3/25/02 12/25/00 2/25/00 7/25/99
PRINCIPAL LOCKOUT (MONTHS) 122 38 28 22 19 16
PRINCIPAL WINDOW (MONTHS) 57 57 42 33 26 22
ILLUSTRATIVE YIELD @ PAR (30/360) 7.139% 7.085% 7.052% 7.020% 6.988% 6.957%
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</TABLE>
BEAR STEARNS
This information should be considered only after reading Bear Stearns' Statement
Regarding Assumptions as to Securities, Pricing Estimates and Other Information
(the "Statement"), which should be attached. Do not use or rely on this
information if you have not received and reviewed this Statement. You may
obtain a copy of the Statement from your sales representative.
<PAGE>
CHAMPION HOME EQUITY LOAN TRUST 1996-2
Information Relating to the Certificates (PAGE 2 OF 3)
CLASS A-3 (TO MATURITY)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 11% 16.5% 22% 27.5% 33%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 17.30 12.11 9.63 7.77 6.39 5.36
MODIFIED DURATION (YEARS) 9.02 7.42 6.37 5.47 4.73 4.14
FIRST PRINCIPAL PAYMENT 4/25/11 4/25/04 3/25/02 12/25/00 2/25/00 7/25/99
LAST PRINCIPAL PAYMENT 7/25/25 2/25/16 11/25/13 7/25/11 12/25/10 10/25/08
PRINCIPAL LOCKOUT (MONTHS) 178 94 69 54 44 37
PRINCIPAL WINDOW (MONTHS) 172 143 141 128 131 112
ILLUSTRATIVE YIELD @ PAR (30/360) 8.014% 8.001% 7.990% 7.976% 7.961% 7.945%
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</TABLE>
CLASS A-4 (TO MATURITY)
<TABLE>
<CAPTION>
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% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 10% 15% 20% 25% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 17.23 7.36 5.32 4.06 3.22 2.64
MODIFIED DURATION (YEARS) 8.88 4.87 3.85 3.13 2.61 2.21
FIRST PRINCIPAL PAYMENT 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96
LAST PRINCIPAL PAYMENT 10/25/21 12/25/20 7/25/19 7/25/16 4/25/13 6/25/10
PRINCIPAL LOCKOUT (MONTHS) none none none NONE none none
PRINCIPAL WINDOW (MONTHS) 305 295 278 242 203 169
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</TABLE>
BEAR STEARNS
This information should be considered only after reading Bear Stearns' Statement
Regarding Assumptions as to Securities, Pricing Estimates and Other Information
(the "Statement"), which should be attached. Do not use or rely on this
information if you have not received and reviewed this Statement. You may
obtain a copy of the Statement from your sales representative.
<PAGE>
CHAMPION HOME EQUITY LOAN TRUST 1996-2
Information Relating to the Certificates (PAGE 3 OF 3)
SELECTED CERTIFICATES AMORTIZED TO THE 10% CLEAN-UP CALL
CLASS A-3 (TO CALL)
<TABLE>
<CAPTION>
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% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 11% 16.5% 22% 27.5% 33%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 16.99 11.91 9.05 7.09 5.79 4.84
MODIFIED DURATION (YEARS) 8.98 7.37 6.17 5.19 4.45 3.86
FIRST PRINCIPAL PAYMENT 4/25/11 4/25/04 3/25/02 12/25/00 2/25/00 7/25/99
LAST PRINCIPAL PAYMENT 5/25/19 4/25/11 12/25/07 5/25/05 9/25/03 6/25/02
PRINCIPAL LOCKOUT (MONTHS) 178 94 69 54 44 37
PRINCIPAL WINDOW (MONTHS) 98 85 70 54 44 36
ILLUSTRATIVE YIELD @ PAR (30/360) 8.014% 8.001% 7.987% 7.971% 7.954% 7.936%
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</TABLE>
CLASS A-4 (TO CALL)
<TABLE>
<CAPTION>
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% OF PREPAYMENT ASSUMPTION 0% 50% 75% 100% 125% 150%
RAMP TO 0% 10% 15% 20% 25% 30%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE LIFE (YEARS) 16.99 6.77 4.85 3.67 2.93 2.40
MODIFIED DURATION (YEARS) 8.84 4.71 3.68 2.96 2.46 2.08
FIRST PRINCIPAL PAYMENT 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96 6/25/96
LAST PRINCIPAL PAYMENT 5/25/19 4/25/11 12/25/07 5/25/05 9/25/03 6/25/02
PRINCIPAL LOCKOUT (MONTHS) none none none NONE none none
PRINCIPAL WINDOW (MONTHS) 276 179 139 108 88 73
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</TABLE>
BEAR STEARNS
This information should be considered only after reading Bear Stearns' Statement
Regarding Assumptions as to Securities, Pricing Estimates and Other Information
(the "Statement"), which should be attached. Do not use or rely on this
information if you have not received and reviewed this Statement. You may
obtain a copy of the Statement from your sales representative.
<PAGE>
CHAMPION HOME EQUITY LOAN TRUST 1996-2
INFORMATION RELATING TO THE COLLATERAL (PAGE 1 OF 2)
LOAN GROUP I (FIXED RATE HOME EQUITY LOANS)
PRELIMINARY CHARACTERISTICS OF THE INITIAL LOAN GROUP I LOANS AS OF 5/1/96
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL NUMBER OF LOANS: 714
TOTAL OUTSTANDING LOAN BALANCE: $45,592,441
BALLOON (% OF TOTAL): 29.08%
LEVEL PAY (% OF TOTAL): 70.92%
AVERAGE LOAN PRINCIPAL BALANCE: $63,855 ($9,728 TO $455,000)
WEIGHTED AVERAGE CLTV: 65.17% (5.75% TO 100.00%)
WEIGHTED AVERAGE COUPON: 10.186% (7.250% TO 16.990%)
WEIGHTED AVERAGE REMAINING TERM TO MATURITY (MONTHS) 205 (59 TO 360)
WEIGHTED AVERAGE SEASONING (MONTHS): 1 (0 TO 7)
WEIGHTED AVERAGE ORIGINAL TERM (MONTHS): 206 (60 TO 360)
RANGE OF ORIGINAL TERMS: LEVEL PAY BALLOONS
-------------------------- ----------------------
1 - 60: 0.75% 121 - 180: 29.08%
61 - 120: 7.67%
121 - 180: 29.57%
181 - 240: 23.39%
301 - 360: 9.55%
LIEN POSITION: 1st Lien: 73.51%
2nd Lien: 26.49%
PROPERTY TYPE:
Single Family Detached: 76.61%
Two to Four Family: 11.79%
Single Family Attached: 8.33%
Condominium/Townhouse: 2.24%
Other: 1.03%
OCCUPANCY STATUS:
Owner Occupied: 94.25%
Non-Owner Occupied: 5.75%
GEOGRAPHIC DISTRIBUTION: NJ: 41.27% CT: 1.17%
NY: 37.77% DE: 0.80%
PA: 12.50% VA: 0.68%
MD: 5.82%
</TABLE>
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THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED
BY THE DESCRIPTION OF THE COLLATERAL CONTAINED IN THE PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
<PAGE>
CHAMPION HOME EQUITY LOAN TRUST 1996-2
INFORMATION RELATING TO THE COLLATERAL (PAGE 2 OF 2)
LOAN GROUP II (ADJUSTABLE RATE HOME EQUITY LOANS)
PRELIMINARY CHARACTERISTICS OF THE INITIAL LOAN GROUP II LOANS AS OF 5/1/96
<TABLE>
<CAPTION>
<S> <C> <C>
TOTAL NUMBER OF LOANS: 420
TOTAL OUTSTANDING LOAN BALANCE: $30,159,065
AVERAGE LOAN PRINCIPAL BALANCE: $71,807 ($9,954 TO $414,676)
WEIGHTED AVERAGE COMBINED LTV: 67.83% (6.03% TO 80.00%)
WEIGHTED AVERAGE CURRENT COUPON: 8.654% (7.125% TO 11.990%)
WEIGHTED AVERAGE MARGIN: 5.541% (4.350% TO 8.625%)
WEIGHTED AVERAGE LIFETIME CAP: 14.654% (13.125% TO 17.990%)
WEIGHTED AVERAGE LIFETIME FLOOR: 8.654% (7.125% TO 11.990%)
WEIGHTED AVERAGE PERIODIC CAP: 2.000% (2.000%)
WEIGHTED AVERAGE NEXT CHANGE DATE (MONTHS): 11 (10 TO 12)
WEIGHTED AVERAGE REMAINING TERM TO MATURITY (MONTHS) 301 (119 TO 360)
WEIGHTED AVERAGE SEASONING (MONTHS): 1 (0 TO 2)
WEIGHTED AVERAGE ORIGINAL TERM (MONTHS): 302 (120 TO 360)
RANGE OF ORIGINAL TERMS: LEVEL PAY
--------------------------
Up to 180: 32.30%
181 - 360: 67.70%
LIEN POSITION: 1st Lien: 85.32%
2nd Lien: 14.68%
PROPERTY TYPE:
Single Family Detached: 79.17%
Two to Four Family: 11.41%
Single Family Attached: 7.82%
Condominium/Townhouse: 1.29%
Mixed Use: 0.31%
OCCUPANCY STATUS:
Owner Occupied: 97.39%
Non-Owner Occupied: 2.61%
GEOGRAPHIC DISTRIBUTION: NJ: 40.61% CT: 2.28%
NY: 33.97% DE: 0.80%
PA: 17.06% DC: 0.19%
MD: 4.99% VA: 0.09%
</TABLE>
- --------------------------------------------------------------------------------
THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED
BY THE DESCRIPTION OF THE COLLATERAL CONTAINED IN THE PROSPECTUS SUPPLEMENT.
- --------------------------------------------------------------------------------
