As filed with the Securities and Exchange Commission on July 29, 1997
Registration No. 333-25301
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CPS AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
CONSUMER PORTFOLIO SERVICES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2 Ada
Irvine, California 92618
(714) 753-6800
(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive
offices)
Charles E. Bradley, Jr.
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
(714) 753-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Laura A. DeFelice, Esq.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2500
Approximate date of commencement of
proposed sale to the public:
From time to time on or after the effective date of this registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. o
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. o
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. o
CALCULATION OF REGISTRATION FEE
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price per certificate* aggregate offering price* registration fee
Asset Backed Notes,
Class A $750,000,000 100% $750,000,000 $227,272.73**
========================== ================== ================================== ============================ ===================
* Estimated solely for the purpose of calculating the
registration fee.
** $227,272.73 of which has been previously paid as follows:
$344.83 was paid on April 16, 1997, $222,770.41 was paid on
July 11, 1997 and $4,199.29 was paid as described in the
following sentence. The amount of securities being carried
forward from Registration Statement No. 333-26355 pursuant to
Rule 429 is $13,857,654.82, and the Registrant previously paid
a filing fee with respect to such securities of $4,199.29
(calculated at the rate of 1/33 of 1% of the amount of
securities being registered, the rate in effect at the time
such Registration Statement was filed).
Pursuant to Rule 429 under the securities Act of 1933, the Prospectus
contained in this Amendment No. 4 to Registration Statement also relates to and
constitutes Post-Effective Amendment No. 4 to Registration Statement No.
333-26355, which became effective on May 20, 1997.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus
Supplement relating to future offerings by a CPS Auto Receivables Trust of a
Series of Asset Backed Securities described therein,, (ii) a Prospectus
Supplement relating to the offering by CPS Auto Receivables Trust 1997-3 of the
particular Series of Asset Backed Notes described therein and (iii) a form of
Prospectus relating to the offering of Series of Asset Backed Securities by
various CPS Auto Receivables Trusts created from time to time by Consumer
Portfolio Services, Inc. The forms of Prospectus Supplement relate only to the
securities described therein and are forms that may be used, among others, by
Consumer Portfolio Services, Inc. to offer Asset Backed Securities under this
Registration Statement.
Registration No. [ ]
Form of Prospectus Supplement
To Prospectus Dated [ ], 1997
[$ ]
CPS Auto Receivables Trust 199[ ]-[ ]
[$ ][ %] Asset-Backed Notes, Class A-1
[$ ][ %] Asset-Backed Notes, Class A-2
[$ ] Floating Rate Asset-Backed Notes, Class A-3
[$ ] [ %] Asset-Backed Notes, Class B
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") will be formed
pursuant to a Trust Agreement to be dated as of [ ] between CPS Receivables
Corp., as seller (the "Seller"), and [ ], as owner trustee (the "Owner
Trustee"). The [ %] Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), the [
%] Asset-Backed Notes, Class A-2 (the "Class A-2 Notes") and the Floating Rate
Asset-Backed Notes, Class A-3 (the "Class A-3 Notes", and, together with the
Class A-1 Notes and Class A-2 Notes, the "Class A Notes") and the [ %]
Asset-Backed Notes, Class B (the "Class B Notes" and, together with the Class A
Notes, the "Notes"), will be issued pursuant to an Indenture (the "Indenture")
to be dated as of [ ] between the Trust and [ ], as indenture trustee (in such
capacity, the "Indenture Trustee"). The Trust also will issue [$ ] aggregate
principal amount of [ %] Asset Backed Certificates [which are not offered hereby
but will be retained initially by the Seller or an affiliate] (the
"Certificates" and, together with the Notes, the "Securities"). [The rights of
[identify subordinated classes of Securities] to receive payments of [principal]
and/or [interest] will be subordinated to the rights of [identify senior classes
of Securities] to the extent described herein.]
-------
The Trust Assets will include a pool of retail installment sale
contracts (including contracts representing obligations of Sub-Prime Borrowers
(as defined herein)) and all rights thereunder, certain monies due or received
thereunder, security interests in the new and used automobiles, light trucks,
vans and minivans securing the Receivables (as defined herein), certain bank
accounts and the proceeds thereof, the [Credit Enhancement] with respect to the
Notes, and the right of CPS to receive certain insurance proceeds and certain
other property, as more fully described herein. The Receivables will be
purchased by the Seller from CPS and from CPS's subsidiary, [Affiliated
Originator] on or prior to the date of the issuance of the Securities.
[It is intended that from time to time on or before [ ] the Trust will
purchase from the Seller (or an Affiliated Originator) additional retail
installment sale contracts having an aggregate principal balance of up to $[ ]
with funds on deposit in the Pre-Funding Account (as defined herein).]
The Underwriter has agreed to purchase from the Seller the Notes at a
purchase price equal to [ %] of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriter proposes to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to be
determined at the time of sale. For further information with respect to the plan
of distribution and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
-------
[Credit Enhancement] with respect to the Notes ["Credit Enhancement"]
will be provided by [Credit Enhancer] on each Payment Date.
-------
For a discussion of certain factors relating to the
transaction, see "Risk Factors" at page S-[ ]
herein and page [ ] in the accompanying
prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER,
THE SERVICER OR ANY AFFILIATE THEREOF. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[UNDERWRITER]
The date of this Prospectus
Supplement is [ ].
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports 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. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Securities. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Servicer will file with the
Commission such periodic reports as are required under the Exchange Act, and the
rules and regulations thereunder and as are otherwise agreed to by the
Commission. Copies of such
S-2
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
S-3
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer................................ CPS Auto Receivables Trust 199[ ]-[ ]
(the "Trust" or the "Issuer").
Seller................................ CPS Receivables Corp. (the "Seller").
See "The Seller and CPS" in this
Prospectus Supplement.
Servicer.............................. Consumer Portfolio Services, Inc. ("CPS"
or, in its capacity as the servicer, the
"Servicer"). See "CPS's Automobile
Contract Portfolio" and "The Seller and
CPS" in this Prospectus Supplement.
Indenture Trustee..................... [Name and Address]
Owner Trustee......................... [Name and Address]
[Credit Enhancer]..................... [Name and Address]
Closing Date.......................... On or about [ ] (the "Closing Date").
The Trust............................. The Trust will be a business trust
established under the laws of the State
of Delaware. The activities of the Trust
are limited by the terms of the Trust
Agreement dated as of [ ] between the
Seller and the Owner Trustee (the "Trust
Agreement").
The Notes............................. The Trust will issue [ ]% Class A-1
Asset-Backed Notes (the "Class A- 1
Notes") in the aggregate original
principal amount of $[ ], [ ]% Class A-2
Asset-Backed Notes (the "Class A-2
Notes") in the original aggregate
principal amount of $[ ], Class A-3
Floating Rate Asset-Backed Notes (the
"Class A-3 Notes") in the original
aggregate principal amount of $[ ] and [
]% Class B Asset-Backed Notes (the
"Class B Notes") in the original
aggregate principal amount of $[ ]. The
Trust will also issue the Certificates.
The Notes and the Certificates are
referred to herein collectively as the
"Securities". The Notes will be issued
pursuant to an Indenture dated as of [ ]
(the "Indenture"). The Notes will be
offered for purchase in minimum
denominations of [$ ] and integral
multiples of $1,000 in excess thereof,
in book entry form only. See
"Description of the Securities Book
Entry Registration" in the Prospectus.
The Notes will be secured by the Trust
Assets as, and to the extent, provided
in the Indenture.
The Certificates...................... [The Trust will issue [ %] Asset-Backed
Certificates (the "Certificates") with
an aggregate initial Certificate Balance
(as defined herein) of [$ ]. The
Certificates will represent beneficial
interests in the Trust. The Certificates
will be issued pursuant to the Trust
Agreement. The Certificates will be
offered for purchase in
S-4
denominations of $1,000 and integral
multiples thereof in book-entry form
only. See "Certain Information Regarding
the Notes [and the Certificates] - Book
Entry Registration" and "- Definitive
Notes" in the Prospectus.]
Trust Assets.......................... The property of the Trust (the "Trust
Assets") will include (i) a pool of
retail installment sale contracts
consisting of the Initial Receivables
[and the Subsequent Receivables]
(collectively, the "Receivables")
secured by the new and used automobiles,
light trucks, vans and minivans financed
thereby (the "Financed Vehicles"), (ii)
with respect to Initial Receivables that
are Rule of 78's Receivables (as defined
herein), all payments due thereon after
[ ] (the "Cutoff Date"), and, with
respect to Initial Receivables that are
Simple Interest Receivables (as defined
herein), all payments received
thereunder after the Cutoff Date, (iii)
with respect to Subsequent Receivables
that are Rule of 78's Receivables, all
payments due thereon after the related
Subsequent Cutoff Date and, with respect
to Subsequent Receivables that are
Simple Interest Receivables, all
payments received thereunder after the
related Subsequent Cutoff Date, (iv)
security interests in the Financed
Vehicles, (v) certain bank accounts and
the proceeds thereof, (vi) the right of
the Seller to receive proceeds from
claims under, or refunds of unearned
premiums from, certain insurance
policies and extended service contracts,
(vii) all right, title and interest of
the Seller in and to the Purchase
Agreements, (viii) the [Credit
Enhancement] issued by the [Credit
Enhancer] with respect to the [Class A]
Notes, and (ix) certain other property,
as more fully described herein. See
"Formation of the Trust" in this
Prospectus Supplement and "The Trust
Assets" and "The Receivables" in the
Prospectus. Certain of the Receivables
will be purchased by the Seller from CPS
pursuant to the Purchase Agreement (such
Receivables, the "CPS Receivables") [and
certain of the Receivables will be
purchased by the Seller from CPS's
subsidiary, [Affiliated Originator],
pursuant to the [Affiliate Purchase
Agreement] (such Receivables, the
"[Affiliated Originator] Receivables")]
on or prior to the Closing Date [or each
Subsequent Closing Date (as defined
herein)]. The Receivables arise from
loans originated by automobile dealers
or IFCs (as defined herein) for
assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs.
The Receivables....................... As of the Cutoff Date, the aggregate
outstanding principal balance of the
Initial Receivables was [$ ] (the
"Original Pool Balance"). The Initial
Receivables consist, and the Subsequent
Receivables will consist, of retail
installment sale contracts secured by
new and used automobiles, light trucks,
vans and minivans including, with
respect to Rule of 78's Receivables, the
rights to all payments due with respect
to such Receivables after the Cutoff
Date or related Subsequent Cutoff Date,
as applicable, and, with respect to
Simple Interest Receivables, the rights
to all payments received with respect to
such Receivables after the Cutoff Date
or related Subsequent Cutoff Date, as
applicable. As of the Cutoff Date,
approximately [ %] of the aggregate
principal balance of the Initial
Receivables represented financing of
used vehicles. The Receivables arise, or
will arise, from loans originated by
automobile dealers or independent
finance companies ("IFCs") for
S-5
assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs.
The auto loan programs target automobile
purchasers with marginal credit ratings
who are generally unable to obtain
credit from banks or other low-risk
lenders. See "CPS's Automobile Contract
Portfolio - General" and "- The
Receivables Pool" in this Prospectus
Supplement and "Risk Factors - Sub-Prime
Obligors" in the Prospectus. The
Receivables have been selected from the
contracts owned by CPS based on the
criteria specified in the Purchase
Agreement and described herein.
[Following the Closing Date, pursuant to
the Sale and Servicing Agreement, the
Seller will be obligated, subject only
to the availability thereof, to sell,
and the Trust will be obligated to
purchase, subject to the satisfaction of
certain conditions set forth therein,
additional Receivables originated by CPS
[or an Affiliated Originator] under its
auto loan programs and acquired by the
Seller from CPS [or an Affiliated
Originator] (the "Subsequent
Receivables") from time to time during
the Funding Period (as defined below)
having an aggregate Principal Balance
equal to approximately $[ ]. Subsequent
Receivables will be conveyed to the
Trust on dates specified by the Seller
(each date on which Subsequent
Receivables are conveyed being referred
to as a "Subsequent Closing Date")
occurring during the Funding Period.
After any Subsequent Closing Date, the
Trust Assets will include payments
[other than Credit Enhancement] received
with respect to the related Subsequent
Receivables after the cutoff date
designated by the Seller with respect to
such Subsequent Closing Date (such date
designated by the Seller, the
"Subsequent Cutoff Date" with respect to
the Subsequent Receivables conveyed to
the Trust on such Subsequent Closing
Date). See "Description of the Trust
Documents - Sale and Assignment of
Receivables; Subsequent Receivables"
herein. On each Subsequent Closing Date,
subject to the conditions set forth in
the Trust Documents, the Trustee shall
purchase from the Seller (or an
Affiliated Originator) the Subsequent
Receivables to be transferred to the
Trust on such Subsequent Closing Date.]
Pre-Funding Account................... [The Initial Receivables and the
Subsequent Receivables will be selected
from motor vehicle retail installment
sale contracts in CPS's portfolio based
on the criteria specified in the
Purchase Agreement and described in this
Prospectus Supplement. No Receivable
will have a scheduled maturity date
later than [ ].
Subsequent Receivables will be
originated under CPS's auto loan
programs [or through an Affiliated
Originator] but, as these programs are
modified from time to time by CPS due to
changes in market conditions or
otherwise in the judgment of CPS, such
Subsequent Receivables may be originated
using credit criteria different from the
criteria applied with respect to the
Initial Receivables and may be of a
different credit quality and seasoning.
However, CPS believes that the inclusion
of the Subsequent Receivables in the
pool of Receivables will not materially
adversely affect the performance or
other characteristics of the pool of
Receivables. In addition, following the
transfer of Subsequent Receivables to
the Trust, the characteristics of the
entire pool of Receivables included in
the Trust may vary from those of the
S-6
Initial Receivables. See "Risk Factors
- Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool"
herein.
On the Closing Date, the Seller will
deposit into the Pre-Funding Account (as
defined below), from the proceeds from
the sale of the Securities, the sum of
$[ ] (such amount, as reduced from time
to time by the aggregate Principal
Balances of all Subsequent Receivables
purchased by the Trust during the
Funding Period (the "Pre-Funded
Amount"). During the period (the
"Funding Period") from and including the
Closing Date until the earliest of (i)
the Record Date on which (a) the
Pre-Funded Amount is less than $100,000,
(b) an Event of Default has occurred
under the Indenture or a Servicer
Termination Event has occurred under the
Sale and Servicing Agreement, (c)
certain events of insolvency have
occurred with respect to the Seller or
the Servicer or (ii) the close of
business on the [ ] Payment Date, the
Pre-Funded Amount will be maintained as
an account in the name of the Indenture
Trustee (the "Pre-Funding Account"). The
Pre-Funded Amount is expected to
initially equal approximately $[ ] and,
during the Funding Period will be
reduced by the principal balance of
Subsequent Receivables purchased by the
Trust from time to time in accordance
with the Sale and Servicing Agreement.
The Seller expects that the Pre-Funded
Amount will be reduced to less than
$100,000 by the [ ] Payment Date. Any
Pre-Funded Amount remaining at the end
of the Funding Period will be payable to
the Noteholders [and Certificateholders]
pro rata in proportion to the respective
principal balances of each class of
Notes [and the Certificate Balance].]
Interest Reserve Account.............. [During the Funding Period, funds will
be held in an account (the "Interest
Reserve Account") to cover any
shortfalls due to investment earnings on
funds in the Pre-Funding Account being
less than the interest due on the Notes
[and the Certificates]. See "Description
of the Trust Documents - Accounts"].
Terms of the Notes.................... The principal terms of the Notes will be
as described below:
A. Payment Dates..................... Payments of interest and principal on
the Notes will be made on the 15th day
of each month or, if such 15th day is
not a Business Day, on the next
following Business Day (each a "Payment
Date"), commencing [ ]. Payments will be
made to holders of record of the Notes
(the "Noteholders") as of the close of
business on the Record Date applicable
to such Payment Date. A "Business Day"
is a day other than a Saturday, a Sunday
or a day on which banking institutions
in the City of New York, New York, the
State in which the Corporate Trust
Office is located, the State in which
the executive offices of the Servicer
are located or the State in which the
principal place of business of the
[Credit Enhancer] is located are
authorized or obligated by law,
executive order or governmental decree
to be closed.
B. Final Scheduled
Payment Dates................. [ ].
S-7
C. Subordination of
[Class B Notes]................ [The Class B Notes will not receive any
payment of principal or interest on a
Payment Date until the full amount of
the Class A Noteholders' Interest
Distributable Amount due to the Class A
Noteholders with respect to such Payment
Date has been deposited in the
Distribution Account. The Class B Notes
will not receive any payment of
principal on a Payment Date until the
full amount of the Class A Noteholders'
Principal Distributable Amount due to
the Class A Noteholders with respect to
such Payment Date has been deposited in
the Distribution Account.]
D. Interest Rates................... The Class A-1 Notes will bear interest
at a rate equal to [ %] per annum (the
"Class A-1 Interest Rate"). The Class
A-2 Notes will bear interest at a rate
equal to [ %] per annum (the "Class A-2
Interest Rate"). The Class A-3 Notes
will bear interest at a rate equal to
[one month] [two month] [three month]
[six-month] LIBOR [other] plus [ %] (the
"Class A-3 Interest Rate"). The Class B
Notes will bear interest at a rate of [
]% per annum (the "Class B Interest
Rate"). [See "Description of the Notes -
Determination of LIBOR" in this
Prospectus Supplement.] [Additional
classes of Notes may be added.] Each
such interest rate for a Class of Notes
is referred to as an "Interest Rate".
Interest on the Notes, [other than the
Class A-1 Notes,] will be calculated on
the basis of a 360 day year consisting
of twelve 30 day months. [Interest on
the Class A-1 Notes will be calculated
on the basis of the actual number of
days in a 365-day year.]
E. Interest......................... [On each Payment Date, the holders of
record of the Class A-1 Notes (the
"Class A-1 Noteholders")] will be
entitled to receive, pro rata, interest
at the Class A-1 Interest Rate for the
number of days elapsed from and
including the most recent Payment Date
(or in the case of the initial Payment
Date, from and including the Closing
Date) to but excluding the current
Payment Date, on the outstanding
principal amount of the Class A-1 Notes
at the close of business on the last day
of the related Collection Period.] On
each Payment Date, the holders of record
of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record
Date will be entitled to receive, pro
rata, thirty (30) days of interest at
the Class A-2 Interest Rate on the
outstanding principal amount of the
Class A-2 Notes at the close of business
on the last day of the related
Collection Period. On each Payment Date,
the holders of record of the Class A-3
Notes (the "Class A-3 Noteholders") as
of the related Record Date will be
entitled to receive, pro rata, thirty
(30) days of interest at the Class A-3
Interest Rate on the outstanding
principal amount of the Class A-3 Notes
at the close of business on the last day
of the related Collection Period. On
each Payment Date, the holders of record
of the Class B Notes (the "Class B
Noteholders") as of the related Record
Date will be entitled to receive, pro
rata, thirty (30) days of interest at
the Class B Interest Rate on the
outstanding principal balance of the
Class B Notes at the close of business
on the last day of the related
Collection Period. [Additional classes
of Notes may be added]. Notwithstanding
the foregoing, on the first Payment
Date, the interest payable to the
Noteholders of record of each Class of
Notes will be an amount equal to the
product of (a) the Interest Rate
applicable to such Class of Notes, (b)
the initial principal amount of
S-8
such Class of Notes and (c) a fraction
(i) the numerator of which is the number
of days from and including the Closing
Date through and including [ ] 14, 199[
] and (ii) the denominator of which is
360. Interest on the Notes which is due
but not paid on any Payment Date will be
payable on the next Payment Date
together with, to the extent permitted
by law, interest on such unpaid amount
at the applicable Interest Rate. See
"Description of the Notes - Payments of
Interest" in this Prospectus Supplement.
F. Principal........................ Principal of the Class A Notes will be
payable on each Payment Date in an
amount equal to the Class A Noteholders'
Principal Distributable Amount for the
related Collection Period. The "Class A
Noteholders' Principal Distributable
Amount" is equal to the product of (x)
the Class A Noteholders' Percentage of
the Principal Distributable Amount and
(y) any unpaid portion of the amount
described in clause (x) with respect to
a prior Payment Date. Principal of the
Class B Notes will be payable on each
Payment Date in an amount equal to the
Class B Noteholders' Principal
Distributable Amount for the related
Collection Period. The "Class B
Noteholders' Principal Distributable
Amount" is equal to the product of (a)
the Class B Noteholders' Percentage of
the Principal Distributable Amount and
(b) any unpaid portion of the amount
described in clause (a) with respect to
a prior Payment Date.
The "Class A Noteholders' Percentage"
will (a) on any Payment Date prior to
the Payment Date on which the principal
amount of the Class A-3 Notes is reduced
to zero, be [ %], (b) on the Payment
Date on which the principal amount of
the Class A-3 Notes is reduced to zero,
be the percentage equivalent of a
fraction, the numerator of which is the
principal amount of the Class A-3 Notes
immediately prior to such Payment Date,
and the denominator of which is the
Principal Distributable Amount and (c)
on any other Payment Date, be 0%.
The "Class B Noteholders' Percentage"
will (a) on any Payment Date prior to
the Payment Date on which the principal
amount of the Class A-3 Notes is reduced
to zero, be [ %], (b) on the Payment
Date on which the principal amount of
the Class A-3 Notes is reduced to zero,
be the percentage equivalent of a
fraction, the numerator of which is the
principal amount of the Class A-3 Notes
immediately prior to such Payment Date,
and the denominator of which is the
Principal Distributable Amount and (c)
on any other Payment Date, be 0%.
On each Payment Date, an amount equal to
the lesser of (i) the portion of the
Total Distribution Amount remaining
after application thereof to pay all
senior distributions as described in
"Priority of Payments" below and (ii)
the Class A Noteholders' Principal
Distributable Amount will be applied,
sequentially, to pay principal of the
Class A-1 Notes until the principal
balance of the Class A-1 Notes has been
reduced to zero, then to the holders of
the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been
reduced to zero, then to the holders of
the Class A-3 Notes until the principal
balance of the Class A-3 Notes has been
reduced to zero, [additional classes of
Notes may be added]. On each Payment
Date, an amount equal to the lesser of
(i) the portion of the Total
Distribution Amount remaining after
S-9
application thereof to pay all senior
distributions as described in "Priority
of Payments" below and (ii) the Class B
Noteholders' Principal Distributable
Amount will be applied to pay principal
of the Class B Notes until the principal
balance of the Class B Notes has been
reduced to zero.
The "Principal Distributable Amount" for
a Payment Date will equal the sum of (a)
the principal portion of all Scheduled
Receivable Payments received during the
preceding Collection Period on Rule of
78's Receivables and all payments of
principal received on Simple Interest
Receivables during the preceding
Collection Period; (b) the principal
portion of all prepayments in full
received during the preceding Collection
Period (including prepayments in full
resulting from collections with respect
to a Receivable received during the
preceding Collection Period (without
duplication of amounts included in (a)
above and (d) below)); (c) the portion
of the Purchase Amount allocable to
principal of each Receivable that was
repurchased by CPS or purchased by the
Servicer as of the last day of the
related Collection Period and, at the
option of the [Credit Enhancer] the
Principal Balance of each Receivable
that was required to be but was not so
purchased or repurchased (without
duplication of the amounts referred to
in (a) and (b) above); (d) the Principal
Balance of each Receivable that first
became a Liquidated Receivable during
the preceding Collection Period (without
duplication of the amounts included in
(a) and (b) above); and (e) the
aggregate amount of Cram Down Losses
with respect to the Receivables that
shall have occurred during the preceding
Collection Period (without duplication
of amounts included in (a) through (d)
above). In addition, the outstanding
principal amount of the Notes of any
Class, to the extent not previously
paid, will be payable on the respective
Final Scheduled Payment Date for such
Class.
A "Collection Period" with respect to a
Payment Date will be the calendar month
preceding the month in which such
Payment Date occurs; provided, however,
that with respect to the first Payment
Date, the "Collection Period" will be
the period from and excluding the Cutoff
Date to and including [ ].
G. Optional Redemption.............. The Notes, to the extent still
outstanding, may be redeemed in whole,
but not in part, on any Payment Date on
which the Servicer exercises its option
to purchase all the Receivables as of
the last day of any Collection Period on
or after which the aggregate Principal
Balance of the Receivables is equal to
10% or less of the Original Pool
Balance, at a redemption price equal to
the unpaid principal amount of the
Notes, plus accrued and unpaid interest
thereon; provided that the Servicer's
right to exercise such option will be
subject to the prior approval of the
[Credit Enhancer], but only if, after
giving effect thereto, a claim on the
[Credit Enhancement] would occur or any
amount owing to the [Credit Enhancer] or
the holders of the Notes would remain
unpaid. See "Description of the Notes -
Optional Redemption" in this Prospectus
Supplement.
H. Mandatory Redemption............. [Each class of Notes will be redeemed in
part on the Payment Date on or
immediately following the last day of
the Funding Period in the
S-10
event that any portion of the Pre-Funded
Amount remains on deposit in the
Pre-Funding Account after giving effect
to the purchase of all Subsequent
Receivables, including any such purchase
on such date (a "Mandatory Redemption").
The aggregate principal amount of each
class of Notes to be redeemed will be an
amount equal to such class's pro rata
share (based on the respective current
principal balance of each class of
Notes) of the Pre-Funded Amount on such
date (such class's "Note Prepayment
Amount").
A limited recourse mandatory prepayment
premium (the "Note Prepayment Premium")
will be payable by the Trust to the
Noteholders if the Pre-Funded Amount at
the end of the Funding Period exceeds
$100,000. The Note Prepayment Premium
for each class of Notes will equal the
excess, if any, discounted as described
below, of (i) the amount of interest
that would have accrued on such class's
Note Prepayment Amount at the applicable
Interest Rate during the period
commencing on and including the Payment
Date on which such Note Prepayment
Amount is required to be distributed to
Noteholders of such class to but
excluding [ ], in the case of the Class
A-1 Notes, [ ], in the case of the Class
A-2 Notes, [ ] in the case of the Class
A-3 Notes, [ ] and in the case of the
Class B Notes, [ ], over (ii) the amount
of interest that would have accrued on
the applicable Note Prepayment Amount
over the same period at a per annum rate
of interest equal to the bond equivalent
yield to maturity on the Record Date
preceding such Payment Date on the
United States Treasury Bill due [ ], in
the case of the Class A-1 Notes, the [
]% United States Treasury Note due [ ],
in the case of the Class A-2 Notes, the
[ ]% United States Treasury Note due [
], in the case of the Class A-3 Notes,
the [ ]% United States Treasury Note due
[ ] and, in the case of the Class B
Notes, the [ ]% United States Treasury
Note due [ ]. Such excess shall be
discounted to present value to such
Payment Date at the applicable yield
described in clause (ii) above. The
Trust's obligation to pay the Note
Prepayment Premium shall be limited to
funds which are received from the Seller
under the Purchase Agreement [or an
Affiliate Purchase Agreement] as
liquidated damages for the failure to
deliver Subsequent Receivables. No other
assets of the Trust will be available
for the purpose of making such payment.
[The Credit Enhancement does not
guarantee payment of the Note Prepayment
Amounts or the Note Prepayment
Premiums.] In addition, the ratings
assigned to the Notes by the Rating
Agencies do not address the likelihood
that the Note Prepayment Amounts or the
Note Prepayment Premiums will be paid.]
The Notes may be accelerated and subject
to immediate payment at par upon the
occurrence of an Event of Default under
the Indenture. So long as no [Credit
Enhancement Default] shall have occurred
and be continuing, an Event of Default
under the Indenture will occur only upon
delivery by the [Credit Enhancer] to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the [Credit Enhancement] Agreement
dated as of [ ]. In the case of such an
Event of Default, the Notes will
automatically be accelerated and subject
to immediate payment at par. See
"Description of the Trust Documents -
Events of Default" in this Prospectus
Supplement.
S-11
Terms of the Certificates............. [The principal terms of the Certificates
will be as described below:
[A. Payment Dates.................... Distributions with respect to the
Certificates will be made on each
Payment Date, commencing [ ].
Distributions will be made to holders of
record of the Certificates (the
"Certificateholders" and, together with
the Noteholders, the "Securityholders")
as of the related Record Date.
B. Pass-Through Rate................. [ %] per annum (the "Pass-Through Rate")
payable monthly at one- twelfth of the
annual rate, calculated on the basis of
a 360-day year consisting of twelve 30
day months.
C. Subordination of
Certificates................... [The Certificates will not receive any
distribution with respect to a Payment
Date until the full amount of the
Noteholders' Distributable Amount with
respect to such Payment Date has been
deposited in the Distribution Account.]
D. Interest.......................... On each Payment Date, the Owner Trustee
will distribute to Certificateholders
their pro rata share of interest
distributable with respect to the
Certificates. Interest in respect of a
Payment Date will accrue from the
preceding Payment Date (or, in the case
of the first Payment Date, from the
Closing Date) or to but excluding the
current Payment Date. Interest on the
Certificates for any Payment Date due
but not paid on such Payment Date will
be due on the next Payment Date together
with interest on such amount at
one-twelfth of the Pass- Through Rate.
The amount of interest distributable on
the Certificates on each Payment Date
will equal 30 days' interest (or in the
case of the first Payment Date, interest
accrued from and including the Closing
Date to but excluding [ ]) at the
Pass-Through Rate on the Certificate
Balance as of the last day of the
related Collection Period (or, in the
case of the first Payment Date, as of
the Closing Date). [Distributions of
interest on the Certificates are
subordinated to payments of interest and
principal on the Notes, as described
above under "Subordination of
Certificates."] See "Description of the
Trust Documents - Distributions" herein.
E. Principal......................... On each Payment Date [on or after the
date on which the Notes have been paid
in full,] principal of the Certificates
will be payable in an amount equal to
the Certificateholders' Principal
Distributable Amount for the Monthly
period preceding such Payment Date. The
Certificateholders' Principal
Distributable Amount will equal the
Certificateholders' Percentage of the
Principal Distributable Amount for such
Payment Date. See "Description of the
Trust Documents - Distributions" herein.
The remaining Certificate Balance, if
any, will be payable in full on the
Final Scheduled Payment Date.
F. Optional Prepayment............... If the Seller or Servicer exercises its
option to purchase the Receivables,
which, subject to certain provisions in
the Sale and Servicing Agreement, can
occur after the aggregate Principal
Balance of the Receivables declines to
10% or less of the Original Pool
Balance,
S-12
the Certificateholders will receive an
amount in respect of the Certificates
equal to the remaining Certificate
Balance together with accrued interest
at the Pass-Through Rate, and the
Certificates will be retired.
G. Mandatory Prepayment.............. The Certificates will be prepaid in
part, on a pro rata basis, on the
Payment Date on or immediately following
the last day of the Funding Period in
the event that any portion of the
Pre-Funded Amount remains on deposit in
the Pre-Funding Account after giving
effect to the purchase of all Subsequent
Receivables, including any such purchase
on such date (a "Mandatory Prepayment").
The aggregate principal amount of
Certificates to be prepaid will be an
amount equal to the Certificateholders'
pro rata share (based on the respective
current Principal Balance of each class
of Notes and the Certificate Balance) of
the Pre-Funded Amount (the "Certificate
Prepayment Amount").
A limited recourse mandatory prepayment
premium (the "Certificate Prepayment
Premium") will be payable by the Trust
to the Certificateholders if the
Pre-Funded Amount at the end of the
Funding Period exceeds $100,000. The
Certificate Prepayment Premium will
equal the excess, if any, discounted as
described below, of (i) the amount of
interest that would have accrued on the
Certificate Prepayment Amount at the
Pass-Through Rate during the period
commencing on and including the Payment
Date on which such Certificate
Prepayment Amount is required to be
distributed to Certificateholders to but
excluding [ ], over (ii) the amount of
interest that would have accrued on such
Certificate Prepayment Amount over the
same period at a per annum rate of
interest equal to the bond equivalent
yield to maturity on the Record Date
preceding such Payment Date on the [ ]%
United States Treasury Note due [ ].
Such excess shall be discounted to
present value to such Payment Date at
the yield described in clause (ii)
above. The Trust's obligation to pay the
Certificate Prepayment Premium shall be
limited to funds which are received from
the Seller under the Purchase Agreement
[or an Affiliate Purchase Agreement] as
liquidated damages for the failure to
deliver Subsequent Receivables. No other
assets of the Trust will be available
for the purpose of making such payment.
[The Credit Enhancement does not
guarantee payment of the Certificate
Prepayment Amount or the Certificate
Prepayment Premium.] In addition, the
ratings assigned to the Certificates by
the Rating Agencies do not address the
likelihood that the Certificate
Prepayment Amount or the Certificate
Prepayment Premium will be paid.]
Priority of Payments.................. [On each Payment Date, the Indenture
Trustee shall make the following
distributions in the following order of
priority:
(i) to the Servicer, the Servicing Fee
and all unpaid Servicing Fees from prior
Collection Periods; provided, however,
that as long as CPS is the Servicer and
[ ] is the Standby Servicer, the
Indenture Trustee will first pay to the
Standby Servicer out of the Servicing
Fee otherwise payable to CPS an amount
equal to the Standby Fee;
S-13
(ii) in the event the Standby Servicer
or any other party becomes the successor
Servicer, to the Standby Servicer or
such other successor servicer,
reasonable transition expenses (up to a
maximum of [$ ] incurred in acting as
successor Servicer;
(iii) to the Indenture Trustee and the
Owner Trustee, pro rata, the Indenture
Trustee Fee (as defined herein) and
reasonable out-of-pocket expenses and
all unpaid Trustee Fees and unpaid
reasonable out-of-pocket expenses from
prior Collection Periods;
(iv) to the Collateral Agent, all fees
and expenses payable to the Collateral
Agent with respect to such Payment Date;
(v) to the Class A Noteholders, the
Class A Noteholders' Interest
Distributable Amount, to be distributed
as described under "Description of the
Notes - Payments of Interest";
(vi) to the Class B Noteholders, the
Class B Noteholders' Interest
Distributable Amount, to be distributed
as described under Description of the
Notes -- Payments of Interest";
(vii) to the Class A Noteholders, the
Class A Noteholders' Principal
Distributable Amount, to be distributed
as described under "Description of the
Notes - Payments of Principal";
(viii) to the [Credit Enhancer], any
amounts due to the [Credit Enhancer]
under the terms of the [Credit
Enhancement Agreement] (as defined
herein);
(ix) to the Class B Noteholders, the
Class B Noteholders' Principal
Distributable Amount, to be distributed
as described under Description of the
Notes -- Payments of Principal; and
(x) to the Certificateholders, or as
otherwise specified in the Trust
Documents, any remaining funds. See
"Description of the Trust Documents -
Distributions - Priority of Distribution
Amounts" in this Prospectus Supplement.]
Spread Account........................ [As part of the consideration for the
issuance of the [Credit Enhancement],
the Seller has agreed to cause the
Spread Account to be established with
the Collateral Agent for the benefit of
the [Credit Enhancer] and the Indenture
Trustee on behalf of the Noteholders.
Any portion of the Total Distribution
Amount remaining on any Payment Date
after payment of all fees and expenses
due on such date to the Servicer, the
Standby Servicer, the Indenture Trustee,
the Owner Trustee, the Collateral Agent,
the [Credit Enhancer], any successor
Servicer and all principal and interest
payments due to the Noteholders on such
Payment Date, will be deposited in the
Spread Account and held by the
Collateral Agent for the benefit of the
Indenture Trustee, on behalf of the
Noteholders, and the [Credit Enhancer].
Amounts on deposit in the Spread Account
on any Payment Date which (after all
payments required to be made on such
date have been made) are in excess of
the requisite amount determined from
time to time in
S-14
accordance with certain portfolio
performance tests agreed upon by the
[Credit Enhancer] and the Seller as a
condition to the issuance of the [Credit
Enhancement] (such requisite amount, the
"Requisite Amount") will be released to
or at the direction of the Seller. See
"Description of the Trust Documents -
Distributions - The Spread Account" in
this Prospectus Supplement.]
[Describe any other Spread Account
arrangement.]
Record Dates.......................... The record date applicable to each
Payment Date (each, a "Record Date")
will be the 10th day of the calendar
month in which such Payment Date occurs.
Repurchases and Purchases of
Certain Receivables................... CPS has made certain representations and
warranties relating to the Receivables
to the Seller in the Purchase Agreement,
and the Seller has made such
representations and warranties for the
benefit of the Trust and the [Credit
Enhancer] in the Sale and Servicing
Agreement. The Indenture Trustee, as
acknowledged assignee of the repurchase
obligations of CPS under the Purchase
Agreement, will be entitled to require
CPS to repurchase any Receivable if such
Receivable is materially adversely
affected by a breach of any
representation or warranty made by CPS
with respect to the Receivable and such
breach has not been cured as of the last
day of the second (or, if CPS elects,
the first) month following discovery
thereof by the Seller or CPS or notice
to the Seller or CPS. See "Description
of the Trust Documents - Sale and
Assignment of Receivables" in the
Prospectus.
The Servicer will be obligated to
repurchase any Receivable if, among
other things, it extends the date for
final payment by the Obligor of such
Receivable beyond the last day of the
penultimate Collection Period preceding
the Final Scheduled Payment Date or
fails to maintain a perfected security
interest in the Financed Vehicle. See
"Description of the Trust Documents -
Servicing Procedures" in this Prospectus
Supplement and "Description of the Trust
Documents - Servicing Procedures" in the
Prospectus.
Certain Legal Aspects
of the Receivables................... In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the CPS
Receivables will be assigned by CPS to
the Seller pursuant to the Purchase
Agreement and by the Seller to the
Trustee pursuant to the Sale and
Servicing Agreement. Certain of the
Receivables (the "[Affiliated
Originator] Receivables"), representing
approximately [ %] of the aggregate
principal balance of the Receivables as
of the Cutoff Date, have been originated
by CPS's subsidiary, [Affiliated
Originator], and will be purchased by
the Seller from [Affiliated Originator]
pursuant to the [Affiliate Purchase
Agreement] and will be transferred by
the Seller to the Trust pursuant to the
Sale and Servicing Agreement.
[Additional Affiliated Originators may
be added.] The certificates of title to
the Financed Vehicles securing the
[Affiliated Originator] Receivables show
[Affiliated Originator] as the
lienholder. Due to the administrative
burden and expense, the certificates of
title to the Financed Vehicles securing
the
S-15
[Affiliated Originator] Receivables will
not be amended or reissued to reflect
the assignment thereof to Seller, nor
will the certificates of title to any
Financed Vehicles (including those
securing the [Affiliated Originator]
Receivables) be amended or reissued to
reflect the assignment thereof to the
Trustee. In the absence of such an
amendment, the Trustee may not have a
perfected security interest in the
Financed Vehicles securing the
Receivables in some states.
The Seller will be obligated to purchase
any Receivable sold to the Trust as to
which there did not exist on the Closing
Date a perfected security interest in
the name of CPS or [Affiliated
Originator] in the Financed Vehicle, and
the Servicer will be obligated to
purchase any Receivable sold to the
Trust as to which it failed to maintain
a perfected security interest in the
name of CPS or [Affiliated Originator]
in the Financed Vehicle securing such
Receivable (which perfected security
interest has been assigned to, and is
for the benefit of, the Trustee) if, in
either case, such breach materially and
adversely affects the interest of the
Trust, the Indenture Trustee or the
[Credit Enhancer] in such Receivable and
if such failure or breach is not cured
by the last day of the second (or, if
CPS or the Servicer, as the case may be,
elects, the first) month following the
discovery by or notice to CPS or the
Servicer, as the case may be, of such
breach. To the extent the security
interest of CPS or [Affiliated
Originator] is perfected, the Trust will
have a prior claim over subsequent
purchasers of such Financed Vehicle and
holders of subsequently perfected
security interest. However, as against
liens for repairs of a Financed Vehicle
or for unpaid storage charges or for
taxes unpaid by an Obligor under a
Receivable, or through fraud, forgery or
negligence or error, CPS or [Affiliated
Originator], and therefore the Trust,
could lose its prior perfected security
interest in a Financed Vehicle. Neither
CPS nor the Servicer will have any
obligation to purchase a Receivable as
to which a lien for repairs of a
Financed Vehicle or for taxes unpaid by
an Obligor under a Receivable result in
losing the priority of the security
interest in such Financed Vehicle after
the Closing Date. See "Risk Factors -
Certain Legal Aspects" in this
Prospectus Supplement and in the
Prospectus.
[Credit Enhancement].................. [Credit Enhancement to be described.]
Servicing............................. The Servicer will be responsible for
servicing, managing and making
collections on the Receivables. On or
prior to the next billing period after
the Cutoff Date [and each Subsequent
Cutoff Date], the Servicer will notify
each Obligor to make payments with
respect to the Receivables after the
Cutoff Date directly to a post office
box in the name of the Indenture Trustee
for the benefit of the Noteholders and
the [Credit Enhancer] (the "Post Office
Box"). On each Business Day, [ ] as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such
payments received in the Post Office Box
to a segregated lock-box account at [ ]
(the "Lock-Box Bank") in the name of the
Indenture Trustee for the benefit of the
Noteholders and the [Credit Enhancer]
(the "Lock-Box Account"). Within two
Business Days of receipt of funds into
the Lock-Box Account, the Servicer is
required to direct the Lock-Box Bank to
effect a transfer of funds from the
S-16
Lock-Box Account to one or more accounts
established with the Indenture Trustee.
See "Description of the Trust Documents
Accounts" in this Prospectus Supplement
and "Description of the Trust Documents
- Payments on Receivables" in the
Prospectus.
Standby Servicer...................... [Name and Address].
If a Servicer Termination Event occurs
and remains unremedied, (1) provided no
[Credit Enhancer] Default has occurred
and is continuing, then the [Credit
Enhancer] in its sole and absolute
discretion, or (2) if an [Credit
Enhancer] Default shall have occurred
and be continuing,] then the Indenture
Trustee shall, at the direction of the
Class A Note Majority) terminate the
rights and obligations of the Servicer
under the Sale and Servicing Agreement.
If such event occurs when CPS is the
Servicer, or if CPS resigns as Servicer
or is terminated as Servicer, by the
[Credit Enhancer], [ ] (in such
capacity, the "Standby Servicer") has
agreed to serve as successor Servicer
under the Sale and Servicing Agreement
pursuant to a Servicing Assumption
Agreement dated as of [ ], among CPS,
the Standby Servicer and the Indenture
Trustee (the "Servicing Assumption
Agreement"). The Standby Servicer will
receive a portion of the Servicing Fee
(the "Standby Fee") for agreeing to
stand by as successor Servicer and for
performing other functions. If the
Standby Servicer or any other entity
serving at the time as Standby Servicer
becomes the successor Servicer, it will
receive compensation at a Servicing Fee
Rate not to exceed [ %] per annum. See
"The Standby Servicer" in this
Prospectus Supplement.
Servicing Fee......................... The Servicer will be entitled to receive
a Servicing Fee on each Payment Date
equal to the product of one-twelfth
times [ %] (the "Servicing Fee Rate") of
the Pool Balance as of the close of
business on the last day of the second
preceding Collection Period; provided,
however, that with respect to the first
Payment Date the Servicer will be
entitled to receive a Servicing Fee
equal to the product of one-twelfth
times [ %] of the Original Pool Balance.
As additional servicing compensation,
the Servicer will also be entitled to
certain late fees, prepayment charges
and other administrative fees or similar
charges. For so long as CPS is Servicer,
a portion of the Servicing Fee, equal to
the Standby Fee, will be payable to the
Standby Servicer.
Book-Entry Registration............... The [Class A] Notes initially will be
represented by one or more notes
registered in the name of Cede & Co.
("Cede") as the nominee of The
Depository Trust Company ("DTC"), and
will only be available in the form of
book-entries on the records of DTC and
participating members thereof.
Securities will be issued in definitive
form only under the limited
circumstances described herein. All
references herein to "holders" of the
Notes or Certificates or "Noteholders"
[or "Certificateholders"] shall reflect
the rights of beneficial owners of the
Notes (the "Note Owners") [or of the
Certificates (the "Certificate Owners")]
as they may indirectly exercise such
rights through DTC and participating
members thereof, except as otherwise
specified herein. See "Registration of
Notes [and the Certificates]" in this
Prospectus Supplement and "Certain
Information Regarding the Notes [and the
S-17
Certificates] - Book Entry Registration"
and "- Definitive Notes" in the
Prospectus.
Tax Status............................ In the opinion of Mayer, Brown & Platt
("Federal Tax Counsel"), for Federal
income tax purposes the Class A Notes
will be characterized as debt, the Class
B Notes should be characterized as debt
(but if not characterized as debt, the
Class B Notes will be characterized as
interests in a partnership), and the
Trust will not be characterized as an
association (or publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as
indebtedness for Federal income tax
purposes and each Certificateholder, by
the acceptance of a Certificate, will
agree to treat the Trust as a
partnership in which such
Certificateholder is a partner. See
"Federal Income Tax Consequences" in the
Prospectus for additional information
concerning the application of Federal
income tax laws to the Trust and the
Notes.
ERISA Considerations.................. Subject to the conditions and
considerations discussed under "ERISA
Considerations" in this Prospectus
Supplement, the Notes are eligible for
purchase by pension, profit-sharing or
other employee benefit plans, as well as
individual retirement accounts and
certain types of Keogh Plans (each, a
"Benefit Plan"). See "ERISA
Considerations" in this Prospectus
Supplement.
[The Certificates may not be acquired by
any employee benefit plan, individual
retirement account or Keogh Plan subject
to either Title I of ERISA or the
Internal Revenue Code of 1986, as
amended. See "ERISA Considerations" in
this Prospectus Supplement and in the
Prospectus.]
Legal Investment...................... [The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2A-7 under the
Investment Company Act of 1940, as
amended.]
Rating of the
Notes and Certificates................ It is a condition of issuance that the
Class A Notes be rated [ ] [ ], on the
basis of the issuance of the [Credit
Enhancement] by the [Credit Enhancer]
and that the Class B Notes be rated at
least [ ] or higher by [ ] [and that the
Certificates be rated at least [ ] by [
]]. A security rating is not a
recommendation to buy, sell or hold
securities and may be revised or
withdrawn at any time by the assigning
Rating Agency. See "Risk Factors -
Ratings of the Notes [and the
Certificates]" in this Prospectus
Supplement.
S-18
RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders [and the Certificateholders] should
consider the following factors, as well as those matters discussed in "Risk
Factors" in the Prospectus, in evaluating an investment in the Notes [or the
Certificates]:
Sub-Prime Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its
subsidiary, [Affiliated Originator]. CPS's customers are generally considered to
have marginal credit and fall into one of two categories: customers with
moderate income, limited assets and other income characteristics which cause
difficulty in borrowing from banks, captive finance companies of automakers or
other traditional sources of auto loan financing; and customers with a
derogatory credit record including a history of irregular employment, previous
bankruptcy filings, repossessions of property, charged-off loans and garnishment
of wages. The payment experience on Receivables of Obligors with marginal credit
is likely to be different than that on receivables of traditional auto financing
sources and is likely to be more sensitive to changes in the economic climate in
the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated by the [Credit Enhancer] as
Servicer, the Standby Servicer has agreed to assume the obligations of successor
Servicer under the Sale and Servicing Agreement. See "Description of the Trust
Documents - Rights Upon Servicer Termination Event" in this Prospectus
Supplement. There can be no assurance, however, that collections with respect to
the Receivables will not be adversely affected by any change in Servicer. See
"The Standby Servicer" in this Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
[Credit Enhancer] for successive 90-day periods. The [Credit Enhancer] will
agree to grant continuous renewals so long as (i) no Servicer Termination Event
under the Sale and Servicing Agreement has occurred and (ii) no event of default
under the insurance and indemnity agreement among CPS, the Seller and the
[Credit Enhancer] (the "Insurance Agreement") has occurred.
[Varying Characteristics of Subsequent Receivables
On the Closing Date, approximately $[ ] of Initial Receivables will be
transferred to the Trust by the Seller and the approximately $[ ] Pre-Funded
Amount will be deposited by the Trust in the Pre-Funding Account. If the
principal amount of eligible Receivables originated by CPS [or an Affiliated
Originator] during the Funding Period is less than the Pre-Funded Amount, the
Seller will have insufficient Receivables to sell to the Trust on the Subsequent
Transfer Dates, thereby resulting in a prepayment of principal to the
Noteholders [and the Certificateholders] as described in the following
paragraph. See "-Trust's Relationship to the Seller and CPS" below. In addition,
any conveyance of Subsequent Receivables is subject to the satisfaction, on or
before the related Subsequent Transfer Date, of the following conditions, among
others: (i) each such Subsequent Receivable satisfies the eligibility criteria
specified in the Purchase Agreement; (ii) [Credit Enhancer (so long as no
[Credit Enhancer] Default shall have occurred and be continuing) shall in its
sole and absolute discretion have approved the transfer of such Subsequent
Receivables to the Trust] (iii) as of the applicable Subsequent Cutoff Date, the
Receivables in the Trust, together with the Subsequent Receivables to be
conveyed by the Seller as of such Subsequent Cutoff Date, meet the following
criteria (computed based on the characteristics of the Initial Receivables on
the initial Cutoff Date and any Subsequent Receivables as of the related
Subsequent Cutoff Date): [specify conditions]; (iv) the Seller shall have
executed and delivered to the Trust (with a copy to the Indenture Trustee) a
written assignment (a "Subsequent Transfer Agreement") conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); (v) the Seller shall have delivered certain
S-19
opinions of counsel to the Indenture Trustee, the Owner Trustee, [the Credit
Enhancer] and the Rating Agencies with respect to the validity of the conveyance
of all such Subsequent Receivables; and (vi) the Rating Agencies shall have
notified the Seller, the Owner Trustee, the Indenture Trustee and [the Credit
Enhancer] in writing that, following the addition of such Subsequent
Receivables, the Class A-1 Notes the Class A-2 Notes and the Class A-3 Notes
will each be rated [ ] by [ ] and the Class B Notes will be rated at least [ ]
by [ ] [and the Certificates will be rated [ ] by [ ]]. Such confirmation of the
ratings of the Notes [and the Certificates] may depend on factors other than the
characteristics of the Subsequent Receivables, including the delinquency,
repossession and net loss experience on the Receivables in the Receivables
Pool.]
[Distribution of Pre-Funded Amount - Effect on Yield and Maturity
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust during the Funding Period,
the Noteholders [and the Certificateholders] will receive, on the Payment Date
on or immediately following the last day of the Funding Period, a prepayment of
principal in an amount equal to their pro rata share (based on the current
principal balance of each class of Notes [and the Certificate Balance]) of any
remaining Pre-Funded Amount following the purchase of any Subsequent Receivables
on such Payment Date. It is anticipated that the principal amount of Subsequent
Receivables sold to the trust will not be exactly equal to the original
Pre-Funded Amount and, therefore, there will be at least a nominal amount of
principal prepaid to the Noteholders [and to the Certificateholders].
Each Subsequent Receivable must satisfy the eligibility criteria
specified in the Purchase Agreement. However, Subsequent Receivables may have
been originated using credit criteria different from the criteria applied with
respect to the Initial Receivables and may be of a different credit quality and
seasoning. See "The Receivables Pool" in this Prospectus Supplement.]
Trust Relationship to the Seller and CPS
Neither the Seller nor CPS is generally obligated to make any payments
in respect of the Notes[, the Certificates] or the Receivables. However, the
ability of the Seller to convey Subsequent Receivables on a Subsequent Transfer
Date is completely dependent upon the generation of additional receivables by
CPS [or an Affiliated Originator]. If, during the Funding Period, CPS [or an
Affiliated Originator] is unable to generate or does not transfer sufficient
Receivables to the Seller, the ability of the Seller to sell Subsequent
Receivables to the Trust would be adversely affected. There can be no assurance
that CPS [or an Affiliated Originator] will continue to generate receivables
that satisfy the criteria set forth in the Purchase Agreement at the same rate
as in recent months or that [Credit Enhancer], in its sole and absolute
discretion, will approve any such transfer of Subsequent Receivables. The
Trust's obligation to pay prepayment premiums on the Notes [and Certificates],
if required at the end of the Funding Period, is limited to amounts received
from the Seller for that purpose, and the Seller's obligation to pay such
amounts is limited to amounts received from the Seller for that purpose, and the
Seller's obligation to pay such amounts is limited to amounts received from CPS
as liquidated damages under the Purchase Agreement.
In connection with each sale of Receivables by CPS [or an Affiliated
Originator] to the Seller and by the Seller to the Trust, each of CPS and the
Seller will make representations and warranties with respect to the
characteristics of such Receivables. In certain circumstances, CPS is required
to repurchase Receivables with respect to which such representations or
warranties are not true as of the date made. Neither CPS nor the Seller is
otherwise obligated with respect to the Notes [or the Certificates]. See
"Description of the Trust Documents - Sale and Assignment of the Receivables" in
the accompanying Prospectus.]
Certain Legal Aspects - Lack of Perfected Security Interests in
Financed Vehicles
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the [Affiliated Originator] Receivables will
not be amended or reissued to reflect the assignment of such Receivables to the
Seller nor will the certificates of title to any of the Financed Vehicles
(including those
S-20
securing the [Affiliated Originator] Receivables) be amended or reissued to
reflect the assignment to the Trust. In the absence of such an amendment or
reissuance, the Trust may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states. By virtue of the assignment of
the Purchase Agreement [or the Affiliate Purchase Agreement] to the related
Trust, CPS will be obligated to repurchase any Receivable sold to the Trust as
to which there did not exist on the Closing Date a perfected security interest
in the name of CPS or [Affiliated Originator] in the Financed Vehicle, and the
Servicer will be obligated to purchase any Receivable sold to the Trust as to
which it failed to maintain a perfected security interest in the name of CPS or
[Affiliated Originator] in the Financed Vehicle securing such Receivable if, in
either case, such breach materially and adversely affects such Receivable and if
such failure or breach is not cured prior to the expiration of the applicable
cure period. To the extent the security interest of CPS or [Affiliated
Originator] is perfected, the Trust will have a prior claim over subsequent
purchasers of such Financed Vehicle and holders of subsequently perfected
security interests. However, as against liens for repairs of a Financed Vehicle
or for taxes unpaid by an Obligor under a Receivable, or through fraud, forgery,
negligence or error, CPS or [Affiliated Originator], and therefore the Trust,
could lose the priority of its security interest or its security interest in a
Financed Vehicle. Neither CPS nor the Servicer will have any obligation to
purchase a Receivable as to which a lien for repairs of a Financed Vehicle or
for taxes unpaid by an Obligor under a Receivable result in losing the priority
of the security interest in such Financed Vehicle after the Closing Date. See
"Certain Legal Aspects of the Receivables" in this Prospectus Supplement and
"Certain Legal Aspects of the Receivables - Lack of Perfected Security Interests
in Financed Vehicles" in the Prospectus.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders [and the Certificateholders]. The Notes represent obligations solely
of, [and the Certificates represent interests solely in] the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Class A Notes by the [Credit Enhancer]
pursuant to the [Credit Enhancement], as described herein. The Seller will take
such steps as are necessary for the [Credit Enhancer] to issue the [Credit
Enhancement] to the Indenture Trustee for the benefit of the Class A
Noteholders. Under the [Credit Enhancement], the [Credit Enhancer] will
unconditionally and irrevocably guarantee to the Class A Noteholders full and
complete payment of the scheduled payments on each Payment Date. In the event of
an [Credit Enhancer] Default, the [Class A] Noteholders [and Certificateholders]
must rely on the collections on the Receivables, and the proceeds from the
repossession and sale of Financed Vehicles which secure defaulted Receivables.
In such event, certain factors, such as the Indenture Trustee not having
perfected security interests in the Financed Vehicles, may affect the Trust's
ability to realize on the collateral securing the Receivables and thus may
reduce the proceeds to be distributed to Noteholders [or Certificateholders] on
a current basis.
[The Pre-Funding Account and the Interest Reserve Account] will only be
maintained until the Payment Date on or immediately following the last day of
the Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding Account
will be used solely to purchase Subsequent Receivables and is not available to
cover losses on the Receivables. The Interest Reserve Account is designed to
cover obligations of the Trust relating to that portion of its assets not
invested in Receivables and is not designed to provide substantial protection
against losses on the Receivables. [Similarly, although the Credit Enhancement
will be available on each Payment Date to cover shortfalls in distributions of
the [Class A] Noteholders'
S-21
Distributable Amount [and the Certificateholders' Distributable Amount] on such
Payment Date, if the Credit Enhancer defaults in its obligations under the
applicable [Credit Enhancement], the Trust will depend on current distribution
on the Receivables to make payments on the [Class A] Notes [and the
Certificates]. See "[Credit Enhancement]" and "[The Credit Enhancer]" herein.]
Distributions of interest and principal on the Notes [and the
Certificates] will be dependent primarily upon collections on the Receivables
and, with respect to the Class A Notes, amounts paid pursuant to the [Credit
Enhancement]. See "Description of the Notes" in this Prospectus Supplement.
Subordination of Class B Notes
[Distributions of interest and principal on the Class B Notes will be
subordinated in priority of payment to interest and principal due on the Class A
Notes. Consequently, the Class B Noteholders will not receive any distributions
with respect to a Collection Period until the full amount of interest payable on
the Class A Notes on such Payment Date has been deposited in the Distribution
Account. The Class B Noteholders will not receive any distributions of principal
with respect to a Collection Period until the full amount of interest and
principal payable on the Class A Notes on the related Payment Date has been
deposited in the Distribution Account.
If the Notes are accelerated following an Event of Default under the
Indenture, the Class A Notes must be paid in full prior to the distribution of
any amounts on the Class B Notes.]
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio - Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on [Affiliated Originator]'s
originations is limited, CPS expects that the delinquency and net credit loss
and repossession experience with respect to the Receivables originated by
[Affiliated Originator] will be similar to that of CPS's existing portfolio.
Ratings of the Notes [and the Certificates]
It is a condition to the issuance of the Notes that the Class A Notes
be rated [ ] by [ ] [on the basis of the issuance of the [Credit Enhancement] by
the [Credit Enhancer]] and it is a condition to the issuance of the Class B
Notes be rated at least [ ] by [ ] [and it is a condition to the issuance of the
Certificates that they be rated at least [ ] by [ ]]. A rating is not a
recommendation to purchase, hold or sell the Notes, inasmuch as such rating does
not comment as to market price or suitability for a particular investor. The
Rating Agencies do not evaluate, and the ratings do not address, the possibility
that Noteholders may receive a lower than anticipated yield. There is no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant. [The ratings of the Class A
Notes are based primarily on the rating of the [Credit Enhancer].] Upon an
[Credit Enhancer] Default, the rating on the Notes may be lowered or withdrawn
entirely. [In the event that any rating initially assigned to the Notes were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the [Credit Enhancer], no person or entity will be obligated to
provide any additional credit enhancement with respect to any class of Notes [or
Certificates]. Any reduction or withdrawal of a rating may have an adverse
effect on the liquidity and market price of the Notes [or Certificates].
S-22
Final Scheduled Payment Dates of the Notes [and the Certificates]
The Final Scheduled Payment Date for each class of Notes [and
Certificates], which is specified at page S-2 herein, is the date by which the
principal thereof is required to be fully paid. The Final Scheduled Payment Date
for each class of Notes [and Certificates] has been determined so that
distributions on the underlying Receivables will be sufficient to retire each
such class on or before its respective Final Scheduled Payment Date without the
necessity of a claim on the applicable Policy. However, because (i) some
prepayments of the Receivables are likely and (ii) certain of the Receivables
have terms to maturity that are shorter than the term to maturity assumed in
calculating each class's Final Scheduled Payment Date, the actual payment of any
class of Notes [or the Certificates] likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes [or the Certificates] will be earlier than such
class's Final Scheduled Payment Date.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 199[ ]-[ ], is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes [and the Certificates], (iii) making payments in respect of
the Notes [and the Certificates] and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Trust Documents - Servicing Compensation" in this
Prospectus Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] [and Certificates equal to such amount will be issued] to the Seller.
The equity of the Trust, together with the proceeds of the initial sale of the
Notes, will be used by the Trust to purchase the Receivables from the Seller.
The Trust will not acquire any assets other than the Trust Assets, 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 Assets,
issuing the Securities and distributing payments on the Securities, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the Trust have been included herein.
The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement and the Sale and Servicing Agreement.
S-23
The Indenture Trustee
[ ], a [ ], is the Indenture Trustee under the Indenture. The principal
offices of the Indenture Trustee are located at [ ]. The Indenture Trustee's
duties in connection with the Notes and the Certificates are limited solely to
its express obligations under the Indenture and the Sale and Servicing
Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts in new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date or
related Subsequent Cutoff Date, as applicable, and, with respect to Simple
Interest Receivables, certain monies received thereunder after the Cutoff Date
or related Subsequent Cutoff Date, as applicable. The Receivables were
originated by the Dealers or IFCs for assignment to CPS or [an Affiliated
Originator]. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements") or between the IFCs and [an Affiliated Originator], the Receivables
were purchased by CPS or [an Affiliated Originator] and, prior to the Closing
Date, evidenced financing made available by CPS or [an Affiliated Originator] to
the Obligors. The Trust Assets also include (i) such amounts as from time to
time may be held in one or more trust accounts established and maintained by the
Indenture Trustee pursuant to the Indenture, as described below; see
"Description of the Trust Documents - Accounts" in this Prospectus Supplement;
(ii) the rights of the Seller under the Purchase Agreement; (iii) security
interests in the Financed Vehicles; (iv) the rights of the Seller to receive any
proceeds with respect to the Receivables from claims on physical damage, credit
life and credit accident and health insurance policies covering the Financed
Vehicles or the Obligors, as the case may be; (v) the rights of the Seller to
refunds for the costs of extended service contracts and to refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies covering the Financed Vehicles or Obligors, as the case may be; and
(vi) any and all proceeds of the foregoing. The Trust Assets also will include
the [Credit Enhancement] for the benefit of the [Class A] Noteholders [and the
Certificateholders].
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to institutional
investors. CPS continues to service all of the Contracts it has purchased,
including those it has re-sold.
S-24
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,195. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Prior to the issuance of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass-through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its duties relating to the accounting
for and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts in excess of
those required to pay principal and interest due to the investor and the base
servicing fee to CPS. Generally, CPS sells the Contracts to such institutional
investors at face value and without recourse except that the representations and
warranties made to CPS by the Dealers are similarly made to the investors by
CPS. CPS has some credit risk with respect to the excess servicing fees it
receives in connection with the sale of Contracts to investors and its continued
servicing function since the receipt by CPS of such excess servicing fees is
dependent upon the credit performance of the Contracts.
[Disclosure regarding Affiliated Originator, if any.]
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for purchase. The Alpha Program
guidelines are designed to accommodate applicants who meet all the requirements
of the Standard Program and exceed such requirements in respect of job
stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. The First
Time Buyer Program guidelines are designed to accommodate applicants who have
not previously financed an automobile; such applicants must meet all the
requirements of the Standard Program, as well as slightly higher income and down
payment requirements. CPS uses the degree of the applicant's creditworthiness
and the collateral value of the financed vehicle as the basic criteria in
determining whether to purchase an installment sales contract from a Dealer.
Each credit application provides current information regarding the applicant's
employment and residence history, bank account information, debts, credit
references, and other factors that bear on an applicant's creditworthiness. Upon
receiving from the Dealer the completed application of a prospective purchaser
and a one-page Dealer summary of the proposed financing, generally by facsimile
copy, CPS obtains a credit report compiling credit information on the applicant
from three credit bureaus. The credit report summarizes the applicant's credit
history and paying habits, including such information as open accounts,
delinquent payments, bankruptcy, repossessions, lawsuits and judgments. At this
point a CPS loan officer will review the credit application, Dealer summary and
credit report and will either conditionally approve or reject the application.
Such conditional approval or rejection by the loan officer usually occurs within
one business day of receipt of the credit application. The loan officer
determines the conditions to his or her approval of a credit application based
on many factors such as the applicant's residential situation, down payment, and
collateral value with regard to the loan, employment history, monthly income
level, household debt ratio and the applicant's credit history. Based on the
stipulations of the loan officer, the Dealer and the applicant compile a more
complete application package which is forwarded to CPS and reviewed by a
processor for deficiencies. As part of this review, references are checked,
direct calls are made to the applicant and employment income and residence
S-25
verification is done. Upon the completion of his or her review, the processor
forwards the application package to an underwriter for further review. The
underwriter will confirm the satisfaction of any remaining deficiencies in the
application package. Finally, before the loan is funded, the application package
is checked for deficiencies again by a loan review officer. CPS conditionally
approves approximately 50% of the credit applications it receives and ultimately
purchases approximately 13% of the received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum down payment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The down payment may be made in
cash, and/or with a trade-in car and, if available, a proven manufacturer's
rebate. The cash and trade-in value must equal at least 50% of the minimum down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment requirement will result in higher collateral values as a percentage of
the amount financed and the selection of buyers with stronger commitment to the
vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
[Affiliated Originator] offers financing programs to IFCs which are
essentially identical to those offered by CPS. The IFCs may offer [Affiliated
Originator]'s financing programs to borrowers directly or
S-26
indirectly through local Dealers. Upon submission of applications to [Affiliated
Originator], [Affiliated Originator] credit personnel, who have been trained by
CPS, use CPS's proprietary systems to evaluate the borrower and the proposed
Contract terms. [Affiliated Originator] purchases contracts from the IFCs after
its credit personnel have performed all of the underwriting and verification
procedures and have applied all the same credit criteria that CPS performs and
applies for Contracts it purchases from Dealers. Prior to CPS [or an affiliate]
purchasing a Contract from [Affiliated Originator], CPS personnel perform
procedures intended to verify that such Contract has been underwritten and
originated in conformity with the requirements applied by CPS with respect to
Contracts acquired by it directly from Dealers.
Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS' computerized records.
Pursuant to the various servicing agreements with each investor or portfolio
owner, CPS is required to deliver monthly reports reflecting all transaction
activity with respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by [Affiliated
Originator] are performed by CPS at its headquarters in Irvine, California.
However, [Affiliated Originator] may solicit aid from the related IFC in
collecting past due accounts with respect to which repossession may be
considered.
S-27
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer Program
in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by [Affiliated Originator] in March 1996.
Although credit history on [Affiliated Originator]'s originations is limited,
CPS expects that the delinquency and net credit loss and repossession experience
with respect to the Receivables originated by [Affiliated Originator] will be
similar to that of CPS's existing portfolio. There can be no assurance, however,
that the delinquency and net credit loss and repossession experience on the
Receivables will continue to be comparable to CPS' experience shown in the
following tables.
S-28
Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------
Portfolio (1)................. 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000
Period of Delinquency (2)
31-60................... 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90................... 68 1,091,000 203 2,654,000 724 9,068,000
91+..................... 56 876,000 272 3,899,000 768 9,906,000
-- ------- --- --------- --- ---------
Total Delinquencies........... 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession
(3)........................ 271 3,759,000 834 10,151,000 1,168 14,563,000
--- --------- --- ---------- ----- ----------
Total Delinquencies and
Amount in
Repossession (4)........... 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000
=== ========== ===== =========== ===== ===========
Delinquencies as a Percent
of the Portfolio........... 2.58% 2.70% 5.10% 5.08% 6.98% 6.80%
Repo Inventory as a
Percent of the Portfolio... 1.90% 1.84% 3.08% 2.85% 2.48% 2.41%
---- ---- ---- ---- ---- ----
Total Delinquencies and
Amount in
Repossession as a
Percent of Portfolio....... 4.48% 4.54% 8.18% 7.93% 9.45% 9.21%
==== ==== ==== ==== ==== ====
- -----------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-29
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1994 1995 1996
---- ---- ----
Average Amount Outstanding
During the Period (1)................. $98,916,991 $221,926,489 $395,404,669
Average Number of Loans Outstanding
During the Period..................... 9,171 20,809 36,998
Number of Repossessions................. 669 2,018 3,145
Gross Charge-Offs (2)................... $3,166,408 $11,658,461 $23,296,775
Recoveries (3).......................... $347,519 $1,028,378 $2,969,143
Net Losses.............................. $2,818,889 $10,630,083 $20,327,632
Annualized Repossessions as a
Percentage of Average Number
of Loans Outstanding.................. 7.29% 9.70% 8.50%
Annualized Net Losses as a
Percentage of Average
Amount Outstanding.................... 2.85% 4.79% 5.14%
- -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and
may pertain to charge offs from prior periods.
S-30
THE RECEIVABLES POOL
The Receivables will include the Initial Receivables and the Subsequent
Receivables. No selection procedures believed by CPS or the Seller to be adverse
to Securityholders were or will be used in selecting the Receivables.
The Receivables Pool existing as of the Cutoff Date consists of the
Initial Receivables. The Initial Receivables have been, and the Subsequent
Receivables will be, selected from CPS's Portfolio by several criteria,
including the following: each Receivable was originated, based on the billing
address of the Obligors, in the United States, has an original term of not more
than 60 months, provides for level monthly payments which fully amortize the
amount financed over the original term (except for the last payment, which may
be different from the level payment for various reasons, including late or early
payments during the term of the Contract), has a remaining maturity of 60 months
or less as of the Cutoff Date or related Subsequent Cutoff Date, as applicable,
has an outstanding principal balance of not more than [$ ] as of the Cutoff
Date, is not more than 30 days past due as of the Cutoff Date or related
Subsequent Cutoff Date, as applicable, and has an APR of not less than [ %]. As
of the date of each Obligor's application for the loan from which the related
Receivable arises, each Obligor (i) did not have any material past due credit
obligations or any repossessions or garnishments of property within one year
prior to the date of application, unless such amounts have been repaid or
discharged through bankruptcy, (ii) was not the subject of any bankruptcy or
insolvency proceeding that is not discharged, and (iii) had not been the subject
of more than one bankruptcy proceeding. As of the Cutoff Date, the latest
scheduled maturity of any Initial Receivable is not later than [ ].
In addition, the obligation of the Trust to purchase Subsequent
Receivables on a Subsequent Closing Date will be subject to the Receivables in
the Trust, taking account of the transfer of the Subsequent Receivables to be
conveyed on such Subsequent Closing Date, meeting the following criteria (based
on the characteristics of the Initial Receivables on the Cutoff Date and each
Subsequent Receivable on its related Subsequent Cutoff Date): [conditions to be
specified].
Except for the criteria described in the three paragraphs immediately
preceding, 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 data with respect to the composition of the Receivables set forth
in the tables below, may vary from those of the Initial Receivables.
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Initial Receivables, constituting [ %] of the number of
Contracts, represents financing of used vehicles; the remainder of the Initial
Receivables represent financing of new vehicles. Approximately [ %] of the
aggregate principal balance of the Initial Receivables were originated under the
Delta Program, approximately [ %] of the aggregate principal balance of the
Initial Receivables were originated under the Alpha Program, approximately [ %]
of the aggregate principal balance of the Initial Receivables were originated
under the First Time Buyer Program and approximately [ %] of the aggregate
principal balance of the Initial Receivables represent financing under the
Standard Program. As of the Cutoff Date, approximately [ %] of the aggregate
principal balance of the Initial Receivables were originated by unaffiliated
third parties and purchased by CPS in the ordinary course of its business. As of
the Cutoff Date, [ %] of the Principal Balance of the Initial Receivables were
[Affiliated Originator] Receivables. The composition, geographic distribution,
distribution by APR, distribution by remaining term, distribution by date of
origination, distribution by original term, distribution by model year and
distribution by original principal balance of the Initial Receivables as of the
Cutoff Date are set forth in the following tables.
S-31
Composition of the Initial Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
- -------------- ------- ------- ------- -------------- -------------
S-32
Geographic Distribution of the Initial Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
- -------- ----------------- ----------------- ----------- -----------
all others(2)... % %
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(3) 100.00%(3)
========== ========== ========== ==========
- -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
Distribution of the Initial Receivables by APR as of the Cutoff Date
Percent of Percent of
APR Aggregate Aggregate Number of Number of
Range Principal Balance Principal Balance Receivables Receivables
- ----- ----------------- ----------------- ----------- -----------
all others(2)... % %
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-33
Distribution of the Initial Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Remaining Term Percent of Percent of
to Scheduled Aggregate Aggregate Number of Number of
Maturity Principal Balance Principal Balance Receivables Receivables
- -------- ----------------- ----------------- ----------- -----------
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of the Initial Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Date of Aggregate Aggregate Number of Number of
Origination Principal Balance Principal Balance Receivables Receivables
- ----------- ----------------- ----------------- ----------- -----------
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-34
Distribution of the Initial Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Original Term Percent of Percent of
to Scheduled Aggregate Aggregate Number of Number of
Maturity Principal Balance Principal Balance Receivables Receivables
- -------- ----------------- ----------------- ----------- -----------
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of the Initial Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
- ----------- ----------------- ----------------- ----------- -----------
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-35
Distribution of the Initial Receivables by Original Principal Balance
as of the Cutoff Date
Range of
Original Percent of Percent of
Principal Aggregate Aggregate Number of Number of
Balances Principal Balance Principal Balance Receivables Receivables
- -------- ----------------- ----------------- ----------- -----------
---------- ---------- ---------- ----------
TOTAL........... $ 100.00%(1) 100.00%(1)
========== ========== ========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-36
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Initial Receivables in the Receivables Pool provide for
allocation of payments according to the "sum of periodic balances" or "sum of
monthly payments" method, similar to the "Rule of 78's" ("Rule of 78's
Receivables") and, approximately [ %] of the aggregate Principal Balance of the
Initial Receivables in the Receivables Pool provide for allocation of payments
according to the "simple interest" method ("Simple Interest Receivables"). A
Rule of 78's Receivable provides for payment by the Obligor of a specified total
amount of payments, payable in equal monthly installments on each due date,
which total represents the principal amount financed and add-on interest in an
amount calculated on the basis of the stated APR for the term of the Receivable.
The rate at which such amount of add-on interest is earned and, correspondingly,
the amount of each fixed monthly payment allocated to reduction of the
outstanding principal are calculated in accordance with the "Rule of 78's". A
Simple Interest Receivable provides for the amortization of the amount financed
under the Receivable over a series of fixed level monthly payments. 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 its scheduled 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 scheduled 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 event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, rather than receive a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining scheduled payments of interest that would have been due under a Simple
Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors - Sub-Prime
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne
S-37
entirely by the Noteholders. See also "Description of the Notes - Optional
Redemption" in this Prospectus Supplement regarding the Servicer's option to
purchase the Receivables and redeem the Notes when the aggregate principal
balance of the Receivables is less than or equal to 10% of the Original Pool
Balance. Any reinvestment risks resulting from an optional redemption will be
borne solely by the Noteholders.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A-1 Pool Factor" is a seven digit decimal which the
Servicer will compute each month indicating the principal balance of the Class
A-1 Notes as a fraction of the initial principal balance of the Class A-1 Notes.
An individual Noteholder's share of the principal balance of the Class A-1 Notes
is the product of (i) the original denomination of the Noteholder's Note and
(ii) the Class A-1 Pool Factor. The "Class A-2 Pool Factor" is a seven-digit
decimal which the Servicer will compute each month indicating the principal
balance of the Class A-2 Notes as a fraction of the initial principal balance of
the Class A-2 Notes. The Class A-2 Pool Factor will be 1.0000000 as of the
Closing Date; thereafter, the Class A-2 Pool Factor will decline to reflect
reductions in the principal balance of the Class A-2 Notes. An individual
Noteholder's share of the principal balance of the Class A-2 Notes is the
product of (i) the original denomination of the Noteholder's Note and (ii) the
Class A-2 Pool Factor. The "Class A-3 Pool Factor" is a seven-digit decimal
which the Servicer will compute each month indicating the principal balance of
the Class A-3 Notes as a fraction of the initial principal balance of the Class
A-3 Notes. The Class A-3 Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class A- 3 Pool Factor will decline to reflect reductions in the
principal balance of the Class A-3 Notes. An individual Noteholder's share of
the principal balance of the Class A-3 Notes is the product of (i) the original
denomination of the Noteholder's Note and (ii) the Class A-3 Pool Factor. The
"Class B Pool Factor" is a seven-digit decimal which the Servicer will compute
each month indicating the principal balance of the Class B Notes as a fraction
of the initial principal balance of the Class B Notes. The Class B Pool Factor
will be 1.0000000 as of the Closing Date; thereafter, the Class B Pool Factor
will decline to reflect reductions in the principal balance of the Class B
Notes. An individual Noteholder's share of the principal balance of the Class B
Notes is the product of (i) the original denomination of the Noteholder's Note
and (ii) the Class B Pool Factor. [Other Classes to be added.] Pool Factors will
be made available on or about the eighth business day of each month.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors 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 Trust Documents -
Statements to Securityholders" in this Prospectus Supplement.
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 CPS Receivables from CPS and the
[Affiliated Originator] Receivables from [Affiliated Originator]. CPS will apply
the net proceeds received from the Seller to purchase new Contracts or to repay
debt incurred to purchase the Contracts.
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS and transferring such receivables to third parties and any
activities
S-38
incidental to and necessary or convenient for the accomplishment of such
purposes. The principal executive offices of the Seller are located at 2 Ada,
Irvine, California 92618; telephone (714) 753-6800. For further information
regarding the Seller and CPS, see "The Seller and CPS" in the Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein. See
"Registration of Notes" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest at the Class A-1 Note Rate, on the outstanding
principal balance of the Class A-1 Notes as of the last day of the related
Collection Period, based on the number of days elapsed from and including the
preceding Payment Date (or, in the case of the initial Payment Date, from and
including the Closing Date) to but excluding the current Payment Date. On each
Payment Date, the holders of record of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the Class A-2 Interest Rate on the
outstanding principal amount of the Class A-2 Notes at the close of business on
the last day of the related Collection Period. On each Payment Date, the holders
of record of the Class A-3 Notes (the "Class A-3 Noteholders") as of the related
Record Date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-3 Interest Rate on the outstanding principal amount of the Class
A-3 Notes at the close of business on the last day of the related Collection
Period. [Additional classes, if any, to be added]. On each Payment Date, the
holders of record of the Class B Notes (the "Class B Noteholders") as of the
related Record Date will be entitled to receive, pro rata, thirty (30) days of
interest at the Class B Interest Rate on the outstanding principal amount of the
Class B Notes at the close of business on the last day of the related Collection
Period. Notwithstanding the foregoing, on the first Payment Date, the interest
payable to the Noteholders of record of each class of Notes will be an amount
equal to the product of (a) the Interest Rate applicable to such class of Notes,
(b) the initial principal amount of such class of Notes and (c) a fraction (i)
the numerator of which is the number of days from and including the Closing Date
through and including [ ] 14, 1997 and (ii) the denominator of which is 360.
Interest on the Notes which is due but not paid on any Payment Date will be
payable on the next Payment Date together with, to the extent permitted by law,
interest on such unpaid amount at the applicable Interest Rate.
S-39
Determination of LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR
for purposes of calculating the Interest Rate for the Class A-3 Notes for each
given Collection Period on the second business day prior to the commencement of
each Collection Period (each, a "LIBOR Determination Date"). For purposes of
calculating LIBOR, a business day means a Business Day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of one
month commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on the Telerate Page 3750, the
rate for that day will be determined on the basis of the rates at which deposits
in U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Indenture Trustee will request the principal London
office of each of such Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for the day will be the
arithmetic mean, rounded upward, if necessary, to the nearest 1/100,000 of 1%
(0.0000001), with five one-millionths of a percentage point rounded upward, of
all such quotations. If fewer than two such quotations are provided, the rate
for that day will be the arithmetic mean, rounded upward, if necessary, to the
nearest 1/100,000 of 1% (0.0000001), with five one-millionths of a percentage
point rounded upward, of the offered per annum rates that one or more leading
banks in New York City, selected by the Indenture Trustee, are quoting as of
approximately 11:00 a.m., New York City time, on such LIBOR Determination Date
to leading European banks for United States dollar deposits for the Index
Maturity; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, LIBOR in effect for the applicable Interest Period
will be LIBOR in effect for the previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Master Servicer.
Payment of Principal
Principal of the Class A Notes will be payable on each Payment Date in
an amount equal to the Class A Noteholders' Principal Distributable Amount for
the related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the sum of (a) the Class A Noteholders' Percentage
multiplied by the Principal Distributable Amount and (b) any unpaid portion of
the amount described in clause (a) with respect to a prior Payment Date.
Principal of the Class B Notes will be payable on each Payment Date in an amount
equal to the Class B Noteholders' Principal Distributable Amount for the related
Collection Period. The "Class B Noteholders' Principal Distributable Amount" is
equal to the sum of (a) the Class B Noteholders' Percentage multiplied by the
Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date.
On each Payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after application thereof to pay the
distributions described in clauses (i) through (iv) under "Description of the
Trust Documents -- Distributions" and (y) the Class A Noteholders' Principal
Distributable Amount will be applied, sequentially, to pay principal of the
Class A-1 Notes until the principal balance of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been reduced to zero, then to the holders of
the Class A-3 Notes until the principal balance of the Class A-3 Notes has been
reduced to zero [additional classes of Notes may be added].
S-40
On each Payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after application thereof to pay the
distributions described in clauses (i) through (viii) under "Description of the
Trust Documents -- Distributions" and (y) the Class B Noteholders' Principal
Distributable Amount will be applied to pay principal of the Class B Notes until
the principal balance of the Class B Notes has been reduced to zero.
Mandatory Redemption
[Each class of Notes will be redeemed in part on the Payment Date on or
immediately following the last day of the Funding Period in the event that any
portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current Principal Balance of
each class of Notes) of the remaining Pre-Funded Amount on such date (such
class's "Note Prepayment Amount").]
[A Note Prepayment Premium will be payable by the Trust to the
Noteholders of each class if the Pre-Funded Amount at the end of the Funding
Period exceeds $100,000. The Note Prepayment Premium for a class of Notes will
equal the excess, if any, discounted as described below, of (i) the amount of
interest that would have accrued on such class's Note Prepayment Amount at the
Interest Rate borne by such class of Notes during the period commencing on and
including the Payment Date on which such class's Note Prepayment Amount is
required to be distributed to the Noteholders of such class to but excluding [
], in the case of the Class A-1 Notes, [ ], in the case of the Class A-2 Notes,
[ ], in the case of the Class A-3 Notes, [ ] in the case of the Class B Notes,
over (ii) the amount of interest that would have accrued on such class's Note
Prepayment Amount over the same period at a per annum rate of interest equal to
the bond equivalent yield to maturity on the Record Date preceding such Payment
Date on the United States Treasury Bill due [ ], in the case of the Class A-1
Notes, the [ ]% United States Treasury Note due [ ], in the case of the Class
A-2 Notes, the [ ]% United States Treasury Note due [ ], in the case of the
Class A-3 Notes, the [ ]% United States Treasury Note due [ ] and, in the case
of the Class B Notes, the [ ]% United States Treasury Note due [ ]. Such excess
shall be discounted to present value to such Payment Date at the applicable
yield described in clause (ii) above. The Trust's obligation to pay the Note
Prepayment Premiums shall be limited to funds which are received from the Seller
under the Sale and Servicing Agreement [or an Affiliate Purchase Agreement] as
liquidated damages for the failure to deliver Subsequent Receivables. No other
assets of the Trust will be available for the purpose of making such payment.
[The Credit Enhancement does not guarantee payment of the Note Prepayment
Premiums or the Note Prepayment Amounts, although the [Credit Enhancement] does
guarantee payment of the Class A Noteholders' Interest Distributable Amount and
the Class A Noteholders' Principal Distributable Amount on its respective Final
Scheduled Payment Date.] In addition, the ratings assigned to the Notes by the
Rating Agencies do not address the likelihood that the Note Prepayment Amounts
or the Note Prepayment Premiums will be paid.]
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the [Credit Enhancer] if such purchase would result in a claim under
the [Credit Enhancement] or any amount owing to the [Credit Enhancer] or on the
Certificates would remain unpaid), as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the Original Pool
Balance, all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of such last day. Exercise of such right will effect
early retirement of the Notes. The Indenture Trustee will give written notice of
termination to each Noteholder of record. The final distribution to any
Noteholder will be made only upon surrender and cancellation of such holder's
Note at the office or agency of the Indenture Trustee specified in the notice of
termination. Any funds
S-41
remaining with the Indenture Trustee, after the Indenture Trustee has taken
certain measures to locate a Noteholder and such measures have failed, will be
distributed to The American Red Cross.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement.
The Certificates initially will be represented by certificates
registered in the name of Cede as the nominee of DTC and will only be available
in the form of book-entries on the records of DTC and participating members
thereof in denominations of $1,000. All references to "holders" or
"Certificateholders" and to authorized denominations, when used with respect to
the Certificates, shall reflect the rights of beneficial owners of the
Certificates ("Certificate Owners"), and limitations thereof, as they may be
indirectly exercised through DTC and its participating members, except as
otherwise specified herein. See "Registration of Notes and Certificates" in this
Prospectus Supplement.
On each Payment Date, the Certificateholders will, subject to the
availability of funds, be entitled to distributions (the "Certificateholders'
Interest Distributable Amount") in an amount equal to the amount of interest
accrued on the Certificate Balance at the Pass-Through Rate. Interest
distributable on a Payment Date will accrue from and including the preceding
Payment Date (or, in the case of the initial Payment Date, the Closing Date) to
but excluding the current Payment Date and will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest distributions due on
any Payment Date but not distributed on such Payment Date will be due on the
next Payment Date, together with interest on such amount at the Pass-Through
Rate (to the extent permitted by law). See "Description of the Trust Documents -
Distributions" in this Prospectus Supplement.
Principal of the Certificates will be payable on each Payment Date in
an amount equal to the Certificateholders' Principal Distributable Amount for
the related Collection Period. The "Certificateholders' Principal Distributable
Amount" is equal to the product of (a) the Certificateholder's Percentage of the
Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date.
Mandatory Prepayment
[The Certificates will be prepaid in part, on a pro rata basis, on the
Payment Date on or immediately following the last day of the Funding Period in
the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any purchase on such date (a "Mandatory Prepayment"). The
aggregate principal amount of the Certificates to be prepaid will be an amount
equal to the Certificateholders' pro rata share (based on the respective current
Principal Balance of each class of Notes and the Certificate Balance) of the
remaining Pre-Funded Amount (the "Certificate Prepayment Amount").]
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders if the Pre-Funded Amount at the end of the funding Period
exceeds $100,000. The Certificate Prepayment Premium will equal the excess, if
any, discounted as described below, of (i) the amount of interest that would
have accrued on the certificate Prepayment Amount at the Pass-Through Rate
during the period commencing on and including the Payment Date on which such
Certificate Prepayment Amount is required to be distributed to
Certificateholders to but excluding [ ], over (ii) the amount of interest that
would have accrued on such Certificate Prepayment Amount over the same period at
a per annum rate of interest equal to the bond equivalent yield to maturity on
the Record Date preceding such Payment Date on the [ ]% United States Treasury
Note due [ ]. Such excess shall be discounted to present value to such Payment
Date at the yield described in clause (ii) above. The Trust's obligation to pay
the Certificate Prepayment Premium shall
S-42
be limited to funds which are received from the Seller under the Sale and
Servicing Agreement [or an Affiliated Purchase Agreement] as liquidated damages
for the failure to deliver Subsequent Receivables. No other assets of the Trust
will be available for the purpose of making such payment. The [Credit
Enhancement] does not guarantee payment of the Certificate Prepayment Amount or
the Certificate Prepayment Premium, although the [Credit Enhancement] does
guarantee payment of the Certificateholders' Interest Distributable Amount and
the Certificateholders' Principal Distributable Amount on the Final Scheduled
Payment Date. In addition, the ratings assigned to the Certificates by the
Rating Agencies do not address the likelihood that the Certificate Prepayment
Amount or the Certificate Prepayment Premium will be paid.]
Optional Prepayment
If the Seller or the Servicer exercises its option to purchase the
Receivables when the aggregate Principal Balance declines to 10% or less of the
Original Pool Balance, Certificateholders will receive an amount in respect of
the Certificates equal to the outstanding Principal Balance of the Certificates
together with accrued interest at the Pass-Through Rate, which distribution will
effect early retirement of the Certificates. See "Description of the Trust
Documents - Termination" in the accompanying Prospectus.
Subordination of the Certificates
[No distribution of interest or principal will be made to
Certificateholders on any Payment Date until the Noteholders have been paid the
Noteholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount for such Payment Date. This subordination is intended to
enhance the likelihood of timely receipt by the Noteholders of the full amount
of interest and principal distributable to them on each Payment Date and to
afford the Noteholders limited protection against losses in respect of the
Receivables.]
REGISTRATION OF NOTES AND CERTIFICATES
[The [Class A] Notes [and the Certificates] will initially be
registered in the name of Cede & Co. ("Cede"), the nominee of DTC. 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 the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and 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
Participant, either directly or indirectly. See "Certain Information Regarding
the Notes - Book-Entry Registration" in the Prospectus.]
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the [Affiliate
Purchase Agreement], the Purchase Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). Forms of the Trust Documents have
been filed as exhibits to the Registration Statement. A copy of the Trust
Documents will be filed with the Commission following the issuance of the
Securities. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Documents. The following summary supplements, the description of the general
terms and provisions of the Trust Documents (as such terms are used in the
accompanying Prospectus) set forth in the accompanying Prospectus, to which
description reference is hereby made.
S-43
Sale and Assignment of Receivables; Subsequent Receivables
On or prior to the Closing Date, the Seller will purchase from
[Affiliated Originator] pursuant to an agreement (the "[Affiliate Purchase
Agreement]"), without recourse, except as provided in the [Affiliate Purchase
Agreement], [Affiliated Originator's] entire interest in the [Affiliated
Originator] Receivables, together with [Affiliated Originator]'s security
interests in the related Financed Vehicles. On or prior to the Closing Date, CPS
will, pursuant to the Purchase Agreement, sell and assign to the Seller, without
recourse, except as provided in the Purchase Agreement, its entire interest in
the CPS Receivables, together with its security interests in the related
Financed Vehicles. At the time of issuance of the Securities, the Seller will
sell and assign to the Trust, without recourse except as provided in the Sale
and Servicing Agreement, its entire interest in the Receivables, together with
its security interests in the Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriters. See
"Underwriting" in this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreement with respect to the Receivables (including, without limitation, the
[Affiliated Originator] Receivables) is correct in all material respects; (ii)
at the dates of origination of the Receivables, physical damage insurance
covering each Financed Vehicle was in effect in accordance with CPS's normal
requirements; (iii) at the date of issuance of the Securities, the Receivables
are free and clear of all security interests, liens, charges, and encumbrances
and no offsets, defenses, or counterclaims against Dealers or IFCs have been
asserted or threatened; (iv) at the date of issuance of the Securities, each of
the Receivables is or will be secured by a first-priority perfected security
interest in the related Financed Vehicle in favor of CPS or [Affiliated
Originator]; and (v) each Receivable, at the time it was originated, complied
and, at the date of issuance of the Securities, complies in all material
respects with applicable federal and state laws, including, without limitation,
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
As of the last day of the second (or, if CPS elects, the first) month following
the discovery by or notice to the Seller and CPS of a breach of any
representation or warranty that materially and adversely affects a Receivable,
unless the breach is cured, CPS will purchase such Receivable from the Trust for
the Purchase Amount. The repurchase obligation will constitute the sole remedy
available to the Noteholders, the [Credit Enhancer], the Owner Trustee or the
Indenture Trustee for any such uncured breach.
[During the Funding Period, on each Subsequent 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 and identified
in a schedule attached to a Subsequent Transfer Agreement relating to such
Subsequent Receivables executed on such date by the Seller. Upon the conveyance
of Subsequent Receivables to the Trust on a Subsequent Transfer Date, (i) the
aggregate Principal Balance will increase in an amount equal to the aggregate
principal balances of the Subsequent Receivables, (ii) the Class A-1 Holdback
Amount (described under "--Accounts" below), if any, for such Subsequent
Transfer Date will be withdrawn from the Pre-Funding Account and deposited in
the Class A-1 Holdback Subaccount (described under "--Accounts" below), and
(iii) an amount equal to the aggregate principal balances of such Subsequent
Receivables less the Class A-1 Holdback Amount will be paid to or upon the order
of the Seller.]
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Purchase Agreement; (ii)
[Credit Enhancer] (so long as no [Credit Enhancer] Default shall have occurred
and be continuing) shall in its absolute and sole discretion have approved the
transfer of such Subsequent Receivables to the Trust; (iii) as of each
applicable Subsequent Cutoff Date, the Receivables in the Trust together with
the Subsequent Receivables to be conveyed by the Seller as of such Subsequent
Cutoff Date, meet the following criteria (computed based on the characteristics
of the Initial Receivables on the Initial Cutoff Date and any Subsequent
Receivables on the related Subsequent Cutoff Date: [Conditions to be specified];
(iv) the Seller shall have executed and delivered to the
S-44
Trust (with a copy to the Indenture Trustee) a Subsequent Transfer Agreement
conveying such Subsequent Receivables to the Trust (including a schedule
identifying such Subsequent Receivables); [(v) the Class A-1 Holdback Amount, if
any, shall have been deposited in the Class A-1 Holdback Subaccount (described
under "--Accounts" below);] (vi) the Seller shall have delivered certain
opinions of counsel to the Indenture Trustee, the Owner Trustee, [Credit
Enhancer] and the Rating Agencies with respect to the validity of the conveyance
of such Subsequent Receivables; and (vii) the Rating Agencies shall have each
notified the Seller, the Owner Trustee, the Indenture Trustee and [Credit
Enhancer] in writing that, following the addition of all such Subsequent
Receivables, the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes
will be rated [ ] by [ ] and the Class B Notes will be rated at least [ ] by [ ]
[and the Certificates will be rated [ ] by [ ]].
Subsequent Receivables may have been originated by CPS at a later date
using credit criteria different from the criteria applied with respect to the
Initial Receivables. See "Risk Factors - Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" herein.]
On or prior to the Closing Date [or each Subsequent Closing Date], the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee thereafter will maintain physical possession of the
Receivables except as may be necessary for the servicing thereof by the
Servicer. The Receivables will not be stamped to show the ownership thereof by
the Trust. However, CPS's and [Affiliated Originator]'s accounting records and
computer systems will reflect each sale and assignment of the Receivables to the
Seller, and Uniform Commercial Code ("UCC") financing statements reflecting such
sales and assignments will be filed. See "Formation of the Trust" in this
Prospectus Supplement and "Certain Legal Aspects of the Receivables" in the
Prospectus.
Accounts
A segregated lock-box account will be established and maintained with [
] in the name of the Indenture Trustee for the benefit of the Noteholders[, the
Certificateholders] and the [Credit Enhancer], into which all payments made by
Obligors on or with respect to the Receivables must be deposited by the Lock-Box
Processor (the "Lock-Box Account"). See "Description of the Trust Documents -
Payments on Receivables" in the Prospectus. The Indenture Trustee will also
establish and maintain initially with itself one or more accounts, in the name
of the Indenture Trustee on behalf of the Noteholders and the [Credit Enhancer],
into which all amounts previously deposited in the Lock-Box Account will be
transferred within two Business Days of the receipt of funds therein (the
"Collection Account"). Upon receipt, the Servicer will deposit all amounts
received by it in respect of the Receivables in the Lock-Box Account or the
Collection Account. The Indenture Trustee will also establish and maintain
initially with itself one or more accounts, in the name of the Indenture Trustee
on behalf of the Noteholders[, the Certificateholders] and the [Credit
Enhancer], from which all distributions with respect to the Securities and
payments to the [Credit Enhancer] will be made (the "Distribution Account").
[The Pre-Funding Account will be maintained with the Indenture Trustee
and is intended solely to hold funds to be applied by the Indenture Trustee
during the Funding Period to pay to the Seller the purchase price for Subsequent
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables. On the Closing Date, the
Pre-Funding Account will be funded with the initial Pre-Funded Amount from the
sale proceeds of the Notes [and the Certificates]. The Pre-Funded Amount will
initially equal $[ ] and, during the Funding Period, will be reduced by the
[Class A Percentage] of the Principal Balances of all Subsequent Receivables
purchased by the Trust from time to time in accordance with the provisions of
the Sale and Servicing Agreement.]
The Seller expects that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date, although no assurances can be given in
this regard. If any Pre-Funded Amount remains at the end of the Funding Period,
such amount will be distributed as a partial prepayment to the Noteholders [and
the Certificateholders] as described above under "-- Mandatory Prepayment" and
"--Mandatory Redemption".]
S-45
[The Seller will also establish and maintain an account (the "Interest
Reserve Account") in the name of the Indenture Trustee on behalf of the
Noteholders [and the Certificateholders]. On the Closing Date, the Seller will
deposit an amount equal to the Requisite Reserve Amount (as described below) as
of the Closing Date in the Interest Reserve Account. On each of the [ ] and [ ]
Payment Dates, funds on deposit in the Interest Reserve Account which are in
excess of the Requisite Reserve Amount for such Payment Date will be withdrawn
from the Interest Reserve Account and deposited in the Distribution Account for
distribution in accordance with the priorities set forth under the heading
"Description of the Trust Documents Distributions - Priority of Distribution
Amounts".]
[The "Requisite Reserve Amount" as of any date during the Funding
Period will equal the product of (i) the difference between (A) the weighted
average of the Interest Rates for each class of Notes [and the Pass-Through
Rate] (based on the outstanding principal amount of each class of Notes [and the
Certificate Balance] on such date) and (B) the assumed yield (2.5% per annum) of
investments of funds in the Pre-Funding Account, divided by 360, (ii) the
Pre-Funded Amount on such date and (iii) the number of days remaining until the
Payment Date in [ ].]
[In addition, on any Subsequent Transfer Date a "Class A-1 Holdback
Amount" (as defined in the Sale and Servicing Agreement, and determined by the
amount, if any, by which the actual Principal Balance of Subsequent Receivables
transferred to the Trust on or prior to such date is less than the amount set
forth in a schedule of assumed amounts), if any, will be withheld from funds in
the Pre-Funding Account that would otherwise be paid to the Seller on such
Subsequent Transfer Date and will be deposited into a subaccount (the "Class A-1
Holdback Subaccount") of the Spread Account. The Class A-1 Holdback Subaccount
is intended to ensure that, notwithstanding a slower than expected delivery of
Subsequent Receivables by the Seller during the Funding Period, sufficient funds
will be available to retire the Class A-1 Notes on the Class A-1 Final Scheduled
Payment Date. Any funds in the Class A-1 Holdback Subaccount (less the amount,
if any, required to be applied to reduce the principal balance of the Class A-1
Notes to zero on the Class A-1 Final Scheduled Payment Date) will be released to
CPS on the Payment Date on which the Class A-1 Notes are paid in full, and funds
in the Class A-1 Holdback Subaccount will not be available for any other
purpose.]
[The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.]
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Payment Date, the Servicing Fee will equal the product of one-twelfth of the
Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the "Servicing
Fee"). So long as CPS is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer for agreeing to stand by as
successor Servicer and for performing certain other functions. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed [ %] per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from the Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments,
late fees and other charges and principal and interest in accordance with the
Servicer's normal practices and procedures. The Servicing Fee will be paid out
of collections from the Receivables, prior to distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables,
S-46
investigating delinquencies, sending payment coupons to Obligors, reporting tax
information to Obligors, paying costs of disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
[Credit Enhancer] with respect to distributions and generating federal income
tax information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Class B Noteholders'
Interest Distributable Amount, the Class B Noteholders' Principal Distributable
Amount [and the Certificateholders' Distribution Amount].
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date (being the funds available for distribution to the
Securityholders with respect to such Payment Date in accordance with the
priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables;
(ii) all proceeds received during the Collection Period with respect to
Receivables that became Liquidated Receivables during the Collection Period in
accordance with the Servicer's customary servicing procedures, net of the
reasonable expenses incurred by the Servicer in connection with such liquidation
and any amounts required by law to be remitted to the Obligor on such Liquidated
Receivable ("Liquidation Proceeds") in accordance with the Servicer's customary
servicing procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables; (iv) any amount withdrawn from the Interest Reserve Account for
deposit in the Collection Account with respect to such Payment Date; and (v)
earnings on investments of funds in the Collection Account and the Pre-Funding
Account during the related Collection Period, and (v) the Purchase Amount of
each Receivable that was repurchased by CPS or purchased by the Servicer as of
the last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a scheduled payment of more than ten dollars for 120 or
more days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
S-47
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Class A Noteholders will be
entitled to receive the "Noteholders' Distributable Amount" with respect to each
Payment Date. The "Noteholders' Distributable Amount" with respect to a Payment
Date will be an amount equal to the sum of: (i) the "Class A Noteholders'
Principal Distributable Amount", consisting of the Class A Noteholders'
Percentage of the following: (a) the principal portion of all Scheduled
Receivable Payments received during the preceding Collection Period on Rule of
78's Receivables and all payments of principal received on Simple Interest
Receivables during the preceding Collection Period; (b) the principal portion of
all prepayments in full received during the preceding Collection Period
(including prepayments in full resulting from collections with respect to a
Receivable received during the preceding Collection Period (without duplication
of amounts included in (a) above and (d) below)); (c) the portion of the
Purchase Amount allocable to principal of each Receivable that was repurchased
by CPS or purchased by the Servicer as of the last day of the related Collection
Period and, at the option of the [Credit Enhancer] the Principal Balance of each
Receivable that was required to be but was not so purchased or repurchased
(without duplication of the amounts referred to in (a) and (b) above); (d) the
Principal Balance of each Receivable that first became a Liquidated Receivable
during the preceding Collection Period (without duplication of the amounts
included in (a) and (b) above); and (e) the aggregate amount of Cram Down Losses
with respect to the Receivables that shall have occurred during the preceding
Collection Period (without duplication of amounts included in (a) through (d)
above) (the amounts set forth in (a) through (e), the "Principal Distributable
Amount"); (ii) the "Class A Noteholders' Interest Distributable Amount",
consisting of thirty (30) days' interest at the applicable Interest Rate on the
principal balance of each Class of Class A Notes as of the close of business on
the last day of the related Collection Period; provided, however, that on the
first Payment Date, the Class A Noteholders' Interest Distributable Amount will
include interest from and including the Closing Date through and including [ ]
14, 199[ ]; (iii) the Class A Noteholders' Principal Carryover Shortfall; (iv)
the Class A Noteholders' Interest Carryover Shortfall; (v) the "Class B
Noteholders' Principal Distributable Amount", consisting of the Class B
Noteholders' Percentage of the Principal Distributable Amount; (vi) the "Class B
Noteholders' Interest Distributable Amount", consisting of thirty (30) days'
interest at the Class B Interest Rate on the principal balance of the Class B
Notes as of the close of business on the last day of the related Collection
Period; provided, however, that on the first Payment Date, the Class B
Noteholders' Interest Distributable Amount will include interest from and
including the Closing Date through and including [ ] 14, 199[ ]; (vii) the Class
B Noteholders' Principal Carryover Shortfall; (viii) the Class B Noteholders'
Interest Carryover Shortfall;
On the Final Scheduled Payment Date, the Class A Noteholders' Principal
Distributable Amount will equal the then outstanding principal balance of the
Class A Notes and the Class B Noteholders' Principal Distributable Amount will
equal the then outstanding balance of the Class B Notes.
The "Class A Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class A-3 Notes
is reduced to zero, be [ %], (b) on the Payment Date on which the principal
amount of the Class A-3 Notes is reduced to zero, be the percentage equivalent
of a fraction, the numerator of which is the principal amount of the Class A-3
Notes immediately prior to such
S-48
Payment Date, and the denominator of which is the Principal Distributable Amount
and (c) on any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class B Notes is
reduced to zero, be [ %], (b) on the Payment Date on which the principal amount
of the Class B Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class B Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount and (c) on any other Payment Date, be 0%.
[On each Payment Date on or after the Notes have been paid in full, the
Certificateholders will be entitled to receive the "Certificateholders'
Distributable Amount". The "Certificateholders' Distributable Amount" with
respect to a Payment Date will be an amount equal to the sum of : (.i) the
"Certificateholders' Principal Distributable Amount" in an amount equal to the
Certificateholders' Percentage of the Principal Distributable Amount for such
Payment Date; (ii) the "Certificateholders' Interest Distributable Amount",
consisting of 30 days interest at the Pass-Through Rate on the Certificate
Balance as of the last day of the related Collections Period; provided, however
that on the first Payment Date, the Certificateholders' Interest Distributable
Amount will include interest from and including the Closing Date through and
including [
] 14, 199[]; (iii) the Certificateholders' Principal Carryover Shortfall; plus
(iv) the Certificateholders' Interest Carryover Shortfall. Distributions to the
Certificateholders will be paid to the extent of the portion of the Total
Distribution Amount remaining after payment of items (i) through (vii) under
"-Priority of Distribution Amounts". See "- Distributions" herein.
On the Final Scheduled Payment Date, the Certificateholders' Principal
Distributable Amount will equal the then outstanding Certificate Balance.
The "Certificateholders' Percentage" will be [ %].]
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
[specify priorities]
For purposes hereof, the following terms shall have the following
meanings:
"Class A Noteholders' Interest Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class A Noteholders' Interest
Distributable Amount for such Payment Date, plus any outstanding Class A
Noteholders' Interest Carryover Shortfall from the preceding Payment Date, plus
interest on such outstanding Class A Noteholders' Interest Carryover Shortfall,
to the extent permitted by law, at the applicable Interest Rate from such
preceding Payment Date through the current Payment Date, over the amount of
interest distributed to the Class A Noteholders on such current Payment Date.
"Class A Noteholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class A Noteholders' Principal
Distributable Amount plus any outstanding Class A Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
distributed to the Class A Noteholders on such current Payment Date.
"Class B Noteholders' Interest Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Interest
Distributable Amount for such Payment Date, plus any outstanding Class B
Noteholders' Interest Carryover Shortfall from the preceding Payment Date, plus
interest on such outstanding Class B Noteholders' Interest Carryover Shortfall,
to the extent permitted by law, at the
S-49
applicable Interest Rate from such preceding Payment Date through the current
Payment Date, over the amount of interest distributed to the Class B Noteholders
on such current Payment Date.
"Class B Noteholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Principal
Distributable Amount plus any outstanding Class B Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
distributed to the Class B Noteholders on such current Payment Date.
On the third business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Class A Noteholders'
Distributable Amount and the Class B Noteholders' Distributable Amount.
[The Spread Account. As part of the consideration for the issuance of
the [Credit Enhancement], the Seller has agreed to cause to be established with
[ ] (in such capacity, the "Collateral Agent") an account (the "Spread Account")
for the benefit of the [Credit Enhancer] and the Indenture Trustee on behalf of
the Noteholders. Any portion of the Total Distribution Amount remaining on any
Payment Date after payment of all fees and expenses due on such date to the
Servicer, the Standby Servicer, the Indenture Trustee and the Collateral Agent
and all principal and interest payments due to the Noteholders on such Payment
Date, will be deposited in the Spread Account and held by the Collateral Agent
for the benefit of the [Credit Enhancer] and the Indenture Trustee on behalf of
the Noteholders. If on any Payment Date, the Total Distribution Amount is
insufficient to pay all distributions required to be made on such day pursuant
to priorities (i) through (vii) under "-Priority of Distribution Amounts", then
amounts on deposit in the Spread Account will be applied to pay the amounts due
on such Payment Date pursuant to such priorities (i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Certificateholders on
such Payment Date.
So long as a [Credit Enhancer] Default shall not have occurred and be
continuing, the [Credit Enhancer] will be entitled to exercise in its sole
discretion all rights under the master spread account agreement among the
Seller, the [Credit Enhancer], the Indenture Trustee and the Collateral Agent
(the "Master Spread Account Agreement") with respect to the Spread Account and
any amounts on deposit therein and will have no liability to the Indenture
Trustee or the Noteholders for the exercise of such rights. The [Credit
Enhancer] (so long as a [Credit Enhancer] Default shall not have occurred and be
continuing) may, with the written consent of CPS, the Seller and the Collateral
Agent but without the consent of the Indenture Trustee or any Noteholder, reduce
the Requisite Amount or modify any term of the Master Spread Account Agreement
(including terminating the Master Spread Account Agreement and releasing all
funds on deposit in the Spread Account). Because the Requisite Amount or the
existence of the Spread Account may be modified or terminated by the [Credit
Enhancer] as described above, there is no assurance that funds will be available
in the Spread Account to pay principal of or interest on the Notes in the event
that collections on the Receivables and other amounts available under the
Indenture are insufficient to make any distribution of principal of or interest
on the Notes on any Payment Date.
Events of Default
[Unless a [Credit Enhancer] Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as [Credit Enhancement] Cross Defaults, and
will constitute an Event of Default under the Indenture only if the [Credit
Enhancer] shall have delivered to the Indenture Trustee a written notice
specifying that any such Insurance Agreement Indenture Cross Default constitutes
an Event of Default under the Indenture. A "[Credit Enhancement] Cross Default"
may result from: (i) a demand for payment under the [Credit Enhancement]; (ii)
an Insolvency Event (as defined herein); (iii) the Trust becomes taxable as an
association (or publicly traded partnership) taxable as
S-50
a corporation for federal or state income tax purposes; (iv) the sum of the
Total Distribution Amount with respect to any Payment Date plus the amount (if
any) available from certain collateral accounts maintained for the benefit of
the [Credit Enhancer] is less than the sum of the amounts described in clauses
(i) through (vii) under "Description of the Trust Documents - Distributions"
herein; and (v) any failure to observe or perform in any material respect any
other covenants, representation, warranty or agreements of the Trust in the
Indenture, any certificate or other writing delivered in connection therewith,
and such failure continues for 30 days after written notice of such failure or
incorrect representation or warranty has been given to the Trust and the
Indenture Trustee by the [Credit Enhancer].]
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default shall not have occurred and be continuing, the [Credit
Enhancer] will have the right but not the obligation, to cause the Indenture
Trustee to liquidate the Trust Assets, in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default as the
[Credit Enhancer], in its sole discretion, shall elect, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture. The
[Credit Enhancer] may not, however, cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, if the proceeds of such liquidation would not
be sufficient to pay all outstanding principal and accrued interest on the
Notes, unless such Event of Default arose from a claim being made on the [Credit
Enhancement] or from certain events of bankruptcy, insolvency, receivership or
liquidation of the Trust. Following the occurrence of any Event of Default, the
Indenture Trustee will continue to submit claims as necessary under the [Credit
Enhancement] for any shortfalls in the scheduled payments on the Class A Notes,
except that the [Credit Enhancer], in its sole discretion, may elect to pay all
or any portion of the outstanding amount of the Class A Notes, plus accrued
interest thereon. See ["Credit Enhancement"] herein.
Statements to Securityholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Securityholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
[or the Certificates] a statement (prepared by the Servicer) setting forth the
following information with respect to the preceding Collection Period, to the
extent applicable: (i) the amount of the distribution allocable to principal of
the Notes; (ii) the amount of the distribution allocable to interest on the
Notes; (iii) the Pool Balance and the Pool Factor for each Class of Notes [or
the Certificates] as of the close of business on the last day of the preceding
Collection Period; (iv) the aggregate principal balance of each Class of Notes
[or the Certificates] as of the close of business on the last day of the
preceding Collection Period, after giving effect to payments allocated to
principal reported under (i) above; (v) the amount of the Servicing Fee paid to
the Servicer with respect to the related Collection Period (inclusive of the
Standby Fee), the amount of any unpaid Servicing Fees and the change in such
amount from that of the prior Payment Date; (vi) the amount of the Class A
Noteholders' Interest Carryover Shortfall, if applicable, the Class A
Noteholders' Principal Carryover Shortfall, if applicable, the Class B
Noteholders' Interest Carryover Shortfall, if applicable, and the Class B
Noteholders' Principal Carryover Shortfall, if applicable, on such Payment Date
and the change in such amounts from those on the prior Payment Date; (vii) the
amount paid to the Class A Noteholders under the [Credit Enhancement] for such
Payment Date; (viii) the amount distributable to the [Credit Enhancer] on such
Payment Date; (ix) the aggregate amount in the Spread Account and the change in
such amount from the previous Payment Date; (x) the number of Receivables and
the aggregate gross amount scheduled to be paid thereon, including unearned
finance and other charges, for which the related Obligors are delinquent in
making scheduled payments between 31 and 59 days and 60 days or more; (xi) the
number and the aggregate Purchase Amount of Receivables repurchased by CPS or
purchased by the Servicer; (xii) the cumulative Principal Balance of all
Receivables that have become Liquidated Receivables, net of Recoveries, during
the period from the Cutoff Date to the last day of the related Collection
Period; and (xiii) the aggregate Principal Balance, weighted average APR and
weighted average remaining term to maturity of all Subsequent Receivables
transferred to the Trust during the relabeled Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Note.
S-51
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Securityholder and received any payment on
such holder's Securities, a statement (prepared by the Servicer) containing the
sum of the amounts described in (i), (ii) and (v) above for the purposes of such
Securityholder's preparation of federal income tax returns. See "Description of
the Notes [and Certificates] - Statements to Securityholders" and "Federal
Income Tax Consequences" in the Prospectus.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the [Credit Enhancer] on or before July 31 of each year, beginning July 31,
[ ], a report as to compliance by the Servicer during the preceding twelve
months ended March 31 with certain standards relating to the servicing of the
Receivables (or in the case of the first such certificate, the period from the
Cutoff Date to July 31, [ ]).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the [Credit Enhancer], on or before July 31 of each year,
commencing July 31, [ ] of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Sale and
Servicing Agreement throughout the preceding twelve months ended March 31 or, if
there has been a default in the fulfillment of any such obligation, describing
each such default (or in the case of the first such certificate, the period from
the Cutoff Date to July 31, [ ]). The Servicer has agreed to give the Indenture
Trustee and the [Credit Enhancer] notice of any Events of Default under the Sale
and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding 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
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the [Credit Enhancer]. No such
resignation will become effective until a successor servicer has assumed the
servicing obligations and duties under the Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby Servicer
has agreed pursuant to the Servicing Assumption Agreement to assume the
servicing obligations and duties under the Sale and Servicing Agreement.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
S-52
The Servicer is retained for an initial term commencing on the Closing
Date and ending on [ ], which term may be extended in ninety day increments by
the [Credit Enhancer]. In the absence of an Event of Default under the Sale and
Servicing Agreement, the [Credit Enhancer] has agreed to extend such term. See
"Description of the Notes [and the Certificates] - Certain Matters Regarding the
Servicer" in the Prospectus.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days, or
any failure to deliver to the Indenture Trustee the annual accountants' report,
the annual statement as to compliance or the statement to the Securityholders,
in each case, within five days of the date it is due; (ii) any failure by the
Servicer duly to observe or perform in any material respect any other covenant
or agreement in the Sale and Servicing Agreement which failure materially and
adversely affects the rights of the related Securityholders (without regard to
the availability of funds from the [Credit Enhancement]) and continues
unremedied for 30 days after the giving of written notice of such failure (1) to
the Servicer or the Seller, as the case may be, by the [Credit Enhancer] or by
the Indenture Trustee, or (2) to the Servicer or the Seller, as the case may be,
and to the Indenture Trustee and the [Credit Enhancer] by the holders of Class A
Notes evidencing not less than 25% of the outstanding principal balance of the
Class A Notes; or, after the Class A Notes have been paid in full, the holders
of Class B Notes evidencing not less than 25% of the outstanding principal
balance of the Class B Notes, (iii) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings with
respect to the Servicer or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; (iv) a
claim is made under the [Credit Enhancement]; or (v) the occurrence of an Event
of Default under the Insurance Agreement.
Rights Upon Servicer Termination Event
As long as a Servicer Termination Event remains unremedied, (x)
provided no [Credit Enhancer] Default shall have occurred and be continuing, the
[Credit Enhancer] in its sole and absolute discretion or (y) if an [Credit
Enhancer] Default shall have occurred and be continuing, then the Indenture
Trustee or the holders of Class A Notes evidencing not less than 25% of the
outstanding principal balance of the Class A Notes or, after the Class A Notes
have been paid in full, the holders of Class B Notes evidencing not less than
25% of the outstanding principal balance of the Class B Notes, may terminate all
the rights and obligations of the Servicer under the Sale and Servicing
Agreement, whereupon the Standby Servicer, or such other successor Servicer as
shall be or have been appointed by the [Credit Enhancer] (or, if an [Credit
Enhancer] Default shall have occurred and be continuing, by the Indenture
Trustee, the Class A Noteholders or the Class B Noteholders, as described above)
will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Sale and Servicing Agreement; provided, however, that such successor
Servicer shall have no liability with respect to any obligation which was
required to be performed by the predecessor Servicer prior to the date such
successor Servicer becomes the Servicer or the claim of a third party (including
a Securityholder) based on any alleged action or inaction of the predecessor
Servicer as Servicer.
["Credit Enhancer Default" shall mean any one of the following events
shall have occurred and be continuing: (i) the [Credit Enhancer] fails to make a
payment required under the [Credit Enhancement] in accordance with its terms;
(ii) the [Credit Enhancer] (A) files any petition or commences any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (B) makes a general assignment
for the benefit of its creditors, or (C) has an order for relief entered against
it under the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (iii) a court of competent
jurisdiction, the New York Department of Insurance or other competent regulatory
authority enters a final
S-53
and nonappealable order, judgment or decree (A) appointing a custodian, trustee,
agent or receiver for the [Credit Enhancer] or for all or any material portion
of its property or (B) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the [Credit Enhancer] (or the taking of possession
of all or any material portion of the property of the [Credit Enhancer]).]
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of the [Credit
Enhancer], the holders of Class A Notes evidencing more than 50% of the
outstanding principal balance of the Class A Notes (the "Class A Note Majority")
or, after the Class A Notes have been paid in full, the holders of Class B Notes
evidencing more than 50% of the outstanding principal balance of the Class B
Notes (the "Class B Note Majority") may, on behalf of all Noteholders waive any
default by the Servicer in the performance of its obligations under the Sale and
Servicing Agreement and its consequences, except a default in making any
required deposits to or payments from any of the Trust Accounts in accordance
with the Sale and Servicing Agreement. No such waiver shall impair the
Noteholders' rights with respect to subsequent defaults.
CREDIT ENHANCEMENT
[Description of Credit Enhancement]
THE CREDIT ENHANCER
[Description of Credit Enhancer]
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
In all states in which the Receivables have been originated, a security
interest in automobiles, light trucks, vans and minivans is perfected by
notation of the secured party's lien on the vehicles's certificate of title and
the filing of the certificate of title with the state motor vehicle department.
The Contracts representing the [Affiliated Originator] Receivables name
[Affiliated Originator] as obligee and as the secured party. [Affiliated
Originator] also takes all actions necessary under the laws of the state in
which the financed vehicle is located to perfect [Affiliated Originator's]
security interest in the Financed Vehicle, including, where applicable, having a
notation of its lien recorded on such vehicle's certificate of title and filed
with the state motor vehicle department.
Pursuant to the [Affiliated Purchase Agreement], [Affiliated
Originator] will sell and assign to the Seller its interests in the Financed
Vehicles securing the [Affiliated Originator] Receivables, and pursuant to the
Trust Agreement, the Seller will assign its interests in such Financed Vehicles
to the Trustee. However, because of the administrative burden and expense, the
certificates of title for the Financed Vehicles securing the [Affiliated
Originator] Receivables will not be amended or reissued to reflect the
assignment thereof to the Seller, nor will the certificates of title to any
Financed Vehicles (including those securing the [Affiliated Originator]
Receivables) be amended or reissued to identify the Trust as the new secured
party on the certificate of title relating to the Financed Vehicles. The
Indenture provides that the Indenture Trustee, however, will hold any
certificates of title relating to the Financed Vehicles in its possession
pursuant to the Indenture.
In most states, an assignment such as that under the Sale and Servicing
Agreement and such as that under the Purchase Agreement and [Affiliated Purchase
Agreement] is an effective conveyance of a security interest without amendment
of any lien noted on a vehicle's certificate of title and the assignee succeeds
thereby to the assignor's rights as secured party. By not identifying the Seller
as the secured party on the certificates of title for the Financed Vehicles
securing the [Affiliated Originator] Receivables, the security interest of the
Seller (and, therefore, the security interest of the Trust) could be defeated
through fraud or negligence on the part of [Affiliated Originator]. Similarly,
by not identifying the Trust as the secured party
S-54
on the certificate of title, the security interest of the Trust in the Financed
Vehicle could be defeated through fraud or negligence on the part of the
Servicer. In the absence of fraud or forgery by the vehicle owner, the Servicer
or (with respect to [Affiliated Originator] Receivables) [the Affiliated
Originator], or administrative error by state or local agencies, the notation of
[Affiliated Originator's] lien on the certificates of title for the Financed
Vehicles financed under the [Affiliated Originator] Receivables, and the
notation of CPS's lien on the certificates of title for all other Financed
Vehicles, will be sufficient to protect the Trust against the rights of
subsequent purchasers of a vehicle or subsequent lenders who take a security
interest in a vehicle securing a Receivable. If there are any Financed Vehicles
as to which CPS or [Affiliated Originator] failed to obtain and assign to the
Seller or the Trust a perfected security interest, the security interest of CPS
or [Affiliated Originator], as applicable, would be subordinate to, among
others, subsequent purchasers of such Financed Vehicles and holders of perfected
security interests therein. Such a failure, however, would constitute a breach
of the warranties of CPS under the Purchase Agreement and would create an
obligation of CPS to repurchase the related Receivables unless the breach is
cured. The Seller will assign its rights pursuant to the Sale and Servicing
Agreement to the Trust. See "Description of the Trust Documents - Sale and
Assignment of Receivables; Subsequent Receivables" in this Prospectus
Supplement.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Class A Notes will be characterized as debt, the Class B Notes should be
characterized as debt (but if not characterized as debt, the Class B Notes will
be characterized as interests in a partnership), and the Trust will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income tax purposes. See "Federal Income
Tax Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as an individual
retirement account and a Keogh plan (each a "Benefit Plan"), from engaging in
certain transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons or the
fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Class A-2 Notes if assets of the Trust were deemed to be assets
of the Benefit Plan. Under a regulation issued by the United States Department
of Labor (the "Regulation"), the assets of the Trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an "equity interest" in the Trust and none of the
exceptions contained in the Regulation was applicable. An equity interest is
defined under the Regulation as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial
equity features. Although there is little guidance on the subject, the Seller
believes that, at the time of their issuance, the Notes should be treated as
indebtedness of the Trust without substantial equity features for purposes of
the Regulation. This determination is based in part upon the traditional debt
features of the Notes, including the reasonable expectation of purchasers of
Notes that the Notes will be repaid when due, as well as the absence of
conversion rights, warrants and other typical equity features. The debt
treatment of the Notes for ERISA purposes could change if the Trust incurred
losses.
S-55
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, 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 Seller, the Servicer or the Owner Trustee is or
becomes a party in interest or a disqualified person with respect to such
Benefit Plan. Certain exemptions from the prohibited transaction rules could be
applicable to the purchase and holding of Notes by a Benefit Plan depending on
the type and circumstances of the plan fiduciary making the decision to acquire
such Notes. 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; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." By acquiring a Note, each purchaser will be deemed
to represent that either (i) it is not acquiring the Notes with the assets of a
Benefit Plan; or (ii) the acquisition of the Notes will not give rise to a
nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975
of the Code.
[The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.]
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the related Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], (the "Underwriting Agreement") among CPS, the
Seller, and [ ] (the "Underwriter"), the Seller has agreed to cause the Seller
to sell to the Underwriter, and the Underwriter has agreed to purchase, Notes
[and Certificates] in the following respective amounts:
Underwriter Principal Amount
----------------
Total.................................................... ================
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all the Notes offered hereby if any of such Notes are purchased.
CPS and the Seller have been advised by the Underwriter that the
Underwriter proposes to offer the Securities from time to time for sale in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. The Underwriter may effect such transactions by selling the
Securities to or through dealers and such dealers may receive compensation in
the form of underwriting discounts,
S-56
concessions or commissions from the Underwriter and any purchasers of Securities
for whom they may act as agents. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Securities may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of Securities by them may be deemed to be underwriting
discounts or commissions, under the Securities Act.
The Securities are a new issue of securities with no established
trading market. The Underwriter has advised CPS and the Seller that it intends
to act as a market maker for the Securities. However, the Underwriter is not
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of any trading market for
the Securities.
CPS and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for CPS and the Underwriter by Mayer, Brown & Platt, New York, New York.
S-57
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
"Actuarial Receivables"....................................................S-37
"Alpha Program" .........................................................S-25
"Benefit Plan" ...................................................S-18, S-55
"Business Day" ..........................................................S-7
"Cede" ...................................................S-17, S-43
"Certificate Owners".................................................S-17, S-42
"Certificate Prepayment Amount"......................................S-13, S-42
"Certificate Prepayment Premium"...........................................S-13
"Certificateholders' Distributable Amount".................................S-49
"Certificateholders' Interest Distributable Amount"........................S-42
"Certificateholders' Percentage"...........................................S-49
"Certificateholders' Principal Distributable Amount".................S-42, S-49
"Certificates" .....................................................S-1, S-4
"Class A Noteholders' Interest Distributable Amount".......................S-48
"Class A Noteholders' Principal Distributable Amount"...........S-9, S-40, S-48
"Class A Notes" ..........................................................S-1
"Class A-1 Interest Rate"...................................................S-8
"Class A-1 Noteholders"...............................................S-8, S-39
"Class A-1 Notes" ..........................................................S-1
"Class A-2 Interest Rate"...................................................S-8
"Class A-2 Noteholders".....................................................S-8
"Class A-2 Notes" ..........................................................S-1
"Class A-1 Holdback Amount"................................................S-46
"Class A-1 Pool Factor"....................................................S-38
"Class A-2 Pool Factor"....................................................S-38
"Class A-3 Interest Rate"...................................................S-8
"Class A-3 Noteholders"....................................................S-39
"Class A-3 Notes" .....................................................S-1, S-4
"Class A-3 Pool Factor"....................................................S-38
"Class B Noteholders".................................................S-8, S-39
"Class B Noteholders' Interest Distributable Amount".......................S-48
"Class B Noteholders' Principal Distributable Amount"...........S-9, S-40, S-48
"Class B Notes" .....................................................S-1, S-4
"Closing Date" ..........................................................S-4
"Collateral Agent".........................................................S-50
"Collection Account".......................................................S-45
"Collection Period"........................................................S-10
"Commission" ..........................................................S-2
"Contracts" .........................................................S-24
"CPS Receivables" ..........................................................S-5
"CPS" ..........................................................S-4
"Cutoff Date" ..........................................................S-5
"Dealer Agreements"........................................................S-24
"Dealers" .........................................................S-24
"Delta Program" .........................................................S-25
"Determination Date".......................................................S-47
"Distribution Account".....................................................S-45
"DTC" ..............................................S-2, S-17, S-39
S-i
INDEX OF TERMS (cont.)
"ERISA" .........................................................S-55
"Events of Default"........................................................S-50
"Exchange Act" ..........................................................S-2
"Financed Vehicles".........................................................S-5
"First Time Buyer Program".................................................S-25
"Funding Period" ..........................................................S-7
"holders" .............................................S-17, S-39, S-42
"IFCs" ..........................................................S-5
"Indenture Trustee".........................................................S-1
"Indenture" .....................................................S-1, S-4
"Index Maturity" .........................................................S-40
"Insurance Agreement"......................................................S-19
"Interest Rate" ..........................................................S-8
"Interest Reserve Account"............................................S-7, S-46
"Issuer" ..........................................................S-4
"LIBOR Determination Date".................................................S-40
"Liquidated Receivable"....................................................S-47
"Liquidation Proceeds".....................................................S-47
"Lock-Box Account"...................................................S-16, S-45
"Lock-Box Bank" .........................................................S-16
"Lock-Box Processor".......................................................S-16
"Mandatory Prepayment"...............................................S-13, S-42
"Mandatory Redemption"...............................................S-11, S-41
"Master Spread Account Agreement"..........................................S-50
"Note Owners" ...................................................S-17, S-39
"Note Prepayment Amount".............................................S-11, S-41
"Note Prepayment Premium"..................................................S-11
"Noteholders" ..............................................S-7, S-17, S-39
"Noteholders' Distributable Amount"........................................S-48
"Notes" ..........................................................S-1
"Obligors" .........................................................S-24
"Original Pool Balance".....................................................S-5
"Owner Trustee" ..........................................................S-1
"Participants" .........................................................S-43
"Pass-Through Rate"........................................................S-12
"Payment Date" ..........................................................S-7
"Pool Balance" .........................................................S-38
"Post Office Box" .........................................................S-16
"prepayments" .........................................................S-37
"Pre-Funded Amount".........................................................S-7
"Pre-Funding Account".......................................................S-7
"Principal Balance"........................................................S-47
"Principal Distributable Amount".....................................S-10, S-48
"PTCE" .........................................................S-56
"Purchase Amount" .........................................................S-47
"Receivables" ..........................................................S-5
"Record Date" .........................................................S-15
"Recoveries" .........................................................S-48
"Reference Banks" .........................................................S-40
"Registration Statement"....................................................S-2
"Regulation" .........................................................S-55
S-ii
INDEX OF TERMS (cont.)
"Requisite Amount".........................................................S-15
"Requisite Reserve Amount".................................................S-46
"Rule of 78's Receivables".................................................S-37
"Scheduled Receivable Payment".............................................S-48
"Securities Act" ..........................................................S-2
"Securities" .....................................................S-1, S-4
"Securityholders" .........................................................S-12
"Seller" .....................................................S-1, S-4
"Servicer Termination Event"...............................................S-53
"Servicer" ..........................................................S-4
"Servicing Assumption Agreement"...........................................S-17
"Servicing Fee Rate".......................................................S-17
"Servicing Fee" .........................................................S-46
"Simple Interest Receivables"..............................................S-37
"Spread Account" .........................................................S-50
"Standard Program".........................................................S-25
"Standby Fee" .........................................................S-17
"Standby Servicer"...................................................S-17, S-39
"Sub-Prime Borrowers"......................................................S-24
"Subsequent Closing Date"...................................................S-6
"Subsequent Cutoff Date"....................................................S-6
"Subsequent Receivables"....................................................S-6
"Subsequent Transfer Agreement"............................................S-19
"Telerate Page 3750".......................................................S-40
"Total Distribution Amount"................................................S-47
"Trust Agreement" ..........................................................S-4
"Trust Assets" ..........................................................S-5
"Trust" .....................................................S-1, S-4
"UCC" .........................................................S-45
"Underwriter" .........................................................S-56
"Underwriting Agreement"...................................................S-56
"[Affiliate Purchase Agreement]"...........................................S-44
"[Affiliated Originator] Receivables".................................S-5, S-15
"[Credit Enhancement] Cross Default".......................................S-50
S-iii
===============================================
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
S-iv
TABLE OF CONTENTS
Page
Prospectus Supplement
Available Information........................................................S-2
Incorporation of Certain Documents by Reference..............................S-2
Reports to Securityholders...................................................S-2
Summary ....................................................................S-4
Risk Factors................................................................S-19
Formation of the Trust......................................................S-23
The Trust Assets............................................................S-24
Cps's Automobile Contract Portfolio.........................................S-24
The Receivables Pool........................................................S-31
Yield Considerations........................................................S-37
Pool Factors and Other Information..........................................S-38
Use of Proceeds.............................................................S-38
The Seller and Cps..........................................................S-38
The Standby Servicer........................................................S-39
Description of the Notes....................................................S-39
Description of the Certificates.............................................S-42
Registration of Notes and Certificates......................................S-43
Description of the Trust Documents..........................................S-43
Credit Enhancement..........................................................S-54
the Credit Enhancer.........................................................S-54
Certain Legal Aspects of the Receivables....................................S-54
Federal Income Tax Consequences.............................................S-55
Erisa Considerations........................................................S-55
Underwriting................................................................S-56
Legal Opinions..............................................................S-57
Index of Terms...............................................................S-i
Prospectus
Prospectus Supplement.................................................... 2
Available Information.................................................... 2
Incorporation of Certain Documents by Reference.......................... 2
Reports to Noteholders................................................... 3
Summary of Terms......................................................... 4
Risk Factors............................................................. 10
Formation of the Trust................................................... 16
The Trust Assets......................................................... 16
Acquisition of Receivables by the Seller................................. 17
The Receivables.......................................................... 18
CPS's Automobile Contract Portfolio...................................... 20
Pool Factors............................................................. 20
Use of Proceeds.......................................................... 21
The Seller and CPS....................................................... 21
Description of the Certificates.......................................... 22
S-v
Certain Information Regarding the Certificates........................... 23
Description of the Trust Documents....................................... 31
Certain Legal Aspects of the Receivables................................. 40
Federal Income Tax Consequences.......................................... 43
ERISA Considerations..................................................... 47
Methods of Distribution.................................................. 47
Legal Opinions........................................................... 48
Financial Information.................................................... 48
Additional Information................................................... 48
Defined Terms............................................................ 49
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 199[ ]
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
-
PROSPECTUS SUPPLEMENT
-
[UNDERWRITER]
[ ], 199[ ]
S-vi
Prospectus Supplement
To Prospectus Dated August [ ], 1997
[$ ]
CPS Auto Receivables Trust 1997-3
[$ ][ %] Asset-Backed Notes, Class A-1
[$ ][ %] Asset-Backed Notes, Class A-2
[$ ][ %] Asset-Backed Notes, Class A-3
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 1997-3 (the "Trust") will be formed pursuant
to a Trust Agreement to be dated as of August [ ], 1997 between CPS Receivables
Corp., as seller (the "Seller"), and [ ], as owner trustee (the "Owner
Trustee"). The [ %] Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), the [
%] Asset-Backed Notes, Class A-2 (the "Class A-2 Notes") and the [ %]
Asset-Backed Notes, Class A-3 (the "Class A-3 Notes", and, together with the
Class A-1 Notes and Class A-2 Notes, the "Class A Notes") the Asset Backed
Notes, Class B (the "Class B Notes"), and, together with the Class A Notes and
the Class B Notes, the "Notes"), will be issued pursuant to an Indenture (the
"Indenture") to be dated as of August [ ], 1997 between the Trust and Norwest
Bank Minnesota, National Association, as indenture trustee (in such capacity,
the "Indenture Trustee"). The rights of Class B Noteholders to receive
payments of principal and/or interest will be subordinated to the rights of
Class A Noteholders to the extent described herein. Only the Class A Notes are
offered hereby.
-------
The Trust Assets will include a pool of retail installment sale
contracts (including contracts representing obligations of Sub-Prime Borrowers
(as defined herein)) and all rights thereunder, certain monies due or received
thereunder, security interests in the new and used automobiles, light trucks,
vans and minivans securing the Receivables (as defined herein), certain bank
accounts and the proceeds thereof, amounts on deposit in the Pre-Funding Account
(as defined herein) and the Interest Reserve Account (as defined herein) and the
proceeds thereof, the Policy with respect to the Notes, and the right of
Consumer Portfolio Services, Inc. ("CPS") to receive certain insurance proceeds
and certain other property, as more fully described herein. The Receivables will
be purchased by the Seller from CPS and from CPS's subsidiary, Samco Acceptance
Corp. ("Samco") on or prior to the date of the issuance of the Notes.
It is intended that from time to time on or before [ ] the Trust will
purchase from the Seller (or Samco) additional retail installment sale contracts
having an aggregate principal balance of up to $[ ] with funds on deposit in the
Pre-Funding Account (as defined herein).
______
The Underwriters have agreed to purchase from the Seller the Class A-1
Notes at a purchase price equal to [ %] of the principal amount of Class A-1
Notes, the Class A-2 Notes at a purchase price equal to [ %] of the principal
amount of Class A- 2 Notes and the Class A-3 Notes at a purchase price equal to
[ %] of the principal amount of Class A-2 Notes, in each case subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriters propose to offer the Class A Notes from time to time
in negotiated transactions or otherwise, at varying prices to be determined at
the time of sale. For further information with respect to the plan of
distribution and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
-------
Full and timely payment of the Scheduled Payments (as defined herein)
in respect of the Class A Notes on each Payment Date is unconditionally and
irrevocably guaranteed pursuant to a financial guaranty insurance policy (the
"Policy") to be issued by:
[FSA Logo]
-------
For a discussion of certain factors relating to
the transaction, see "Risk Factors" at page
S-15 herein and page 15 in the accompanying
prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY AFFILIATE THEREOF. THE
NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------
The Class A Notes are offered hereby by the Underwriters when, as and if issued
by the Trust, delivered to and accepted by them and subject to the right of the
Underwriters to reject any order in whole or in part. It is expected that
delivery of the Class A Notes will be made on or about August [ ], 1997, only
through The Depository Trust Company, Cedel Bank societe anonyme, and the
Euroclear System.
S-1
PaineWebber Incorporated BlackDiamond Securities, LLC
The date of this Prospectus Supplement is August [ ], 1997.
S-2
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports 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. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
In addition to the documents described above and in the accompanying
Prospectus under "Incorporation of Certain Documents by Reference", the
consolidated financial statements of Financial Security Assurance Inc. and its
Subsidiaries included in, or as exhibits to, the following documents, which have
been filed with the Commission by Financial Security Assurance Holdings Ltd.
("Holdings"), are hereby incorporated by reference in this Prospectus
Supplement:
(a) Annual Report on Form 10-K for the period ended December 31, 1996,
S-3
(b) Quarterly Report on Form 10-Q for the period ended June 30, 1997,
All financial statements of Financial Security Assurance Inc.
("Financial Security") and Subsidiaries included in documents filed by Holdings
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Notes shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing of such documents.
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Trust's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act and
each filing of the financial statements of Financial Security included in or as
an exhibit to the annual report of Holdings filed pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
Class A Notes offered hereby, and the offering of such Class A Notes at that
time shall be deemed to be the initial bona fide offering thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92618,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Notes. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Servicer will file with the
Commission such periodic reports as are required under the Exchange Act, and the
rules and regulations thereunder and as are otherwise agreed to by the
Commission. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
S-4
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer...................... CPS Auto Receivables Trust 1997-3 (the
"Trust" or the "Issuer").
Seller...................... CPS Receivables Corp. (the "Seller"). See
"The Seller and CPS" in this Prospectus
Supplement.
Servicer.................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS" in this
Prospectus Supplement.
Indenture Trustee........... Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota.
Owner Trustee............... [Name and Address]
Insurer..................... Financial Security Assurance, Inc., a
financial guaranty insurance company
incorporated under the laws of the State of
New York (the "Insurer"). See "The Insurer"
in this Prospectus Supplement.
Closing Date................ On or about August [ ], 1997 (the "Closing
Date").
The Trust................... The Trust will be a business trust
established under the laws of the State of
Delaware. The activities of the Trust are
limited by the terms of the Trust Agreement
dated as of August [ ], 1997 between the
Seller and the Owner Trustee (the "Trust
Agreement").
The Trust will issue [ ]% Class A-1 Asset
Backed Notes (the "Class A-1 Notes") in the
aggregate original principal amount of $[ ],
[ ]% Class A-2 Asset-Backed Notes (the
"Class A-2 Notes") in the aggregate original
principal amount of $[ ], [ ]% Class A-3
Asset-Backed Notes (the "Class A-3 Notes")
in the aggregate original principal amount
of $[ ] and [ ]% Class B Asset-Backed Notes
(the "Class B Notes") in the aggregate
original principal amount of $[ ].
S-5
The Notes will be issued pursuant to an
Indenture dated as of August [ ], 1997 (the
"Indenture"). The Notes will be offered for
purchase in minimum denominations of [
$1,000] and integral multiples of $1,000 in
excess thereof, in book entry form only. See
"Description of the Securities - Book- Entry
Registration" in the Prospectus.
The Notes will be secured by the Trust
Assets as, and to the extent, provided in
the Indenture.
Trust Assets................ The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (collectively,
the "Receivables") secured by the new and
used automobiles, light trucks, vans and
minivans financed thereby (the "Financed
Vehicles"), (ii) with respect to Receivables
that are Rule of 78's Receivables (as
defined herein), all payments due thereon
after [ ], 1997 (the "Cutoff Date"), and,
with respect to Receivables that are Simple
Interest Receivables (as defined herein),
all payments received thereunder after the
Cutoff Date, (iii) security interests in the
Financed Vehicles, (iv) certain bank
accounts and the proceeds thereof, (v) the
Pre-Funding Account and the Interest Reserve
Account and the proceeds thereof, (vi) the
right of the Seller to receive proceeds from
claims under, or refunds of unearned
premiums from, certain insurance policies
and extended service contracts, (vii) all
right, title and interest of the Seller in
and to the Purchase Agreements (as defined
below) (viii) the Policy issued by the
Insurer with respect to the Class A Notes,
and (ix) certain other property, as more
fully described herein. See "Formation of
the Trust" in this Prospectus Supplement and
"The Receivables" in the Prospectus. Certain
of the Receivables (the "CPS Receivables")
will be purchased by the Seller from CPS
pursuant to a purchase agreement (the "CPS
Purchase Agreement") and certain of the
Receivables (the "Samco Receivables") will
be purchased by the Seller from CPS's
subsidiary, Samco Acceptance Corp. pursuant
to a purchase agreement (the "Samco Purchase
Agreement" and, together with the CPS
Purchase Agreement, the "Purchase
Agreements") on or prior to the Closing
Date. The Receivables arise from loans
originated by automobile dealers or IFCs (as
defined herein) for assignment to CPS or a
subsidiary of CPS pursuant to CPS's auto
loan programs.
The Receivables............. As of the Cutoff Date, the aggregate
outstanding principal balance of the
Receivables was [$ ] (the "Original Pool
Balance"). The Receivables consist of retail
installment sale contracts secured by new
and used automobiles, light trucks, vans and
minivans including, with respect to Rule of
S-6
78's Receivables, the rights to all payments
due with respect to such Receivables after
the Cutoff Date, and, with respect to Simple
Interest Receivables, the rights to all
payments received with respect to such
Receivables after the Cutoff Date. As of the
Cutoff Date, approximately [ %] of the
aggregate principal balance of the
Receivables represented financing of used
vehicles. The Receivables arise from loans
originated by automobile dealers or
independent finance companies ("IFCs") for
assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs. The
auto loan programs target automobile
purchasers with marginal credit ratings who
are generally unable to obtain credit from
banks or other low-risk lenders. See "CPS's
Automobile Contract Portfolio - General" and
"The Receivables Pool" in this Prospectus
Supplement and "Risk Factors - Sub-Prime
Obligors" in the Prospectus. The Receivables
have been selected from the contracts owned
by CPS or Samco based on the criteria
specified in the Purchase Agreements and
described herein.
Following the Closing Date, pursuant to the
Sale and Servicing Agreement, the Seller
will be obligated, subject only to the
availability thereof, to sell, and the Trust
will be obligated to purchase, subject to
the satisfaction of certain conditions set
forth therein, additional Receivables
originated by CPS or Samco under its auto
loan programs and acquired by the Seller
from CPS or Samco (the "Subsequent
Receivables") from time to time during the
Funding Period (as defined below) having an
aggregate Principal Balance equal to
approximately $[ ]. Subsequent Receivables
will be conveyed to the Trust on dates
specified by the Seller (each date on which
Subsequent Receivables are conveyed being
referred to as a "Subsequent Closing Date")
occurring during the Funding Period. After
any Subsequent Closing Date, the Trust
Assets will include payments other than
payments under the Policy received with
respect to the related Subsequent
Receivables after the cutoff date designated
by the Seller with respect to such
Subsequent Closing Date (such date
designated by the Seller, the "Subsequent
Cutoff Date" with respect to the Subsequent
Receivables conveyed to the Trust on such
Subsequent Closing Date). See "Description
of the Trust Documents - Sale and Assignment
of Receivables; Subsequent Receivables"
herein. On each Subsequent Closing Date,
subject to the conditions set forth in the
Trust Documents (as defined herein), the
Trustee shall purchase from the Seller the
Subsequent Receivables to be transferred to
the Trust on such Subsequent Closing Date.
S-7
Pre-Funding Account......... The Initial Receivables and the Subsequent
Receivables will be selected from motor
vehicle retail installment sale contracts in
CPS's and Samco's portfolio based on the
criteria specified in =========== the
Purchase Agreements and described in this
Prospectus ========== Supplement. No
Receivable will have a scheduled maturity
date later than [ ].
Subsequent Receivables will be originated
under CPS's auto loan programs or through
Samco but, as these programs are modified
from time to time by CPS due to changes in
market conditions or otherwise in the
judgment of CPS, such Subsequent Receivables
may be originated using credit criteria
different from the criteria applied with
respect to the Initial Receivables and may
be of a different credit quality and
seasoning. However, CPS believes that the
inclusion of the Subsequent Receivables in
the pool of Receivables will not materially
adversely affect the performance or other
characteristics of the pool of Receivables.
In addition, following the transfer of
Subsequent Receivables to the Trust, the
characteristics of the entire pool of
Receivables included in the Trust may vary
from those of the Initial Receivables. See
"Risk Factors - Varying Characteristics of
Subsequent Receivables" and "The Receivables
Pool" herein.
On the Closing Date, the Seller will deposit
into the Pre- Funding Account (as defined
below), from the proceeds from the sale of
the Notes, the sum of $[ ] (such amount, as
reduced from time to time by the aggregate
Principal Balances of all Subsequent
Receivables purchased by the Trust during
the Funding Period (the "Pre-Funded
Amount"). During the period (the "Funding
Period") from and including the Closing Date
until the earliest of (i) the Record Date on
which (a) the Pre-Funded Amount is less than
$100,000, (b) an Event of Default has
occurred under the Indenture or a Servicer
Termination Event has occurred under the
Sale and Servicing Agreement, (c) certain
events of insolvency have occurred with
respect to the Seller or the Servicer or
(ii) the close of business on the [ ]
Payment Date, the Pre-Funded Amount will be
maintained as an account in the name of the
Indenture Trustee (the "Pre-Funding
Account"). The Pre- Funded Amount is
expected to initially equal approximately $[
] and, during the Funding Period will be
reduced by the principal balance of
Subsequent Receivables purchased by the
Trust from time to time in accordance with
the Sale and Servicing Agreement. The Seller
expects that the Pre-Funded Amount will be
reduced to less than $100,000 by the [ ]
Payment Date. Any Pre-Funded Amount
remaining at the end of the Funding Period
will be payable to the Class A
S-8
Noteholders pro rata in proportion to the
respective principal balances of each class
of Class A Notes.]
Interest.................... Reserve Account During the Funding Period,
funds will be held in an account (the
"Interest Reserve Account") to cover any
shortfalls due to investment earnings on
funds in the Pre-Funding Account being less
than the interest that would have been
earned had such funds been invested in
Receivables. See "Description of the Trust
Documents - Accounts".
Terms of the Notes.......... The principal terms of the Notes will be as
described below:
A. Payment Dates........... Payments of interest and principal on the
Notes will be made on the 15th day of each
month or, if such 15th day is not a Business
Day, on the next following Business Day
(each a "Payment Date"), commencing
September 15, 1997. Payments will be made to
holders of record of the Notes (the
"Noteholders") as of the close of business
on the Record Date (as defined herein)
applicable to such Payment Date. A "Business
Day" is a day other than a Saturday, a
Sunday or a day on which banking
institutions in the City of New York, New
York, the State in which the Corporate Trust
Office is located, the State in which the
executive offices of the Servicer are
located or the State in which the principal
place of business of the Insurer is located
are authorized or obligated by law,
executive order or governmental decree to be
closed.
B. Final Scheduled
Payment Dates....... [ ].
C. Subordination of the
Class B Notes........ The Class B Notes will not receive any
payment of principal or interest on a
Payment Date until the full amount of the
Class A Noteholders' Interest Distributable
Amount due to the Class A Noteholders with
respect to such Payment Date has been
deposited in the Distribution Account. The
Class B Notes will not receive any payment
of principal on a Payment Date until the
full amount of the Class A Noteholders'
Principal Distributable Amount due to the
Class A Noteholders with respect to such
Payment Date has been deposited in the
Distribution Account.
D. Interest Rates......... The Class A-1 Notes will bear interest at a
rate equal to [ %] per annum (the "Class A-1
Interest Rate"). The Class A-2 Notes will
bear interest at a rate equal to [ %] per
annum (the "Class A-2 Interest Rate"). The
Class A-3 Notes will bear interest at a rate
equal to [ %] per annum (the "Class A-3
Interest Rate"). The Class B Notes will bear
interest at a rate of [ ]% per annum (the
"Class B Interest Rate"). Each such interest
rate for a Class of Notes is referred to as
an
S-9
"Interest Rate". Interest on the Notes,
other than the Class A-1 Notes, will be
calculated on the basis of a 360 day year
consisting of twelve 30 day months. Interest
on the Class A-1 Notes will be calculated on
the basis of the actual number of days in a
365-day year.
D. Interest............... On each Payment Date, the holders of record
of the Class A-1 Notes (the "Class A-1
Noteholders") will be entitled to receive,
pro rata, interest at the Class A-1 Interest
Rate for the number of days elapsed from and
including the most recent Payment Date (or
in the case of the initial Payment Date,
from and including the Closing Date) to but
excluding the current Payment Date, on the
outstanding principal amount of the Class
A-1 Notes at the close of business on the
last day of the related Collection Period.
On each Payment Date, the holders of record
of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record Date
will be entitled to receive, pro rata,
thirty (30) days of interest at the Class
A-2 Interest Rate on the outstanding
principal amount of the Class A-2 Notes at
the close of business on the last day of the
related Collection Period. On each Payment
Date, the holders of record of the Class A-3
Notes (the "Class A-3 Noteholders") as of
the related Record Date will be entitled to
receive, pro rata, thirty (30) days of
interest at the Class A-3 Interest Rate on
the outstanding principal amount of the
Class A-3 Notes at the close of business on
the last day of the related Collection
Period. On each Payment Date, the holders of
record of the Class B Notes (the "Class B
Noteholders") as of the related Record Date
will be entitled to receive, pro rata,
thirty (30) days of interest at the Class B
Interest Rate on the outstanding principal
balance of the Class B Notes at the close of
business on the last day of the related
Collection Period. Notwithstanding the
foregoing, on the first Payment Date, the
interest payable to the Noteholders of
record of each Class of Notes will be an
amount equal to the product of (a) the
Interest Rate applicable to such Class of
Notes, (b) the initial principal amount of
such Class of Notes and (c) a fraction (i)
the numerator of which is the number of days
from and including the Closing Date through
and including September 14, 1997 and (ii)
the denominator of which is 360 (or, with
respect to the Class A-1 Notes only, 365).
Interest on the Notes which is due but not
paid on any Payment Date will be payable on
the next Payment Date together with, to the
extent permitted by law, interest on such
unpaid amount at the applicable Interest
Rate. See "Description of the Notes -
Payments of Interest" in this Prospectus
Supplement.
E. Principal................ Principal of the Class A Notes will be
payable on each Payment Date in an amount
equal to the Class A Noteholders'
S-10
Principal Distributable Amount for the
related Collection Period. The "Class A
Noteholders' Principal Distributable Amount"
is equal to the product of (x) the Class A
Noteholders' Percentage of the Principal
Distributable Amount and (y) any unpaid
portion of the amount described in clause
(x) above with respect to a prior Payment
Date. Principal of the Class B Notes will be
payable on each Payment Date in an amount
equal to the Class B Noteholders' Principal
Distributable Amount for the related
Collection Period. The "Class B Noteholders'
Principal Distributable Amount" is equal to
the product of (a) the Class B Noteholders'
Percentage of the Principal Distributable
Amount and (b) any unpaid portion of the
amount described in clause (a) above with
respect to a prior Payment Date.
The "Class A Noteholders' Percentage" will
(a) on any Payment Date prior to the Payment
Date on which the principal amount of the
Class A-3 Notes is reduced to zero, be [ %],
(b) on the Payment Date on which the
principal amount of the Class A-3 Notes is
reduced to zero, be the percentage
equivalent of a fraction, the numerator of
which is the principal amount of the Class
A-3 Notes immediately prior to such Payment
Date, and the denominator of which is the
Principal Distributable Amount and (c) on
any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will
(a) on any Payment Date prior to the Payment
Date on which the principal amount of the
Class A-3 Notes is reduced to zero, be [ %],
(b) on the Payment Date on which the
principal amount of the Class A-3 Notes is
reduced to zero, be the percentage
equivalent of a fraction, the numerator of
which is the principal amount of the Class
A-3 Notes immediately prior to such Payment
Date, and the denominator of which is the
Principal Distributable Amount and (c) on
any other Payment Date, be 0%.
On each Payment Date, an amount equal to the
lesser of (i) the portion of the Total
Distribution Amount remaining after
application thereof to pay all senior
distributions as described in "Priority of
Payments" below and (ii) the Class A
Noteholders' Principal Distributable Amount
will be applied, sequentially, to pay
principal of the Class A-1 Notes until the
principal balance of the Class A-1 Notes has
been reduced to zero, then to the holders of
the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been
reduced to zero, then to the holders of the
Class A-3 Notes until the principal balance
of the Class A-3 Notes has been reduced to
zero. On each Payment Date, an amount equal
to the lesser
S-11
of (i) the portion of the Total Distribution
Amount remaining after application thereof
to pay all senior distributions as described
in "Priority of Payments" below and (ii) the
Class B Noteholders' Principal Distributable
Amount will be applied to pay principal of
the Class B Notes until the principal
balance of the Class B Notes has been
reduced to zero.
The "Principal Distributable Amount" for a
Payment Date will equal the sum of (a) the
principal portion of all Scheduled
Receivable Payments received during the
preceding Collection Period on Rule of 78's
Receivables and all payments of principal
received on Simple Interest Receivables
during the preceding Collection Period; (b)
the principal portion of all prepayments in
full received during the preceding
Collection Period (including prepayments in
full resulting from collections with respect
to a Receivable received during the
preceding Collection Period (without
duplication of amounts included in (a) above
and (d) below)); (c) the portion of the
Purchase Amount allocable to principal of
each Receivable that was repurchased by CPS
or purchased by the Servicer as of the last
day of the related Collection Period and, at
the option of the Insurer the Principal
Balance of each Receivable that was required
to be but was not so purchased or
repurchased (without duplication of the
amounts referred to in (a) and (b) above);
(d) the Principal Balance of each Receivable
that first became a Liquidated Receivable
during the preceding Collection Period
(without duplication of the amounts included
in (a) and (b) above); and (e) the aggregate
amount of Cram Down Losses with respect to
the Receivables that shall have occurred
during the preceding Collection Period
(without duplication of amounts included in
(a) through (d) above). In addition, the
outstanding principal amount of the Notes of
any Class, to the extent not previously
paid, will be payable on the respective
Final Scheduled Payment Date for such Class.
A "Collection Period" with respect to a
Payment Date will be the calendar month
preceding the month in which such Payment
Date occurs; provided, however, that with
respect to the first Payment Date, the
"Collection Period" will be the period from
and excluding the Cutoff Date to and
including September 14, 1997.
F. Optional
Redemption.............. The Notes, to the extent still outstanding,
may be redeemed in whole, but not in part,
on any Payment Date on which the Servicer
exercises its option to purchase all the
Receivables as of the last day of any
Collection Period on or after which the
aggregate Principal Balance of the
Receivables is equal to 10% or less of the
sum of (i) the Original Pool Balance plus
the
S-12
aggregate Principal Balance of all
Subsequent Receivables transferred to the
Trust (as of their applicable Subsequent
Cutoff Dates), at a redemption price equal
to the unpaid principal amount of the Notes,
plus accrued and unpaid interest thereon;
provided that the Servicer's right to
exercise such option will be subject to the
prior approval of the Insurer, but only if,
after giving effect thereto, a claim on the
Policy would occur or any amount owing to
the Insurer or the holders of the Notes
would remain unpaid. See "Description of the
Notes - Optional Redemption" in this
Prospectus Supplement.
G. Mandatory
Redemption.............. Each class of Notes will be redeemed in part
on the Payment Date on or immediately
following the last day of the Funding Period
in the event that any portion of the
Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to
the purchase of all Subsequent Receivables,
including any such purchase on such date (a
"Mandatory Redemption"). The aggregate
principal amount of each class of Notes to
be redeemed will be an amount equal to such
class' pro rata share (based on the
respective current principal balance of each
class of Notes) of the Pre-Funded Amount on
such date (such class' "Note Prepayment
Amount").
The Policy does not guarantee payment of the
Note Prepayment Amount. In addition, the
ratings assigned to the Notes by the Rating
Agencies do not address the likelihood that
the Note Prepayment Amount will be paid.
The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture.
So long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance Agreement dated as of [
]. In the case of such an Event of Default,
the Notes will automatically be accelerated
and subject to immediate payment at par. See
"Description of the Trust Documents - Events
of Default" in this Prospectus Supplement.
Priority of Payments........ On each Payment Date, the Indenture Trustee
shall make the following distributions in
the following order of priority:
(i) to the Servicer, the Servicing Fee and
all unpaid Servicing Fees from prior
Collection Periods; provided, however, that
as long as CPS is the Servicer and Norwest
Bank Minnesota, National Association is the
Standby Servicer, the Indenture
S-13
Trustee will first pay to the Standby
Servicer out of the Servicing Fee otherwise
payable to CPS an amount equal to the
Standby Fee;
(ii) in the event the Standby Servicer
becomes the successor Servicer, to the
Standby Servicer or such other successor
servicer, reasonable transition expenses (up
to a maximum of $50,000) incurred in acting
as successor Servicer;
(iii) to the Indenture Trustee and the Owner
Trustee, pro rata, the Indenture Trustee Fee
(as defined herein) and reasonable
out-of-pocket expenses and all unpaid
Trustee Fees and unpaid reasonable
out-of-pocket expenses from prior Collection
Periods;
(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent
with respect to such Payment Date;
(v) to the Class A Noteholders, the Class A
Noteholders' Interest Distributable Amount,
to be distributed as described under
"Description of the Trust Documents -
Distributions";
(vi) to the Class B Noteholders, the Class B
Noteholders' Interest Distributable Amount,
to be distributed as described under
"Description of the Trust Documents -
Distributions";
(vii) to the Class A Noteholders, the Class
A Noteholders' Principal Distributable
Amount, to be distributed as described under
"Description of the Trust Documents -
Distributions";
(viii) to the Insurer, any amounts due to
the Insurer under the terms of the Insurance
Agreement (as defined herein);
(ix) in the event any Person other than the
Standby Servicer becomes the successor
Servicer, to such successor Servicer, from
the Total Distribution Amount (as such Total
Distribution Amount has been reduced by
payments pursuant to clauses (i) through
(viii) above) to the extent not previously
paid by the predecessor Servicer, reasonable
transition expenses (up to a maximum of
$50,000 for all such expenses) incurred in
acting as successor Servicer;
(x) to the Class B Noteholders, the Class B
Noteholders' Principal Distributable Amount,
to be distributed as described under
"Description of the Notes -- Payments of
Principal"; and
(xi) to the Collateral Agent, for deposit
into the Spread Account, the remaining Total
Distribution Amount, if any.
S-14
See "Description of the Notes -
Distributions on Notes Priority of
Distribution Amounts" in this Prospectus
Supplement;
Spread Account.............. As part of the consideration for the
issuance of the Policy, the Seller has
agreed to cause the Spread Account to be
established with the Collateral Agent for
the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any
portion of the Total Distribution Amount
remaining on any Payment Date after payment
of all fees and expenses due on such date to
the Servicer, the Standby Servicer, the
Indenture Trustee, the Owner Trustee, the
Collateral Agent, the Insurer, any successor
Servicer and all principal and interest
payments due to the Noteholders on such
Payment Date, will be deposited in the
Spread Account and held by the Collateral
Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and
the Insurer. Amounts on deposit in the
Spread Account on any Payment Date which
(after all payments required to be made on
such date have been made) are in excess of
the requisite amount determined from time to
time in accordance with certain portfolio
performance tests agreed upon by the Insurer
and the Seller as a condition to the
issuance of the Policy (such requisite
amount, the "Requisite Amount") will be
released to or at the direction of the Owner
Trustee. See "Description of the Trust
Documents - Distributions - The Spread
Account" in this Prospectus Supplement.
Record Dates................ The record date applicable to each Payment
Date (each, a "Record Date") will be the
10th day of the calendar month in which such
Payment Date occurs.
Repurchases and Purchases
of Certain Receivables...... CPS has made certain representations and
warranties relating to the Receivables
(including the Samco Receivables) to the
Seller in the CPS Purchase Agreement, and
the Seller has made such representations and
warranties for the benefit of the Trust and
the Insurer in the Sale and Servicing
Agreement. The Indenture Trustee, as
acknowledged assignee of the repurchase
obligations of CPS under the CPS Purchase
Agreement, will be entitled to require CPS
to repurchase any Receivable if such
Receivable is materially and adversely
affected by a breach of any representation
or warranty made by CPS with respect to the
Receivable and such breach has not been
cured as of the last day of the second (or,
if CPS elects, the first) month following
discovery thereof by the Seller or CPS or
notice to the Seller or CPS. See
"Description of the Trust Documents -- Sale
and Assignment of Receivables" in the
Prospectus.
S-15
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection Period
preceding the Final Scheduled Payment Date
or fails to maintain a perfected security
interest in the Financed Vehicle. See
"Description of the Notes -- Servicing
Procedures" in this Prospectus Supplement
and "Description of the Trust Documents --
Servicing Procedures" in the Prospectus.
The Policy.................. On the Closing Date, the Insurer will issue
the Policy to the Indenture Trustee for the
benefit of the Class A Noteholders (the
"Policy"). Pursuant to the Policy, the
Insurer will unconditionally and irrevocably
guarantee to the Class A Noteholders payment
of the Class A Noteholders' Interest
Distributable Amount and the Class A
Noteholders' Principal Distributable Amount
(collectively, the "Scheduled Payments") on
each Payment Date.
Servicing................... The Servicer will be responsible for
servicing, managing and making collections
on the Receivables. On or prior to the next
billing period after the Cutoff Date, the
Servicer will notify each Obligor to make
payments with respect to the Receivables
after the Cutoff Date directly to a post
office box in the name of the Indenture
Trustee for the benefit of the Noteholders
and the Insurer (the "Post Office Box"). On
each Business Day, [Bank of America], as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such payments
received in the Post Office Box to a
segregated lock-box account at Bank of
America (the "Lock-Box Bank") in the name of
the Indenture Trustee for the benefit of the
Noteholders and the Insurer (the "Lock-Box
Account"). Within two Business Days of
receipt of funds into the Lock-Box Account,
the Servicer is required to direct the
Lock-Box Bank to effect a transfer of funds
from the Lock-Box Account to one or more
accounts established with the Indenture
Trustee. See "Description of the Notes --
Accounts" in this Prospectus Supplement and
"Description of the Trust Documents --
Payments on Receivables" in the Prospectus.
Standby Servicer............ Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota.
If a Servicer Termination Event occurs and
remains unremedied, (1) provided no Insurer
Default has occurred and is continuing, then
the Insurer in its sole and absolute
discretion, or (2) if an Insurer Default
shall have occurred and
S-16
be continuing, then the Indenture Trustee
may, with the consent of the Insurer (so
long as an Insurer Default shall not have
occurred and be continuing) or shall, at the
direction of the Insurer (or, if an Insurer
Default shall have occurred and be
continuing, at the direction of the Note
Majority) terminate the rights and
obligations of the Servicer under the Sale
and Servicing Agreement. If such event
occurs when CPS is the Servicer, or if CPS
resigns as Servicer or is terminated as
Servicer by the Insurer, Norwest Bank
Minnesota, National Association (in such
capacity, the "Standby Servicer") has agreed
to serve as successor Servicer under the
Sale and Servicing Agreement pursuant to a
Servicing Assumption Agreement dated as of
August [ ], 1997 among CPS, the Standby
Servicer and the Indenture Trustee (the
"Servicing Assumption Agreement"). The
Standby Servicer will receive a portion of
the Servicing Fee (the "Standby Fee") for
agreeing to stand by as successor Servicer
and for performing other functions. If the
Standby Servicer or any other entity serving
at the time as Standby Servicer becomes the
successor Servicer, it will receive
compensation at a Servicing Fee Rate not to
exceed 2.12% per annum. See "The Standby
Servicer" in this Prospectus Supplement.
Servicing Fee............... The Servicer will be entitled to receive a
Servicing Fee on each Payment Date equal to
the product of one-twelfth times 2.12% (the
"Servicing Fee Rate") of the Pool Balance as
of the close of business on the last day of
the second preceding Collection Period;
provided, however, that with respect to the
first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to
the product of one- twelfth times 2.12% of
the Original Pool Balance. As additional
servicing compensation, the Servicer will
also be entitled to certain late fees,
prepayment charges and other administrative
fees or similar charges. For so long as CPS
is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to
the Standby Servicer.
Certain Legal Aspects
of the Receivables........
In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the CPS
Receivables will be assigned by CPS to the
Seller pursuant to CPS Purchase Agreement
and by the Seller to the Trustee pursuant to
the Sale and Servicing Agreement. The Samco
Receivables, representing approximately [ %]
of the aggregate principal balance of the
Receivables as of the Cutoff Date, have been
originated by CPS's 80% owned subsidiary,
Samco, and will be purchased by the Seller
from Samco prior to consummation of the
transfer of Receivables contemplated in the
Sale and Servicing Agreement. The
certificates of title to
S-17
the Financed Vehicles securing the CPS
Receivables show CPS as the lienholder and
the certificates of title to the Samco
Receivables show Samco as the lienholder.
Due to the administrative burden and
expense, the certificates of title to the
Financed Vehicles securing the Receivables
will not be amended or reissued to reflect
the assignment thereof to the Seller, nor
will the certificates of title to any
Financed Vehicles be amended or reissued to
reflect the assignment thereof to the Trust.
In the absence of such an amendment, the
Trust may not have a perfected security
interest in the Financed Vehicles securing
the Receivables in some states.
By virtue of the assignment of the Purchase
Agreements to the Trust, CPS, and pursuant
to the Sale and Servicing Agreement, the
Seller, will be obligated to repurchase any
Receivable (including any Samco Receivable)
sold to the Trust by the Seller or Samco, as
to which there did not exist on the Closing
Date a perfected security interest in the
name of CPS or Samco in the Financed Vehicle
securing such Receivable, and the Servicer
will be obligated to purchase any Receivable
sold to the Trust as to which it failed to
maintain a perfected security interest in
the name of CPS or Samco in the Financed
Vehicle securing such Receivable (which
perfected security interest has been
assigned to, and is for the benefit of, the
Trust) if, in either case, such breach
materially and adversely affects the
interest of the Trust, the Indenture Trustee
or the Certificate Insurer in such
Receivable and if such failure or breach is
not cured by the last day of the second (or,
if CPS or the Servicer, as the case may be,
elects, the first) month following the
discovery by or notice to CPS or the
Servicer, as the case may be, of such
breach. To the extent the security interest
of CPS or Samco is perfected, the Trust will
have a prior claim over subsequent
purchasers of such Financed Vehicle and
holders of subsequently perfected security
interests. However, as against liens for
repairs of a Financed Vehicle or for unpaid
storage charges or for taxes unpaid by an
Obligor under a Receivable, or through
fraud, forgery or negligence or error, CPS
or Samco, and therefore the Trust, could
lose its prior perfected security interest
in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to
purchase a Receivable as to which a lien for
repairs of a Financed Vehicle or for taxes
unpaid by an Obligor under a Receivable
result in losing the priority of the
security interest in such Financed Vehicle
after the Closing Date. See "Risk Factors --
Certain Legal Aspects - Lack of
S-18
Perfected Security Interest in Financed
Vehicles" in this Prospectus Supplement and
in the Prospectus.
Book-Entry Notes............ The Class A Notes initially will be
represented by one or more notes registered
in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company
("DTC"), and will only be available in the
form of book-entries on the records of DTC
and participating members thereof. Persons
acquiring beneficial ownership interests in
the Class A Notes may elect to hold their
Class A Notes through DTC, in the United
States, or Centrale de Livraison de Valeurs
Mobilieres S.A. ("CEDEL") or the Euroclear
System ("Euroclear"), in Europe. Transfers
within DTC, CEDEL or Euroclear, as the case
may be, will be in accordance with the usual
rules and operating procedures of the
relevant system. So long as the Class A
Notes are book- entry Notes, such Notes will
be evidenced by one or more Class A Notes
registered in the name of Cede, as the
nominee of DTC or one of the relevant
depositories (collectively, the "European
Depositaries"). Crossmarket transfers
between persons holding directly or
indirectly through DTC, on the one hand, and
counterparties holding directly or
indirectly through CEDEL or Euroclear, n the
other, will be effected in DTC through Chase
Manhattan Bank, N.A. or Morgan Guaranty
Trust Company of New York, as depositories
of CEDEL or Euroclear, respectively, and
each participating member of DTC. Class A
Notes will be issued in definitive form only
under the limited circumstances described
herein. All references herein to "holders"
of the Class A Notes or "Class A
Noteholders" shall reflect the rights of
beneficial owners of the Class A Notes (the
"Note Owners") as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein. See "Description
of the Notes - Registration of Notes" in
this Prospectus Supplement and "Description
of the Securities - Book-Entry Registration"
and "- Definitive Notes" in the Prospectus.
Tax Status.................. In the opinion of Mayer, Brown & Platt
("Federal Tax Counsel"), for Federal income
tax purposes the Class A Notes will be
characterized as debt, the Class B Notes
should be characterized as debt, and the
Trust will not be characterized as an
association (or publicly traded partnership)
taxable as a corporation. Each Noteholder,
by the acceptance of a Note, will agree to
treat the Notes as indebtedness for Federal
income tax purposes. See "Federal Income Tax
Consequences" in the Prospectus and "Federal
Income Tax Consequences" in this Prospectus
Supplement for additional
S-19
information concerning the application of
Federal tax laws to the Trust and the Notes.
ERISA Considerations........ Subject to the conditions and considerations
discussed under "ERISA Considerations" in
this Prospectus Supplement, the Notes are
eligible for purchase by pension,
profit-sharing or other employee benefit
plans, as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan"). See "ERISA
Considerations" in this Prospectus
Supplement.
Legal Investment............ [The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2A-7 under the Investment
Company Act of 1940, as amended.]
Rating of the
Notes....................... It is a condition of issuance that the Class
A Notes be rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's Rating Services ("Standard
& Poor's" and together with Moody's, the
"Rating Agencies"), on the basis of the
issuance of the Policy by the Insurer. A
security rating is not a recommendation to
buy, sell or hold securities and may be
revised or withdrawn at any time by the
assigning Rating Agency. See "Risk Factors
-- Ratings of the Notes" in this Prospectus
Supplement.
S-20
RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders should consider the following factors,
as well as those matters discussed in "Risk Factors" in the Prospectus, in
evaluating an investment in the Notes:
Sub-Prime Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its 80% owned
subsidiary, Samco Acceptance Corp. ("Samco"). CPS's customers are generally
considered to have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks, captive finance companies of
automakers or other traditional sources of auto loan financing; and customers
with a derogatory credit record including a history of irregular employment,
previous bankruptcy filings, repossessions of property, charged-off loans and
garnishment of wages. The payment experience on Receivables of Obligors with
marginal credit is likely to be different and may be worse than that on
receivables of traditional auto financing sources and is likely to be more
sensitive to changes in the economic climate in the areas in which such Obligors
reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated as Servicer by the Insurer , the
Standby Servicer has agreed to assume the obligations of successor Servicer
under the Sale and Servicing Agreement. See "Description of the Notes-Rights
Upon Servicer Termination Event" in this Prospectus Supplement. There can be no
assurance, however, that collections with respect to the Receivables will not be
adversely affected by any change in Servicer. See "The Standby Servicer" in this
Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
insurance and indemnity agreement among CPS, the Seller and the Insurer (the
"Insurance Agreement") has occurred.
Varying Characteristics of Subsequent Receivables
On the Closing Date, approximately $[ ] of Initial Receivables will be
transferred to the Trust by the Seller and the approximately $[ ] Pre-Funded
Amount will be deposited by the Trust in the Pre-Funding Account. If the
principal amount of eligible Receivables originated by CPS or Samco during the
Funding Period is less than the Pre- Funded Amount, the Seller will have
insufficient Receivables to sell to the Trust on the Subsequent Transfer Dates,
thereby resulting in a prepayment of principal to the Noteholders as described
in the following paragraph. See "- Trust's Relationship to the Seller and CPS"
below. In addition, any conveyance of Subsequent Receivables is subject to the
satisfaction,
S-21
on or before the related Subsequent Transfer Date, of the following conditions,
among others: (i) each such Subsequent Receivable satisfies the eligibility
criteria specified in the related Purchase Agreement; (ii) the Insurer (so long
as no Insurer Default shall have occurred and be continuing) shall in its sole
and absolute discretion have approved the transfer of such Subsequent
Receivables to the Trust (iii) as of the applicable Subsequent Cutoff Date, the
Receivables in the Trust, together with the Subsequent Receivables to be
conveyed by the Seller as of such Subsequent Cutoff Date, meet the following
criteria (computed based on the characteristics of the Initial Receivables on
the initial Cutoff Date and any Subsequent Receivables as of the related
Subsequent Cutoff Date): [specify conditions]; (iv) the Seller shall have
executed and delivered to the Trust (with a copy to the Indenture Trustee) a
written assignment (a "Subsequent Transfer Agreement") conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); (v) the Seller shall have delivered certain opinions of counsel to
the Indenture Trustee, the Owner Trustee, the Insurer and the Rating Agencies
with respect to the validity of the conveyance of all such Subsequent
Receivables; and (vi) the Rating Agencies shall have notified the Seller, the
Owner Trustee, the Indenture Trustee and the Insurer in writing that, following
the addition of such Subsequent Receivables, the Class A-1 Notes the Class A-2
Notes and the Class A-3 Notes will each be rated [ ] by [ ] and the Class B
Notes will be rated at least [ ] by [ ]]. Such confirmation of the ratings of
the Notes may depend on factors other than the characteristics of the Subsequent
Receivables, including the delinquency, repossession and net loss experience on
the Receivables in the Receivables Pool.
Each Subsequent Receivable must satisfy the eligibility criteria
specified in the related Purchase Agreement. However, Subsequent Receivables may
have been originated using credit criteria different from the criteria applied
with respect to the Initial Receivables and may be of a different credit quality
and seasoning. See "The Receivables Pool" in this Prospectus Supplement.
Distribution of Pre-Funded Amount - Effect on Yield and Maturity
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust during the Funding Period,
the Class A Noteholders will receive, on the Payment Date on or immediately
following the last day of the Funding Period, a prepayment of principal in an
amount equal to their pro rata share (based on the current principal balance of
each class of Notes) of any remaining Pre-Funded Amount following the purchase
of any Subsequent Receivables on such Payment Date. It is anticipated that the
principal amount of Subsequent Receivables sold to the Trust will not be exactly
equal to the original Pre-Funded Amount and, therefore, there will be at least a
nominal amount of principal prepaid to the Class A Noteholders.
Trust's Relationship to the Seller and CPS
However, the ability of the Seller to convey Subsequent Receivables on
a Subsequent Transfer Date is completely dependent upon the generation of
additional receivables by CPS or Samco. If, during the Funding Period, CPS or
Samco is unable to generate or does not transfer sufficient Receivables to the
Seller, the ability of the Seller to sell Subsequent Receivables to the Trust
would be adversely affected. There can be no assurance that CPS or Samco will
continue to generate receivables that satisfy the criteria
S-22
set forth in the related Purchase Agreement at the same rate as in recent months
or that the Insurer, in its sole and absolute discretion, will approve any such
transfer of Subsequent Receivables.
Neither the Seller nor CPS is generally obligated to make any payments
in respect of the Notes or the Receivables. In connection with each sale of
Receivables by CPS or Samco to the Seller and by the Seller to the Trust, each
of CPS and the Seller will make representations and warranties with respect to
the characteristics of such Receivables. In certain circumstances, as set forth
herein, CPS is required to repurchase Receivables with respect to which such
representations or warranties are not true as of the date made. Neither CPS nor
the Seller is otherwise obligated with respect to the Notes. See "Description of
the Trust Documents - Sale and Assignment of the Receivables" in the
accompanying Prospectus.
Certain Legal Aspects - Lack of Perfected Security Interests in Financed
Vehicles
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the Receivables will not be amended or
reissued to reflect the assignment of the Receivables to the Seller by CPS or
Samco, as applicable, nor will the certificates of title to any of the Financed
Vehicles (including those securing the Samco Receivables) be amended or reissued
to reflect the assignment to the Trust. In the absence of such an amendment or
reissuance, the Trust may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states. By virtue of the assignment of
the Purchase Agreements to the Trust, CPS, and pursuant to the Sale and
Servicing Agreement, the Seller, will be obligated to repurchase any Receivable
sold to the Trust by the Seller (including any Samco Receivable) as to which
there did not exist on the Closing Date a perfected security interest in the
name of CPS or Samco in the Financed Vehicle securing such Receivable, and the
Servicer will be obligated to purchase any Receivable sold to the Trust as to
which it failed to maintain a perfected security interest in the name of CPS or
Samco in the Financed Vehicle securing such Receivable if, in either case, such
breach materially and adversely affects the value of such Receivable and if such
failure or breach is not cured prior to the expiration of the applicable cure
period. To the extent the security interest of CPS or Samco is perfected, the
Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or Samco, and therefore the Trust, could lose the priority of its security
interest or its security interest in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to purchase a Receivable as to which a lien
for repairs of a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable result in losing the priority of the security interest in such
Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables" in this Prospectus Supplement and "Certain Legal Aspects of the
Receivables -- Security Interest in Vehicles" in the Prospectus.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
S-23
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent obligations solely of the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Class A Notes by the Insurer pursuant to
the Policy, as described herein. The Seller will take such steps as are
necessary for the Insurer to issue the Policy to the Indenture Trustee for the
benefit of the Class A Noteholders. Under the Policy, the Insurer will
unconditionally and irrevocably guarantee to the Class A Noteholders full and
complete payment of the Scheduled Payments on each Payment Date. In the event of
an Insurer Default, the Class A Noteholders must rely on the collections on the
Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Trust not having perfected security interests in the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables and thus may reduce the proceeds to be distributed to
Noteholders on a current basis.
The Pre-Funding Account and the Interest Reserve Account will only be
maintained until the Payment Date on or immediately following the last day of
the Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding Account
will be used solely to purchase Subsequent Receivables and is not available to
cover losses on the Receivables. The Interest Reserve Account is designed to
cover obligations of the Trust relating to that portion of its assets not
invested in Receivables and is not designed to provide substantial protection
against losses on the Receivables. Similarly, although the Policy will be
available on each Payment Date to cover shortfalls in distributions of the Class
A Noteholders' Distributable Amount on such Payment Date, if the Insurer
defaults in its obligations under the Policy, the Trust will depend on current
distribution on the Receivables to make payments on the Class A Notes.
See "Credit Enhancement" and "The Insurer" herein.
Distributions of interest and principal on the Notes will be dependent
primarily upon collections on the Receivables and amounts paid pursuant to the
Policy. See "Description of the Notes -- Payment of Principal - Payment of
Interest" in this Prospectus Supplement.
S-24
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio-Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on Samco's originations is
limited, CPS expects that the delinquency and net credit loss and repossession
experience with respect to the Receivables originated by Samco will be similar
to that of CPS's existing portfolio.
Ratings of the Notes
It is a condition to the issuance of the Class A Notes that the Class A
Notes be rated "Aaa" by Moody's and "AAA" by Standard & Poor's on the basis of
the issuance of the Policy by the Insurer. A rating is not a recommendation to
purchase, hold or sell the Class A Notes, inasmuch as such rating does not
comment as to market price or suitability for a particular investor. The Rating
Agencies do not evaluate, and the ratings do not address, the possibility that
Class A Noteholders may receive a lower than anticipated yield. There is no
assurance that a rating will remain for any given period of time or that a
rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances in the future so warrant. The ratings of the Class A
Notes are based primarily on the rating of the Insurer. Upon an Insurer Default
the rating on the Class A Notes may be lowered or withdrawn entirely. In the
event that any rating initially assigned to the Class A Notes were subsequently
lowered or withdrawn for any reason, including by reason of a downgrading of the
Insurer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Class A Notes. Any
reduction or withdrawal of a rating may have an adverse effect on the liquidity
and market price of the Class A Notes.
Final Scheduled Payment Dates of the Notes
The Final Scheduled Payment Date for each class of Notes which is
specified at page S-6 herein, is the date by which the principal thereof is
required to be fully paid. The Final Scheduled Payment Date for each class of
Notes has been determined so that distributions on the underlying Receivables
will be sufficient to retire each such class on or before its respective Final
Scheduled Payment Date without the necessity of a claim on the Policy. However,
because (i) some prepayments of the Receivables are likely and (ii) certain of
the Receivables have terms to maturity that are shorter than the term to
maturity assumed in calculating each class's Final Scheduled Payment Date, the
actual payment of any class of Notes likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes will be earlier than such class's Final Scheduled
Payment Date.
S-25
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 1997-3, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates (as defined below), (iii) making payments
in respect of the Notes and the Certificates (as defined below) and (iv)
engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Notes --Servicing Compensation" in this Prospectus
Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] and certificates equal to such amount will be issued to the Seller (the
"Certificates"). The equity of the Trust, together with the proceeds of the
initial sale of the Notes, will be used by the Trust to purchase the Receivables
from the Seller. The Trust will not acquire any assets other than the Trust
Assets, 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 Assets, issuing the Securities and distributing payments
on the Securities, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement and the Sale and Servicing Agreement.
The Indenture Trustee
Norwest Bank Minnesota, National Association, a national banking
association, is the Indenture Trustee under the Indenture. The principal offices
of the Indenture Trustee are located at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota. The Indenture
S-26
Trustee's duties in connection with the Notes are limited solely to its express
obligations under the Indenture and the Sale and Servicing Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date,
and, with respect to Simple Interest Receivables, certain monies received
thereunder after the Cutoff Date. The Receivables were originated by the Dealers
or IFCs for assignment to CPS or Samco. Pursuant to agreements between the
Dealers and CPS ("Dealer Agreements") or between the IFCs and Samco, the
Receivables were purchased by CPS or Samco and, prior to the Closing Date,
evidenced financing made available by CPS or Samco to the Obligors. The Trust
Assets also include (i) such amounts as from time to time may be held in one or
more trust accounts established and maintained by the Indenture Trustee pursuant
to the Sale and Servicing Agreement, as described below; see "Description of the
Notes -- Accounts" in this Prospectus Supplement; (ii) such amounts as from time
to time may be held in the Pre-Funding Account or the Interest Reserve Account,
(iii) the rights of the Seller under the Purchase Agreements; (iv) security
interests in the Financed Vehicles; (v) the rights of the Seller to receive any
proceeds with respect to the Receivables from claims on physical damage, credit
life and credit accident and health insurance policies covering the Financed
Vehicles or the Obligors, as the case may be; (vi) the rights of the Seller to
refunds for the costs of extended service contracts and to refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies covering the Financed Vehicles or Obligors, as the case may be; and
(vii) any and all proceeds of the foregoing. The Trust Assets also will include
the Policy for the benefit of the Noteholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
S-27
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to institutional
investors. CPS continues to service all of the Contracts it has purchased,
including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,195. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Contracts have been sold by CPS to institutional investors either as
bulk sales or as private placements or public offerings of securities
collateralized by the Contracts. Purchasers of the Contracts receive a
pass-through rate of interest set at the time of the sale, and CPS receives a
base servicing fee for its duties relating to the accounting for and collection
of the Contracts. In addition, CPS is entitled to certain excess servicing fees
that represent collections on the Contracts in excess of those required to pay
principal and interest due to the investor and the base servicing fee to CPS.
Generally, CPS sells the Contracts to such institutional investors at face value
and without recourse except that the representations and warranties made to CPS
by the Dealers are similarly made to the investors by CPS. CPS has some credit
risk with respect to the excess servicing fees it receives in connection with
the sale of Contracts to investors and its continued servicing function since
the receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts.
In March 1996, CPS formed Samco Acceptance Corp. ("Samco"), an 80
percent-owned subsidiary based in Dallas, Texas. Samco's business plan is to
provide the Company's sub-prime auto finance products to rural areas through
independently owned finance companies. CPS believes that many rural areas are
not adequately served by other industry participants due to their distance from
large metropolitan areas where a Dealer marketing representative is most likely
to be based.
Samco employees call on IFCs primarily in the southeastern United
States and present them with financing programs that are essentially identical
to those which CPS markets directly to Dealers through its marketing
representatives. CPS believes that a typical rural IFC has relationships with
many local automobile purchasers as well as Dealers but, because of limitations
of financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local Dealers.
Samco purchases contracts from the IFCs after its credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for Contracts
it purchases from Dealers. Samco purchases Contracts at a discount ranging from
0% to 8% of the total amount financed under such Contracts. In addition, Samco
generally charges IFCs an acquisition fee to defray the direct administrative
costs associated with the processing of Contracts that are ultimately purchased
by Samco. Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its
S-28
headquarters in Irvine, California. As of December 31, 1996, Samco had purchased
399 Contracts with original balances of $4.7 million.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for purchase. The Alpha Program
guidelines are designed to accommodate applicants who meet all the requirements
of the Standard Program and exceed such requirements in respect of job
stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. The First
Time Buyer Program guidelines are designed to accommodate applicants who have
not previously financed an automobile; such applicants must meet all the
requirements of the Standard Program, as well as slightly higher income and down
payment requirements. CPS uses the degree of the applicant's creditworthiness
and the collateral value of the financed vehicle as the basic criteria in
determining whether to purchase an installment sales contract from a Dealer.
Each credit application provides current information regarding the applicant's
employment and residence history, bank account information, debts, credit
references, and other factors that bear on an applicant's creditworthiness. Upon
receiving from the Dealer the completed application of a prospective purchaser
and a one-page Dealer summary of the proposed financing, generally by facsimile
copy, CPS obtains a credit report compiling credit information on the applicant
from three credit bureaus. The credit report summarizes the applicant's credit
history and paying habits, including such information as open accounts,
delinquent payments, bankruptcy, repossessions, lawsuits and judgments. At this
point a CPS loan officer will review the credit application, Dealer summary and
credit report and will either conditionally approve or reject the application.
Such conditional approval or rejection by the loan officer usually occurs within
one business day of receipt of the credit application. The loan officer
determines the conditions to his or her approval of a credit application based
on many factors such as the applicant's residential situation, down payment, and
collateral value with regard to the loan, employment history, monthly income
level, household debt ratio and the applicant's credit history. Based on the
stipulations of the loan officer, the Dealer and the applicant compile a more
complete application package which is forwarded to CPS and reviewed by a
processor for deficiencies. As part of this review, references are checked,
direct calls are made to the applicant and employment income and residence
verification is done. Upon the completion of his or her review, the processor
forwards the application package to an underwriter for further review. The
underwriter will confirm the satisfaction of any remaining deficiencies in the
application package. Finally, before the loan is funded, the application package
is checked for deficiencies again by a loan review officer. CPS conditionally
approves approximately 50% of the credit applications it receives and ultimately
purchases approximately 13% of the received applications.
S-29
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the servicer contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The downpayment may be made in cash,
and/or with a trade-in car and, if available, a proven manufacturer's rebate.
The cash and trade-in value must equal at least 50% of the minimum downpayment
required, with the proven manufacturer's rebate constituting the remainder of
the downpayment. CPS believes that the relatively high downpayment requirement
will result in higher collateral values as a percentage of the amount financed
and the selection of buyers with stronger commitment to the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS's computerized system for ongoing
monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
S-30
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Samco offers financing programs to IFCs which are essentially identical
to those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. Samco purchases contracts from the IFCs after its credit personnel have
performed all of the underwriting and verification procedures and have applied
all the same credit criteria that CPS performs and applies for Contracts it
purchases from Dealers. Prior to CPS [or an affiliate] purchasing a Contract
from Samco, CPS personnel perform procedures intended to verify that such
Contract has been underwritten and originated in conformity with the
requirements applied by CPS with respect to Contracts acquired by it directly
from Dealers.
Servicing and Collections
CPS's servicing activities, both with respect to portfolios of
Contracts sold by it to investors and with respect to portfolios of other
receivables owned or originated by third parties, consist of collecting,
accounting for and posting of all payments received with respect to such
Contracts or other receivables, responding to borrower inquiries, taking steps
to maintain the security interest granted in the Financed Vehicle or other
collateral, investigating delinquencies, communicating with the borrower,
repossessing and liquidating collateral when necessary, and generally monitoring
each Contract or other receivable and related collateral. CPS maintains
sophisticated data processing and management information systems to support its
Contract and other receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS's services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS's computerized records.
Pursuant to the various servicing agreements with each investor or portfolio
owner, CPS is required to deliver monthly reports reflecting all transaction
activity with respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is
S-31
automatically generated and the customer's references are contacted. Field
agents (who are independent contractors) often make calls on customers who are
unreachable or whose payment is thirty days or more delinquent. A decision to
repossess the vehicle is generally made after 30 to 90 days of delinquency or
three unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its headquarters in Irvine, California. However, Samco may
solicit aid from the related IFC in collecting past due accounts with respect to
which repossession may be considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer Program
in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by Samco in March 1996. Although credit history
on Samco's originations is limited, CPS expects that the delinquency and net
credit loss and repossession experience with respect to the Receivables
originated by Samco will be similar to that of CPS's existing portfolio. There
can be no assurance, however, that the delinquency and net credit loss and
repossession experience on the Receivables will continue to be comparable to
CPS's experience shown in the following tables.
S-32
Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------
Portfolio (1)................... 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000
Period of Delinquency (2)
31-60 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90 68 1,091,000 203 2,654,000 724 9,068,000
91+............................. 56 876,000 272 3,899,000 768 9,906,000
Total Delinquencies............. 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession (3)...... 271 3,759,000 834 10,151,000 1,168 14,563,000
Total Delinquencies and
Amount in Repossession (4)...... 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000
=== ========== ===== =========== ===== ===========
Delinquencies as a Percent of
the Portfolio................... 2.58% 2.70% 5.10% 5.08% 6.98% 6.80%
Repo Inventory as a Percent
of the Portfolio................ 1.90% 1.84% 3.08% 2.85% 2.48% 2.41%
----- ----- ----- ----- ----- -----
Total Delinquencies and
Amount in Repossession as a
Percent of Portfolio 4.48% 4.54% 8.18% 7.93% 9.45% %
-----------------------------------------------------------------------------------------
March 31, 1996 March 31, 1997
-------------- --------------
Number Number
of Loans Amount of Loans Amount
-------- ------ -------- ------
Portfolio (1)................... $ $
Period of Delinquency (2)
31-60
61-90
91+.............................
Total Delinquencies.............
Amount in Repossession (3)......
Total Delinquencies and
Amount in Repossession (4)...... $ $
======== ====== ======== ======
Delinquencies as a Percent of
the Portfolio................... % % % %
Repo Inventory as a Percent
of the Portfolio................ % % %
--------- ------------- ------------ ------------
Total Delinquencies and
Amount in Repossession as a
Percent of Portfolio % % % %
--------- ------------- ------------ ------------
- -----------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-33
S-34
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Three Three
Year Ended Year Ended Year Ended Months Ended Months Ended
December 31, 1994 December 31, 1995 December 31, 1995 March 31, 1996 March 31, 1997
Average Amount Outstanding
During the Period (1).............. $98,916,991 $221,926,489 $395,404,669
Average Number of Loans
Outstanding During
the Period......................... 9,171 20,809 36,998
Number of Repossessions............. 669 2,018 3,145
Gross Charge-Offs (2)............... $3,166,408 $11,658,461 $23,296,775
Recoveries (3)...................... $347,519 $1,028,378 $2,969,143
Net Losses.......................... $2,818,889 $10,630,083 $20,327,632
Annualized Repossessions
as a Percentage of
Average Number of Loans
Outstanding......................... 7.29% 9.70% 8.50%
Annualized Net Losses as
a Percentage of
Average Amount Outstanding.......... 2.85% 4.79% 5.14%
- -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and
may pertain to charge offs from prior periods.
S-35
THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60 months,
provides for level monthly payments which fully amortize the amount financed
over the original term (except for the last payment, which may be different from
the level payment for various reasons, including late or early payments during
the term of the Contract), has a remaining maturity of 60 months or less as of
the Cutoff Date, has an outstanding principal balance of not more than [$ ] as
of the Cutoff Date, is not more than 30 days past due as of the Cutoff Date and
has an APR of not less than [ %]. As of the date of each Obligor's application
for the loan from which the related Receivable arises, each Obligor (i) did not
have any material past due credit obligations or any repossessions or
garnishments of property within one year prior to the date of application,
unless such amounts have been repaid or discharged through bankruptcy, (ii) was
not the subject of any bankruptcy or insolvency proceeding that is not
discharged, and (iii) had not been the subject of more than one bankruptcy
proceeding. As of the Cutoff Date, the latest scheduled maturity of any
Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately [ %] of the aggregate
principal balance of the Receivables were originated under the Delta Program,
approximately [ %] of the aggregate principal balance of the Receivables were
originated under the Alpha Program, approximately [ %] of the aggregate
principal balance of the Receivables were originated under the First Time Buyer
Program and approximately [ %] of the aggregate principal balance of the
Receivables represent financing under the Standard Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were originated by unaffiliated third parties and purchased by CPS in the
ordinary course of its business. As of the Cutoff Date, [ %] of the Principal
Balance of the Receivables were Samco Receivables. The composition, geographic
distribution, distribution by APR, distribution by remaining term, distribution
by date of origination, distribution by original term, distribution by model
year and distribution by original principal balance of the Receivables as of the
Cutoff Date are set forth in the following tables.
Composition of the Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
S-36
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
----------------- ----------------- ----------- -----------
all others(2)................... % %
TOTAL........................... $
100.00%(3) 100.00%(3)
- -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
Distribution of the Receivables by APR as of the Cutoff Date
Percent of Percent of
APR Aggregate Aggregate Number of Number of
Range Principal Balance Principal Balance Receivables Receivables
all others(2)................... % %
TOTAL........................... $
100.00%(1) 100.00%(1)
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-37
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Remaining Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
$
TOTAL........................... 100.00%(1) 100.00%(1)
================== ================= =========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Date of Origination Principal Balance Principal Balance Receivables Receivables
$
TOTAL........................... 100.00%(1) 100.00%(1)
================== ================= =========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-38
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
$
TOTAL........................... 100.00%(1) 100.00%(1)
================== ================= =========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
$
TOTAL........................... 100.00%(1) 100.00%(1)
================== ================= =========== ==========
- -----------
(1) Percentages may not add up to 100% because of rounding.
S-39
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Aggregate Aggregate Number of Number of
Principal Balances Principal Balance Principal Balance Receivables Receivables
$
TOTAL........................... 100.00%(1) 100.00%(1)
================== ================= =========== ==========
- -----------
(1) Percentages may not add up to because of rounding.
S-40
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables")
and, approximately [ %] of the aggregate Principal Balance of the Receivables in
the Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. 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 its
scheduled 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 scheduled
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 event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, instead of receiving a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining Scheduled Receivable Payments of interest that would have been due
under a Simple Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
S-41
YIELD CONSIDERATIONS
On each Payment Date, interest will be paid to the Noteholders to the
extent of thirty (30) days' interest at the applicable Interest Rate; provided,
however, that on the first Payment Date, the interest payable to the Noteholders
of record of each Class of Notes will be an amount equal to the product of (a)
the Interest Rate applicable to such Class of Notes, (b) the initial principal
amount of such Class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date through and including [ ]
14, 1997 and (ii) the denominator of which is 360 (or, with respect to the Class
A-1 Notes only, 365).
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors -- Nature of
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by the Noteholders. See also "Description of the Notes --
Optional Redemption" in this Prospectus Supplement regarding the Servicer's
option to purchase the Receivables and redeem the Notes when the aggregate
principal balance of the Receivables is less than or equal to 10% of the
Original Pool Balance. Any reinvestment risks resulting from an optional
redemption will be borne entirely by the Noteholders.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A-1 Pool Factor" is a seven digit decimal which the
Servicer will compute each month indicating the principal balance of the Class
A-1 Notes as a fraction of the initial principal balance of the Class A-1 Notes.
An individual Noteholder's share of the principal balance of the Class A-1 Notes
is the product of (i) the original denomination of the Noteholder's Note and
(ii) the Class A-1 Pool Factor. The "Class A-2 Pool Factor" is a seven-digit
decimal which the Servicer will compute each month indicating the principal
balance of the Class A-2 Notes as a fraction of the initial principal balance of
the Class A-2 Notes. The Class A-2 Pool Factor will be 1.0000000 as of the
Closing Date; thereafter, the Class A-2 Pool Factor will decline to reflect
reductions in the principal balance of the Class A-2 Notes. An individual
Noteholder's share of the principal balance of the Class A-2 Notes is the
product of (i) the original denomination of the Noteholder's Note and (ii) the
Class A-2 Pool Factor. The "Class A-3 Pool Factor" is a seven-digit decimal
which the Servicer will compute each month indicating the principal balance of
the Class A-3 Notes as a fraction of the initial principal balance of the Class
A-3 Notes. The Class A-3 Pool Factor will be 1.0000000
S-42
as of the Closing Date; thereafter, the Class A-3 Pool Factor will decline to
reflect reductions in the principal balance of the Class A-3 Notes. An
individual Noteholder's share of the principal balance of the Class A-3 Notes is
the product of (i) the original denomination of the Noteholder's Note and (ii)
the Class A-3 Pool Factor. The "Class B Pool Factor" is a seven-digit decimal
which the Servicer will compute each month indicating the principal balance of
the Class B Notes as a fraction of the initial principal balance of the Class B
Notes. The Class B Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class B Pool Factor will decline to reflect reductions in the
principal balance of the Class B Notes. An individual Noteholder's share of the
principal balance of the Class B Notes is the product of (i) the original
denomination of the Noteholder's Note and (ii) the Class B Pool Factor. Pool
Factors will be made available on or about the eighth business day of each
month.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors 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 Notes
- --Statements to Noteholders" in this Prospectus Supplement.
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 CPS Receivables from CPS and the
Samco Receivables from Samco and to fund the Pre-Funding Account. CPS will apply
the net proceeds received from the Seller to purchase new Contracts or to repay
debt incurred to purchase the Contracts.
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS 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 2
Ada, Suite 100, Irvine, California 92718; telephone (714) 753-6800. For further
information regarding the Seller and CPS, see "The Seller and CPS" in the
Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
S-43
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Class A Notes initially will be represented by notes registered in
the name of Cede as the nominee of The Depository Trust Company ("DTC"), and
will only be available in the form of book-entries on the records of DTC and
participating members thereof in denominations of $1,000. All references to
"holders" or "Noteholders" and to authorized denominations, when used with
respect to the Notes, shall reflect the rights of beneficial owners of the Notes
("Note Owners"), and limitations thereof, as they may be indirectly exercised
through DTC and its participating members, except as otherwise specified herein.
See " -- Registration of Certificates" below.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest at the Class A-1 Note Rate, on the outstanding
principal balance of the Class A-1 Notes as of the last day of the related
Collection Period, based on the number of days elapsed from and including the
preceding Payment Date (or, in the case of the initial Payment Date, from and
including the Closing Date) to but excluding the current Payment Date. On each
Payment Date, the holders of record of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the Class A-2 Interest Rate on the
outstanding principal amount of the Class A-2 Notes at the close of business on
the last day of the related Collection Period. On each Payment Date, the holders
of record of the Class A-3 Notes (the "Class A-3 Noteholders") as of the related
Record Date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-3 Interest Rate on the outstanding principal amount of the Class
A-3 Notes at the close of business on the last day of the related Collection
Period. On each Payment Date, the holders of record of the Class B Notes (the
"Class B Noteholders") as of the related Record Date will be entitled to
receive, pro rata, thirty (30) days of interest at the Class B Interest Rate on
the outstanding principal amount of the Class B Notes at the close of business
on the last day of the related Collection Period. Notwithstanding the foregoing,
on the first Payment Date, the interest payable to the Noteholders of record of
each class of Notes will be an amount equal to the product of (a) the Interest
Rate applicable to such class of Notes, (b) the initial principal amount of such
class of Notes and (c) a fraction (i) the numerator of which is the number of
days from and including the Closing Date through and including September 14,
1997 and (ii) the denominator of which is 360. Interest on the Notes which is
due but not paid on any Payment Date will be payable on the next Payment Date
together with, to the extent permitted by law, interest on such unpaid amount at
the applicable Interest Rate. See "Description of the Notes - Distributions" in
this Prospectus Supplement.
Payment of Principal
Principal of the Class A Notes will be payable on each Payment Date in
an amount equal to the Class A Noteholders' Principal Distributable Amount for
the related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the sum of (a) the
S-44
Class A Noteholders' Percentage multiplied by the Principal Distributable Amount
and (b) any unpaid portion of the amount described in clause (a) with respect to
a prior Payment Date. Principal of the Class B Notes will be payable on each
Payment Date in an amount equal to the Class B Noteholders' Principal
Distributable Amount for the related Collection Period. The "Class B Noteholders
Principal Distributable Amount" is equal to the sum of (a) the Class B
Noteholders' Percentage multiplied by the Principal Distributable Amount and (b)
any unpaid portion of the amount described in clause (a) with respect to a prior
Payment Date.
On each payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after application thereof to pay the
distributions described in clauses (i) through (iv) under "Description of the
Trust Documents -- Distributions" and (y) the Class A Noteholders' Principal
Distributable Amount will be applied, sequentially, to pay principal of the
Class A-1 Notes until the principal balance of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been reduced to zero, then to the holders of
the Class A-3 Notes until the principal balance of the Class A-3 Notes has been
reduced to zero.
On each Payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after the application thereof to pay
the distributions described in clauses (i) through (viii) under 'Description of
the Trust Documents -- Distributions" and (y) the Class B Noteholders' Principal
Distributable Amount will be applied to pay principal of the Class B Notes until
the principal balance of the class B Notes has been reduced to zero.
Mandatory Redemption
Each class of Notes will be redeemed in part on the Payment Date on or
immediately following the last day of the Funding Period in the event that any
portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current Principal Balance of
each class of Notes) of the remaining Pre-Funded Amount on such date (such
class's "Note Prepayment Amount").
The Policy does not guarantee payment of the Note Prepayment Amounts,
although the Policy does guarantee payment of the Class A Noteholders' Interest
Distributable Amount and the Class A Noteholders' Principal Distributable Amount
on its respective Final Scheduled Payment Date. In addition, the ratings
assigned to the Notes by the Rating Agencies do not address the likelihood that
the Note Prepayment Amounts will be paid.
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the Insurer if such purchase would result in a claim under the Policy
or any amount owing to the Insurer or on the Notes would remain unpaid), as of
the last day of any month as of which the then outstanding Pool Balance is equal
to 10% or less of the sum of (i) the Original Pool Balance and (ii) the
aggregate Principal Balance of all subsequent Receivables transferred to the
Trust (as of their applicable Subsequent Cutoff Dates), all remaining
Receivables at a price equal to the aggregate of the
S-45
Purchase Amounts thereof as of such last day. Exercise of such right will effect
early retirement of the Notes. The Indenture Trustee will give written notice of
termination to each Noteholder of record. The final distribution to any
Noteholder will be made only upon surrender and cancellation of such holder's
Note at the office or agency of the Indenture Trustee specified in the notice of
termination. Any funds remaining with the Indenture Trustee, after the Indenture
Trustee has taken certain measures to locate a Noteholder and such measures have
failed, will be distributed to The American Red Cross.
REGISTRATION OF NOTES
The Class A Notes will initially be registered in the name of Cede &
Co. ("Cede"), the nominee of DTC. 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 the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and 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 Participant, either directly or
indirectly. See "Certain Information Regarding the Notes -- Book-Entry
Registration" in the Prospectus.
Persons acquiring beneficial ownership interests in the Class A Notes
may elect to hold their Class A Notes through DTC int eh United States, or CEDEL
or Euroclear (in Europe) if they are participants of such systems, or indirectly
through organizations which are participants in such systems. The book-entry
notes will be issued in one or more notes which equal the aggregate principal
balance of the Class A Notes and will initially be registered in the name of
Dede, the nominee of DTC. CEDEL and Euroclear will hold omnibus positions on
behalf of their participants through customers' securities accounts in CEDEL's
and Euroclear's names on the books of their respective depositories which in
turn will hold such positions in customers' securities accounts in the
depositories' names on the books of DTC. Chase Manhattan Bank, N.A. will act as
depositary for CEDEL and Morgan Guaranty Trust Company of New York will act as
depositary for Euroclear (in such capacities, individually the "Relevant
Depositary" and collectively the "European Depositaries").
The beneficial owner's ownership of a book-entry note will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
beneficial owner's account for such purpose. in turn the Financial
Intermediary's ownership of such book-entry note will be recorded on the records
of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the beneficial owner's Financial Intermediary is not a DTC participant and on
the records of CEDEL or Euroclear, as appropriate).
S-46
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Class A 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.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Samco Purchase
Agreement, the CPS Purchase Agreement, the Indenture and the Trust Agreement
(together, the "Trust Documents"). Forms of the Trust Documents have been filed
as exhibits to the Registration Statement. A copy of the Trust Documents will be
filed with the Commission following the issuance of the Securities. The summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, all the provisions of the Trust Documents. The following
summary supplements the description of the general terms and provisions of the
Trust Documents (as such terms are used in the accompanying Prospectus) set
forth in the accompanying Prospectus, to which description reference is hereby
made.
Sale and Assignment of Receivables
On or prior to the Closing Date, the Seller will purchase from Samco
pursuant to a purchase agreement (the "Samco Purchase Agreement"), without
recourse, except as provided in the Samco Purchase Agreement, Samco's entire
interest in the Samco Receivables, together with Samco's security interests in
the related Financed Vehicles. On or prior to the Closing Date, CPS will,
pursuant to a purchase agreement (the "CPS Purchase Agreement" and, together
with the Samco Purchase Agreement, the "Purchase Agreements"), sell and assign
to the Seller, without recourse, except as provided in the Purchase Agreement,
its entire interest in the CPS Receivables, together with its security interests
in the related Financed Vehicles. At the time of issuance of the Notes, the
Seller will sell and assign to the Trust, without recourse except as provided in
the Sale and Servicing Agreement, its entire interest in the Receivables,
together with its security interests in the Financed Vehicles. Each Receivable
will be identified in a schedule appearing as an exhibit to the related Purchase
Agreement. The Indenture Trustee will, concurrently with such sale and
assignment, execute, authenticate, and deliver the Securities to the Seller in
exchange for the Receivables. The Seller will sell the Notes to the
Underwriters. See "Underwriting" in this Prospectus Supplement.
In the CPS Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreements with respect to the Receivables (including, without limitation, the
Samco Receivables) is correct in all material respects; (ii) at the dates of
origination of the Receivables, physical damage insurance covering each Financed
Vehicle was in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the Securities, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers or IFCs have been asserted or threatened; (iv)
at the date of issuance of the Securities, each of the Receivables is or will be
secured by a first-priority perfected security interest in the related Financed
Vehicle in favor of CPS or Samco; and (v) each Receivable, at the time it was
originated, complied and, at the date of issuance of the Securities, complies in
all material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second
S-47
(or, if CPS elects, the first) month following the discovery by or notice to the
Seller and CPS of a breach of any representation or warranty that materially and
adversely affects the value of a Receivable, unless the breach is cured, CPS
will purchase such Receivable from the Trust for the Purchase Amount. The
repurchase obligation will constitute the sole remedy available to the
Noteholders, the Insurer, the Owner Trustee or the Indenture Trustee for any
such uncured breach.
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the related Purchase Agreement;
(ii) Insurer (so long as no Insurer Default shall have occurred and be
continuing) shall in its absolute and sole discretion have approved the transfer
of such Subsequent Receivables to the Trust; (iii) as of each applicable
Subsequent Cutoff Date, the Receivables in the Trust together with the
Subsequent Receivables to be conveyed by the Seller as of such Subsequent Cutoff
Date, meet the following criteria (computed based on the characteristics of the
Initial Receivables on the Initial Cutoff Date and any Subsequent Receivables on
the related Subsequent Cutoff Date: [Conditions to be specified]; (iv) the
Seller shall have executed and delivered to the Trust (with a copy to the
Indenture Trustee) a Subsequent Transfer Agreement conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); (v) the Seller shall have delivered certain opinions of counsel to
the Indenture Trustee, the Owner Trustee, Insurer and the Rating Agencies with
respect to the validity of the conveyance of such Subsequent Receivables; and
(vi) the Rating Agencies shall have each notified the Seller, the Owner Trustee,
the Indenture Trustee and Insurer in writing that, following the addition of all
such Subsequent Receivables, the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes will be rated [ ] by [ ] and the Class B Notes will be rated at
least [ ] by [ ].
Subsequent Receivables may have been originated by CPS at a later date
using credit criteria different from the criteria applied with respect to the
Initial Receivables. See "Risk Factors - Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" herein.
On or prior to the Closing Date or each Subsequent Closing Date, the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee thereafter will maintain physical possession of the
Receivables except as may be necessary for the servicing thereof by the
Servicer. The Receivables will not be stamped to show the ownership thereof by
the Trust. However, CPS's and Samco's accounting records and computer systems
will reflect the sale and assignment of the Receivables to the Seller, and
Uniform Commercial Code ("UCC") financing statements reflecting such sales and
assignments will be filed. See "Formation of the Trust" in this Prospectus
Supplement and "Certain Legal Aspects of the Receivables" in the Prospectus.
Accounts
A segregated lock-box account will be established and maintained with
Bank of America in the name of the Indenture Trustee for the benefit of the
Noteholders and the Insurer, into which all payments made by Obligors on or with
respect to the Receivables must be deposited by the Lock-Box Processor (the
"Lock-Box Account"). See "Description of the Trust Documents-Payments on
Receivables" in the Prospectus. The Indenture Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the
Indenture
S-48
Trustee on behalf of the Noteholders and the Insurer, into which all amounts
previously deposited in the Lock-Box Account will be transferred within two
Business Days of the receipt of funds therein (the "Collection Account"). Upon
receipt, the Servicer will deposit all amounts received by it in respect of the
Receivables in the Lock-Box Account or the Collection Account. The Indenture
Trustee will also establish and maintain initially with itself one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders and
the Insurer, from which all distributions with respect to the Securities and
payments to the Insurer will be made (the "Distribution Account").
The Pre-Funding Account will be maintained with the Indenture Trustee
and is intended solely to hold funds to be applied by the Indenture Trustee
during the Funding Period to pay to the Seller the purchase price for Subsequent
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables. On the Closing Date, the
Pre-Funding Account will be funded with the initial Pre-Funded Amount from the
sale proceeds of the Notes. The Pre-Funded Amount will initially equal $[ ] and,
during the Funding Period, will be reduced by the Principal Balances of all
Subsequent Receivables purchased by the Trust from time to time in accordance
with the provisions of the Sale and Servicing Agreement.
The Seller expects that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date, although no assurances can be given in
this regard. If any Pre- Funded Amount remains at the end of the Funding Period,
such amount will be distributed as a partial prepayment to the Noteholders as
described above under "-- Mandatory Prepayment" and "--Mandatory Redemption".
The Seller will also establish and maintain an account (the "Interest
Reserve Account") in the name of the Indenture Trustee on behalf of the
Noteholders. On the Closing Date, the Seller will deposit an amount equal to the
Requisite Reserve Amount (as described below) as of the Closing Date in the
Interest Reserve Account. On each of the [ ] and [ ] Payment Dates, funds on
deposit in the Interest Reserve Account which are in excess of the Requisite
Reserve Amount for such Payment Date will be withdrawn from the Interest Reserve
Account and deposited in the Distribution Account for distribution in accordance
with the priorities set forth under the heading "Description of the Trust
Documents - Distributions - Priority of Distribution Amounts".
The "Requisite Reserve Amount" as of any date during the Funding Period
will equal the product of (i) the difference between (A) the weighted average of
the Interest Rates for each class of Notes (based on the outstanding principal
amount of each class of Notes on such date) and (B) the assumed yield (2.5% per
annum) of investments of funds in the Pre-Funding Account, divided by 360, (ii)
the Pre-Funded Amount on such date and (iii) the number of days remaining until
the Payment Date in [ ].
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with
S-49
respect to the first Payment Date, the Servicing Fee will equal the product of
one-twelfth of the Servicing Fee Rate and the Pool Balance as of the Cutoff Date
(the "Servicing Fee"). So long as CPS is Servicer, a portion of the Servicing
Fee, equal to the Standby Fee, will be payable to the Standby Servicer for
agreeing to stand by as successor Servicer and for performing certain other
functions. If the Standby Servicer, or any other entity serving at the time as
Standby Servicer, becomes the successor Servicer, it will receive compensation
at a Servicing Fee Rate not to exceed 2.12% per annum. See "The Standby
Servicer" in this Prospectus Supplement. The Servicer will also collect and
retain, as additional servicing compensation, any late fees, prepayment charges
and other administrative fees or similar charges allowed by applicable law with
respect to the Receivables, and will be entitled to reimbursement from the Trust
for certain liabilities. Payments by or on behalf of Obligors will be allocated
to Scheduled Receivable Payments, late fees and other charges and principal and
interest in accordance with the Servicer's normal practices and procedures. The
Servicing Fee will be paid out of collections from the Receivables, prior to
distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
Insurer with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Class B Noteholders'
Interest Distributable Amount and the Class B Noteholders' Principal
Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date will be the sum of the following amounts with respect
to the preceding Collection Period: (i) all collections on Receivables; (ii) all
proceeds received during the Collection Period with respect to Receivables that
became Liquidated Receivables during the Collection Period in accordance with
the Servicer's customary servicing procedures, net of the reasonable expenses
incurred by the Servicer in connection with such liquidation and any amounts
required by law to
S-50
be remitted to the Obligor on such Liquidated Receivable ("Liquidation
Proceeds") in accordance with the Servicer's customary servicing procedures;
(iii) proceeds from Recoveries with respect to Liquidated Receivables, (iv)
earnings on investments of funds in the Collection Account during the related
Collection Period and (v) the Purchase Amount of each Receivable that was
repurchased by CPS or purchased by the Servicer as of the last day of the
related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a Scheduled Receivable Payment of more than ten dollars
for 120 or more days as of the end of a Collection Period, or (iv) with respect
to which proceeds have been received which, in the Servicer's judgment,
constitute the final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Class A Noteholders will be
entitled to receive the "Noteholders' Distributable Amount" with respect to each
Payment Date. The "Noteholders' Distributable Amount" with respect to a Payment
Date will be an amount equal to the sum of: (i) the "Class A Noteholders'
Principal Distributable Amount", consisting of the Class A Noteholders'
Percentage of the following: (a) the principal portion of all Scheduled
Receivable Payments received during the preceding Collection Period on Rule of
78's Receivables and all payments of principal received on Simple Interest
Receivables during the preceding Collection Period; (b) the principal portion of
all prepayments in full received during the preceding
S-51
Collection Period (including prepayments in full resulting from collections with
respect to a Receivable received during the preceding Collection Period (without
duplication of amounts included in (a) above and (d) below)); (c) the portion of
the Purchase Amount allocable to principal of each Receivable that was
repurchased by CPS or purchased by the Servicer as of the last day of the
related Collection Period and, at the option of [the Insurer] the Principal
Balance of each Receivable that was required to be but was not so purchased or
repurchased (without duplication of the amounts referred to in (a) and (b)
above); (d) the Principal Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection Period (without
duplication of the amounts included in (a) and (b) above); and (e) the aggregate
amount of Cram Down Losses with respect to the Receivables that shall have
occurred during the preceding Collection Period (without duplication of amounts
included in (a) through (d) above) (the amounts set forth in (a) through (e),
the "Principal Distributable Amount") plus any Class A Noteholders' Principal
Carryover Shortfall; (ii) the Class A Noteholders' Interest Distributable
Amount; (iii) the "Class B Noteholders' Principal Distributable Amount",
consisting of the Class B Noteholders' Percentage of the Principal Distributable
Amount plus any Class B Noteholders' Principal Carryover Shortfall; (iv) the
"Class B Noteholders' Interest Distributable Amount", consisting of thirty (30)
days' interest at the Class B Interest Rate on the principal balance of the
Class B Notes as of the close of business on the last day of the related
Collection Period; plus the Class B Noteholders' Interest Carryover Shortfall,
provided, however, that on the first Payment Date, the Class B Noteholders'
Interest Distributable Amount will include interest from and including the
Closing Date through and including September 14, 1997.
On the Final Scheduled Payment Date, the Class A Noteholders' Principal
Distributable Amount will equal the then outstanding principal balance of the
Class A Notes and the Class B Noteholders' Principal Distributable Amount will
equal the then outstanding balance of the Class B Notes.
The "Class A Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class A Notes is
reduced to zero, be [ %], (b) on the Payment Date on which the principal amount
of the Class A Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class A Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount and (c) on any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class B Notes is
reduced to zero, be [ %], (b) on the Payment Date on which the principal amount
of the Class B Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class B Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount and (c) on any other Payment Date, be 0%.
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
S-52
(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is the Servicer and
Norwest Bank Minnesota, National Association, is the Standby Servicer,
the Indenture Trustee will first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer becomes the successor
Servicer, to the Standby Servicer or such other successor servicer,
from the Total Distribution Amount (as such Total Distribution Amount
has been reduced by payments pursuant to clause (i) above), to the
extent not previously paid by the predecessor Servicer pursuant to the
Sale and Servicing Agreement, reasonable transition expenses (up to a
maximum of $50,000) incurred in acting as successor Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) and (ii) above), the fees
payable thereto for services pursuant to the Indenture and the Trust
Agreement (the "Trustee Fee") and reasonable out-of-pocket expenses
thereof, (including counsel fees and expenses) and all unpaid Trustee
Fees and all unpaid reasonable out-of-pocket expenses (including
counsel fees and expenses) from prior Collection Periods; provided,
however, that unless an Event of Default shall have occurred and be
continuing, expenses payable to the Indenture Trustee pursuant to this
clause (iii) and expenses payable to the Collateral Agent pursuant to
clause (iv) below shall be limited to a total of $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iii) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(v) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class A Noteholders'
Interest Distributable Amount for such Payment Date;
(vi) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class B Noteholders'
Interest Distributable Amount for such Payment Date;
(vii) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Class A Noteholders'
Principal Distributable Amount for such Payment Date to be distributed
in accordance with "Description of the Notes -- Payment of Principal";
(viii) to the Insurer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through (vi) above), any amounts due to the
Insurer under the terms of the Trust Agreement and under the Insurance
Agreement;
S-53
(ix) in the event any Person other than the Standby Servicer
becomes the successor Servicer, to such successor Servicer, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) through (viii) above) to
the extent not previously paid by the predecessor Servicer, reasonable
transition expenses (up to a maximum of $50,000 for all such expenses)
incurred in acting as successor Servicer;
(x) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (viii) above), the Class B Noteholders'
Principal Distributable Amount for such Payment Date;
(xi) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
For purposes hereof, the following terms shall have the following
meanings:
"Class A Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) the Class A-1 Noteholders' Interest
Distributable Amount, (ii) the Class A-2 Noteholders' Interest Distributable
Amount and (iii) the Class A-3 Noteholders' Interest Distributable Amount.
"Class A Noteholders' Principal Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A Noteholders' Principal
Distributable Amount plus any outstanding Class A Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
that the holder of the Class A Notes actually received on such current Payment
Date.
"Class A-1 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-1 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-1 Noteholders' Interest Distributable Amount,
plus interest on the amount of interest due but not paid to Class A-1
Noteholders on the preceding Payment Date, to the extent permitted by law, at
the Class A-1 Interest Rate from such preceding Payment Date to but excluding
the current Payment Date.
"Class A-1 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-1
Noteholders' Interest Carryover Shortfall for such Payment Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount" means,
for any Payment Date, an amount equal to the product of (i) the Class A-1
Interest Rate, (ii) the initial principal balance of the Class A-1 Notes and
(iii) a fraction, the numerator of which is the actual number of days elapsed
from and including the preceding Payment Date (or, in the case of the first
Payment Date, the Closing Date) to but excluding the then current Payment Date,
and the denominator of which is 360.
"Class A-2 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-2 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-2 Noteholders' Interest Distributable Amount,
plus interest on the amount of interest due but not paid to Class A-2
Noteholders on the preceding Payment Date, to the extent permitted by law, at
the Class A-2 Interest Rate from such preceding Payment Date to but excluding
the current Payment Date.
S-54
"Class A-2 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date.
"Class A-2 Noteholders' Monthly Interest Distributable Amount" means,
(a) for the first Payment Date, an amount equal to the product of (i) the Class
A-2 Interest Rate, (ii) the initial principal balance of the Class A-2 Notes and
(iii) a fraction, the numerator of which is the actual number of days elapsed
from and including the Closing Date to but excluding such first Payment Date,
and the denominator of which is 360 and (b) for any Payment Date after the first
Payment Date, an amount equal to the product of (i) one-twelfth of the Class A-2
Interest Rate and (ii) the principal balance of the Class A-2 Notes as of the
close of the preceding Payment Date (after giving effect to all distributions on
account of principal on such preceding Payment Date).
"Class A-3 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-3 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-3 Noteholders' Interest Distributable Amount,
plus interest on the amount of interest due but not paid to Class A-3
Noteholders on the preceding Payment Date, to the extent permitted by law, at
the Class A-3 Interest Rate from such preceding Payment Date to but excluding
the current Payment Date.
"Class A-3 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-3
Noteholders' Interest Carryover Shortfall for such Payment Date.
"Class A-3 Noteholders' Monthly Interest Distributable Amount" means,
(a) for the first Payment Date, an amount equal to the product of (i) the Class
A-3 Interest Rate, (ii) the initial principal balance of the Class A-3 Notes and
(iii) a fraction, the numerator of which is the actual number of days elapsed
from and including the Closing Date to but excluding such first Payment Date,
and the denominator of which is 360 and (b) for any Payment Date after the first
Payment Date, an amount equal to the product of (i) one-twelfth of the Class A-3
Interest Rate and (ii) the principal balance of the Class A-3 Notes as of the
close of the preceding Payment Date (after giving effect to all distributions on
account of principal on such preceding Payment Date).
"Class B Noteholders' Interest Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Interest
Distributable Amount for such Payment Date, plus any outstanding Class B
Noteholders' Interest Carryover Shortfall from the preceding Payment Date, plus
interest on such outstanding Class B Noteholders' Interest Carryover Shortfall,
to the extent permitted by law, at the applicable Interest Rate from such
preceding Payment Date through the current Payment Date, over the amount of
interest distributed to the Class B Noteholders on such current Payment Date.
"Class B Noteholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Principal
Distributable Amount plus any outstanding Class B Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
distributed to the Class B Noteholders on such current Payment Date.
S-55
On the third business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Class A Noteholders'
Distributable Amount and the Class B Noteholders' Distributable Amount.
The Spread Account. As part of the consideration for the issuance of
the Policy, the Seller has agreed to cause to be established with Norwest Bank
Minnesota, National Association (in such capacity, the "Collateral Agent") an
account (the "Spread Account") for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any portion of the Total Distribution
Amount remaining on any Payment Date after payment of all fees and expenses due
on such date to the Servicer, the Standby Servicer, the Indenture Trustee and
the Collateral Agent and all principal and interest payments due to the
Noteholders on such Payment Date, will be deposited in the Spread Account and
held by the Collateral Agent for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. If on any Payment Date, the Total
Distribution Amount is insufficient to pay all distributions required to be made
on such day pursuant to priorities (i) through (vii) under " --Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Owner Trustee on such
Payment Date.
So long as an Insurer Default shall not have occurred and be
continuing, the Insurer will be entitled to exercise in its sole discretion all
rights under the master spread account agreement among the Seller, the Insurer,
the Indenture Trustee and the Collateral Agent (the "Master Spread Account
Agreement") with respect to the Spread Account and any amounts on deposit
therein and will have no liability to the Indenture Trustee or the Noteholders
for the exercise of such rights. The Insurer (so long as an Insurer Default
shall not have occurred and be continuing) may, with the written consent of CPS,
the Seller and the Collateral Agent but without the consent of the Indenture
Trustee or any Noteholder, reduce the Requisite Amount or modify any term of the
Master Spread Account Agreement (including terminating the Master Spread Account
Agreement and releasing all funds on deposit in the Spread Account). Because the
Requisite Amount or the existence of the Spread Account may be modified or
terminated by the Insurer as described above, there is no assurance that funds
will be available in the Spread Account to pay principal of or interest on the
Notes in the event that collections on the Receivables and other amounts
available under the Indenture are insufficient to make any distribution of
principal of or interest on the Notes on any Payment Date.
Events of Default
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events defined in
the Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and
will constitute an Event of Default under the Indenture only if the Insurer
shall have delivered to the Indenture Trustee a written notice specifying that
any such Insurance Agreement Indenture Cross Default constitutes an Event of
Default under the Indenture. An "Insurance Agreement Indenture Cross Default"
may result from: (i) a demand for
S-56
payment under the Policy; (ii) an Insolvency Event (as defined herein); (iii)
the Trust becoming taxable as an association (or publicly traded partnership)
taxable as a corporation for federal or state income tax purposes; (iv) the sum
of the Total Distribution Amount with respect to any Payment Date plus the
amount (if any) available from certain collateral accounts maintained for the
benefit of the Insurer is less than the sum of the amounts described in clauses
(i) through (vii) under "Description of the Notes -- Distributions" herein; and
(v) any failure to observe or perform in any material respect any other
covenants, representation, warranty or agreements of the Trust in the Indenture,
any certificate or other writing delivered in connection therewith, and such
failure continues for 30 days after written notice of such failure or incorrect
representation or warranty has been given to the Trust and the Indenture Trustee
by the Insurer.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default shall not have occurred and be continuing, the Notes shall become
immediately due and payable at par with accrued interest thereon, the Insurer
will have the right but not the obligation, to cause the Indenture Trustee to
liquidate the Trust Assets, in whole or in part, on any date or dates following
the acceleration of the Notes due to such Event of Default as the Insurer, in
its sole discretion, shall elect, and to distribute the proceeds of such
liquidation in accordance with the terms of the Indenture. The Insurer may not,
however, cause the Indenture Trustee to liquidate the Trust Assets, in whole or
in part, if the proceeds of such liquidation would not be sufficient to pay all
outstanding principal and accrued interest on the Notes, unless such Event of
Default arose from a claim being made on the Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee will continue to
submit claims as necessary under the Policy for any shortfalls in the Scheduled
Payments on the Notes, except that the Insurer, in its sole discretion, may
elect to pay all or any portion of the outstanding amount of the Notes in excess
thereof, plus accrued interest thereon. See "The Policy" herein.
Statements to Noteholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
a statement (prepared by the Servicer) setting forth the following information
with respect to the preceding Collection Period, to the extent applicable: (i)
the amount of the distribution allocable to principal of each Class of Notes;
(ii) the amount of the distribution allocable to interest on each Class of
Notes; (iii) the Pool Balance and the Pool Factor for each Class of Notes as of
the close of business on the last day of the preceding Collection Period; (iv)
the aggregate principal balance of each Class of Notes as of the close of
business on the last day of the preceding Collection Period, after giving effect
to payments allocated to principal reported under (i) above; (v) the amount of
the Servicing Fee paid to the Servicer with respect to the related Collection
Period (inclusive of the Standby Fee), the amount of any unpaid Servicing Fees
and the change in such amount from that of the prior Payment Date; (vi) the
amount of the Class A-1 Noteholders' Interest Carryover Shortfall, Class A-2
Noteholders' Interest Carryover Shortfall and Class B Noteholders' Interest
Carryover Shortfall, if applicable, and the Class A Noteholders' Principal
Carryover Shortfall and Class B Noteholders' Principal Carryover Shortfall, if
applicable, on such Payment Date and the change in such amounts from those on
the prior Payment Date; (vii) the amount paid to the Class A Noteholders under
the Policy for such Payment Date; (viii) the amount distributable to the Insurer
on such Payment Date; (ix) the aggregate amount in the Spread Account and the
change in such amount from the previous Payment Date; (x) the number
S-57
of Receivables and the aggregate gross amount scheduled to be paid thereon,
including unearned finance and other charges, for which the related Obligors are
delinquent in making Scheduled Receivable Payments between 31 and 59 days and 60
days or more; (xi) the number and the aggregate Purchase Amount of Receivables
repurchased by CPS or purchased by the Servicer; and (xii) the cumulative
Principal Balance of all Receivables that have become Liquidated Receivables,
net of Recoveries, during the period from the Cutoff Date to the last day of the
related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Note.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Noteholder and received any payment on such
holder's Notes, a statement (prepared by the Servicer) containing the sum of the
amounts described in (i), (ii) and (v) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Notes-Statements to Noteholders" and "Federal Income Tax Consequences" in this
Prospectus Supplement.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the Insurer on or before July 31 of each year, beginning July 31, 1998, a
report as to compliance by the Servicer during the preceding twelve months ended
March 31 with certain standards relating to the servicing of the Receivables (or
in the case of the first such certificate, the period from the Cutoff Date to
March 31, 1998).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Insurer, on or before July 31 of each year, commencing
July 31, 1998 of a certificate signed by an officer of the Servicer stating that
the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement throughout the preceding twelve months ended March 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default (or in the case of the first such certificate, the period from the
Cutoff Date to March 31, 1998). The Servicer has agreed to give the Indenture
Trustee and the Insurer notice of any Events of Default under the Sale and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding 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
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the Insurer. No such resignation will
become effective until a successor servicer has assumed the servicing
S-58
obligations and duties under the Sale and Servicing Agreement. In the event CPS
resigns as Servicer or is terminated as Servicer, the Standby Servicer has
agreed pursuant to the Servicing Assumption Agreement to assume the servicing
obligations and duties under the Sale and Servicing Agreement; however, so long
as an Insurer Default shall not have occurred and be outstanding, the Insurer in
its sole and absolute discretion may appoint a successor Servicer other than the
Standby Servicer.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
Insurance Agreement has occurred. See "Description of the Securities -- Certain
Matters Regarding the Servicer" in the Prospectus.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days (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), or any failure to
deliver to the Indenture Trustee the annual accountants' report, the annual
statement as to compliance or the statement to the Noteholders, in each case,
within five days of the date it is due; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement and continues unremedied for 30 days after the
giving of written notice of such failure (1) to the Servicer or the Seller, as
the case may be, by the Insurer or by the Indenture Trustee, or (2) to the
Servicer or the Seller, as the case may be, and to the Indenture Trustee and the
Insurer by the holders of Notes evidencing not less than 25% of the outstanding
principal balance of the Notes; (iii) certain events of insolvency,
S-59
readjustment of debt, marshaling of assets and liabilities, or similar
proceedings with respect to the Servicer or, so long as CPS is Servicer, of any
of its affiliates, and certain actions by the Servicer, the Seller or, so long
as CPS is Servicer, of any of its affiliates, indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations; (iv) a claim is made under the Policy; or (v) the occurrence of an
Event of Default under the Insurance Agreement.
Rights Upon Servicer Termination Event
Following the occurrence a Servicer Termination Event remains
unremedied, (x) provided no Insurer Default shall have occurred and be
continuing, the Insurer in its sole and absolute discretion or (y) if an Insurer
Default shall have occurred and be continuing, then the Indenture Trustee or the
holders of Notes evidencing not less than 25% of the outstanding principal
balance of the Notes may terminate all the rights and obligations of the
Servicer under the Sale and Servicing Agreement, whereupon the Standby Servicer,
or such other successor Servicer as shall be or have been appointed by the
Insurer (or, if an Insurer Default shall have occurred and be continuing, by the
Indenture Trustee or the Noteholders, as described above) will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Sale and
Servicing Agreement; provided, however, that such successor Servicer shall have
no liability with respect to any obligation which was required to be performed
by the predecessor Servicer prior to the date such successor Servicer becomes
the Servicer or the claim of a third party (including a Noteholder) based on any
alleged action or inaction of the predecessor Servicer as Servicer.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing: (i) the Insurer fails to make a payment required
under the Policy in accordance with its terms; (ii) the Insurer (A) files any
petition or commences any case or proceeding under any provision or chapter of
the United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the Insurer or for all or any material portion of
its property or (B) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Insurer (or the taking of possession of all or
any material portion of the property of the Insurer).
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of the Insurer, the
holders of Class A Notes evidencing more than 50% of the outstanding principal
balance of the Class A Notes (the "Class A Note Majority") or, after the Class A
Notes have been paid in full, the holders of Class B Notes evidencing more than
50% of the outstanding principal balance of the Class B Notes (the "Class B Note
Majority") may, on behalf of all Noteholders waive any default by the Servicer
in the performance of its obligations under the Sale and Servicing Agreement and
its consequences,
S-60
except a default in making any required deposits to or payments from any of the
Trust Accounts in accordance with the Sale and Servicing Agreement. No such
waiver shall impair the Noteholders' rights with respect to subsequent defaults.
CREDIT ENHANCEMENT
The Policy
Concurrently with the issuance of the Securities, the Insurer will
issue the Policy to the Indenture Trustee for the benefit of the Class A
Noteholders. Under the Policy, the Insurer will unconditionally and irrevocably
guarantee the full, complete and timely payment of (i) the Class A Noteholders'
Interest Distributable Amount and (ii) the Class A Noteholders' Principal
Distributable Amount. See "The Policy" in this Prospectus Supplement.
Subordination of the Class B Notes
No distribution of interest will be made to Class B Noteholders on any
Payment Date until the Class A Notes have been paid the Class A Noteholders'
Interest Distributable Amount and no distributions of principal will be made to
Class B Noteholders on any Payment Date until the Class A Notes have been paid
the Class A Noteholders' Principal Distributable Amount for such Payment Date.
This subordination is intended to enhance the likelihood of timely receipt by
the Class A Noteholders of the full amount of interest and principal
distributable to them on each Payment Date and to afford the Noteholders limited
protection against losses in respect of the Receivables.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Class A Noteholder.
Under the Policy, the Insurer unconditionally and irrevocably guarantees to the
Indenture Trustee for the benefit of each Class A Noteholder the full and
complete payment of (i) Scheduled Payments (as defined below) on the Class A
Notes and (ii) any Scheduled Payment which subsequently is avoided in whole or
in part as a preference payment under applicable law.
"Scheduled Payments" means payments that are scheduled to be made on
the Notes during the term of the Policy in an amount equal to the sum of (i) the
Class A Noteholders' Interest Distributable Amount and (ii) the Class A
Noteholders' Principal Distributable Amount on a Payment Date, in each case, in
accordance with the original terms of the Class A Notes when issued and without
regard to any amendment or modification of the Class A Notes or the Indenture
which has not been consented to by the Insurer. Scheduled Payments do not
include payments which become due on an accelerated basis as a result of (a) a
default by the Issuer, (b) an election by the Issuer to pay principal on an
accelerated basis, (c) the occurrence of an Event
S-61
of Default under the Indenture or (d) any other cause, unless the Insurer
elects, in its sole discretion, to pay in whole or in part such principal due
upon acceleration, together with any accrued interest to the date of
acceleration. In the event the Insurer does not so elect, the Policy will
continue to guarantee Scheduled Payments due on the Class A Notes. Scheduled
Payments shall not include, nor shall coverage be provided under the Policy in
respect of, (i) any portion of a Class A Noteholders' Interest Distributable
Amount due to Class A Noteholders because a notice and certificate in proper
form was not timely Received by the Insurer, (ii) any portion of the Class A
Noteholders' Interest Distributable Amount due to Class A Noteholders
representing interest on any Noteholders' Interest Carryover Shortfall accrued
from and including the date of payment of the amount of such Noteholders'
Interest Carryover Shortfall pursuant to the Policy, or (iii) any taxes,
withholding or other charge imposed with respect to any Class A Noteholder by
any governmental authority.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Insurer following Receipt by the Insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the third Business Day following Receipt of such notice for payment, and (b)
12:00 noon, New York City time, on the Payment Date on which such payment was
due on the Class A Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment to be made on the later of the
date when due to be paid pursuant to the Order referred to below or the first to
occur of (a) the fourth Business Day following Receipt by the Insurer from the
Indenture Trustee of (i) a certified copy of the order (the "Order") of the
court or other governmental body which exercised jurisdiction to the effect that
the Class A Noteholder is required to return the amount of any Scheduled Payment
distributed with respect to the Class A Notes during the term of the Policy
because such distributions were avoidable as preference payments under
applicable bankruptcy law, (ii) a certificate of the Noteholder that the Order
has been entered and is not subject to any stay, and (iii) an assignment duly
executed and delivered by the Class A Noteholder, in such form as is reasonably
required by the Insurer and provided to the Class A Noteholder by the Insurer,
irrevocably assigning to the Insurer all rights and claims of the Class A
Noteholder relating to or arising under the Class A Notes against the debtor
which made such preference payment or otherwise with respect to such preference
payment, or (b) the date of Receipt by the Insurer from the Indenture Trustee of
the items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the Insurer shall have received
written notice from the Indenture Trustee that such items were to be delivered
on such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Indenture Trustee or any Class A
Noteholder directly (unless a Class A Noteholder has previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Order, in which event, such payment shall be disbursed to the
Indenture Trustee for distribution to such Class A Noteholder upon proof of such
payment reasonably satisfactory to the Insurer). In connection with the
foregoing, the Insurer shall have the rights provided pursuant to the Indenture.
S-62
The terms "Receipt" and "Received" with respect to the Policy, shall
mean actual delivery to the Insurer and to its fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day; delivery either on a day that
is not a Business Day or after 12:00 noon, New York City time, shall be deemed
to be Receipt on the next succeeding Business Day. If any notice or certificate
given under the Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York or Minneapolis, Minnesota, or any other location of any
successor Trustee or successor Collateral Agent are authorized or obligated by
law or executive order to be closed.
The Insurer's obligations under the Policy in respect of the Scheduled
Payments shall be discharged to the extent funds are transferred to the
Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Class A
Noteholder to receive payments of principal and interest to the extent of any
payment by the Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and claims against the Insurer under each
other financial guaranty insurance policy issued thereby constitute pari passu
claims against the general assets of the Insurer. The terms of the Policy cannot
be modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Trust. The Policy may not be canceled or
revoked prior to distribution in full of all Scheduled Payments with respect to
the Class A Notes. The Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law. The Policy
is governed by the laws of the State of New York.
THE INSURER
General
Financial Security Assurance Inc. (the "Insurer" and, for purposes of
this Section, "Financial Security") is a monoline insurance company incorporated
in 1984 under the laws of the State of New York. Financial Security is licensed,
to engage in financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of Scheduled Payments of an
issuer's securities-thereby enhancing the credit rating of those securities in
consideration for
S-63
the payment of a premium to the insurer. Financial Security and its subsidiaries
principally insure asset-backed, collateralized and municipal securities.
Asset-backed securities are generally supported by residential mortgage loans,
consumer or trade receivables, securities or other assets having an
ascertainable cash flow or market value. Collateralized securities include
public utility first mortgage bonds and sale/leaseback obligation bonds.
Municipal securities consist largely of general obligation bonds, special
revenue bonds and other special obligations of state and local governments.
Financial Security insures both newly issued securities sold in the primary
market and outstanding securities sold in the secondary market that satisfy
Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at
350 Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries are reinsured
among such companies on an agreed-upon percentage substantially proportional to
their respective capital, surplus and reserves, subject to applicable statutory
risk limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, Fitch
Investors Service, L.P., Nippon Investors Service Inc. and Standard & Poor's
(Australia) Pty. Ltd. 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. See "Risk
Factors-Ratings of the Certificates" in this Prospectus Supplement.
S-64
Capitalization
The following table sets forth the capitalization of Financial Security
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of [ ] (in thousands):
[ ]
(audited)
Deferred Premium Revenue (net of prepaid reinsurance premiums).........
Shareholder's Equity:
Common Stock........................................................
Additional Paid-In Capital..........................................
Unrealized Gain on Investments (net of deferred income taxes) ......
Accumulated Earnings................................................
Total Shareholder's Equity ............................................
Total Deferred Premium Revenue and Shareholder's Equity ...............
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries, and
the notes thereto, incorporated by reference herein. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by Financial Security are available upon request to the State of New
York Insurance Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each insurer to financial guaranty
insurance and related lines, requires that each such insurer maintain a minimum
surplus to policyholders, establishes contingency, loss and unearned premium
reserve requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of transactions ("aggregate risks")
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as Financial
Security, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liability for borrowings.
S-65
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Class A Notes will be characterized as debt, the Class B Notes should be
characterized as debt (but if not characterized as debt, the Class B Notes will
be characterized as interests in a partnership), and the Trust will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income tax purposes. See "Federal Income
Tax Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as an individual
retirement account and a Keogh plan (each a "Benefit Plan"), from engaging in
certain transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons or the
fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
C ertain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Regulation was applicable. An equity interest is defined under the
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Seller believes
that, at the time of their issuance, the Notes should be treated as indebtedness
of the Trust without substantial equity features for purposes of the Regulation.
This determination is based in part upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes will be repaid when due, as well as the absence of conversion rights,
warrants and other typical equity features. The debt treatment of the Notes for
ERISA purposes could change if the Trust incurred losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, 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 Seller, the Servicer, the Owner Trustee or the
Indenture Trustee is or becomes a party in interest or a disqualified person
with respect to such Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by a
Benefit Plan depending on the
S-66
type and circumstances of the plan fiduciary making the decision to acquire such
Notes. 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; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." By acquiring a Note, each purchaser will be deemed
to represent that either (i) it is not acquiring the Notes with the assets of a
Benefit Plan; or (ii) the acquisition of the Notes will not give rise to a
nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975
of the Code.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], 1997 (the "Underwriting Agreement") among CPS,
the Seller, and [
] (the "Underwriters"), the Seller has agreed to sell to the
Underwriters, and the Underwriters have agreed to purchase, Class A Notes in the
following respective amounts:
Underwriters Principal Amount
PaineWebber
BlackDiamond
Securities, LLC
Total.......................................................
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the Class A Notes offered hereby if any of such
Class A Notes are purchased.
CPS and the Seller have been advised by the Underwriters that the
Underwriters propose to offer the Class A Notes from time to time for sale in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. The Underwriters may effect such transactions by selling the Class
A Notes to or through dealers and such dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Underwriters
and any purchasers of Class A Notes for whom they may act as agents. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Class A Notes may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale
S-67
of Class A Notes by them may be deemed to be underwriting discounts or
commissions, under the Securities Act.
The Class A Notes are a new issue of securities with no established
trading market. The Underwriters have advised CPS and the Seller that they
intend to act as a market maker for the Class A Notes. However, the Underwriters
are not obligated to do so and may discontinue any market making at any time
without notice. No assurance can be given as to the liquidity of any trading
market for the Class A Notes.
CPS and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
Cer tain legal matters relating to the Securities will be passed upon
by Mayer, Brown & Platt, New York, New York. Certain legal matters related to
the Policy will be passed upon for the Insurer by Bruce E. Stern, Esq., General
Counsel of the Insurer.
EXPERTS
The consolidated balance sheets of the Insurer and Subsidiaries as of
December 31, 1996, 1995 and 1994 and the related consolidated statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996, incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
S-68
INDEX OF TERMS (cont.)
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Alpha.......................................................................S-26
Actuarial Receivables.......................................................S-38
Alpha Program..............................................................S- 26
Benefit Plan..........................................................S-18, S-62
Business Day..........................................................S-8, S- 59
Cede.................................................................S- 17, S-43
Certificates................................................................S-24
Class A Noteholders........................................................S- 17
Class A Noteholders' Interest Distributable Amount.........................S- 50
Class A Noteholders' Principal Distributable Amount............S-9, S- 41, S- 48
Class A Notes................................................................S-1
Class A-1 Interest Rate......................................................S-8
Class A-1 Noteholders................................................S- 8, S- 41
Class A-2 Interest Rate......................................................S-8
Class A-2 Noteholders........................................................S-9
Class A-2 Notes..............................................................S-1
Class A-1 Pool Factor......................................................S-39
Class A-2 Pool Factor.......................................................S-39
Class A-3 Interest Rate......................................................S-8
Class A-3 Noteholders.......................................................S-41
Class A-3 Notes.........................................................S-1, S-4
Class A-3 Pool Factor.......................................................S-39
Class B Noteholders....................................................S-9, S-41
Class B Noteholders' Interest Distributable Amount..........................S-48
Class B Noteholders' Principal Distributable Amount....................S-9, S-48
Class B Notes...........................................................S-1, S-4
Closing Date.................................................................S-4
Collateral Agent............................................................S-52
Collection Account..........................................................S-45
Collection Period ..........................................................S-11
Commission...................................................................S-2
Contracts...................................................................S-25
CPS Purchase Agreement.................................................S-5, S-44
CPS Receivables..............................................................S-5
CPS.....................................................................S-1, S-4
Cutoff Date..................................................................S-5
Dealer Agreements...........................................................S-24
Dealers.....................................................................S-24
Delta Program...............................................................S-26
Determination Date..........................................................S-47
S-i
INDEX OF TERMS (cont.)
Distribution Account.......................................................S- 45
DTC..............................................................S-3, S-17, S-41
ERISA.......................................................................S-62
Events of Default...........................................................S-53
Exchange Act.................................................................S-2
Financed Vehicles............................................................S-5
Financial Security.....................................................S-3, S-59
First Time Buyer Program....................................................S-26
Funding Period...............................................................S-7
holders...............................................................S-17, S-41
Holdings...............................................................S-2, S-60
IFCs.........................................................................S-6
Indenture Trustee............................................................S-1
Indenture...............................................................S-1, S-4
Insurance Agreement.........................................................S-19
Insurer Default.............................................................S-56
Insurer................................................................S-4, S-59
Interest Rate................................................................S-8
Interest Reserve Account...............................................S-7, S-46
Issuer.......................................................................S-4
Liquidated Receivable.......................................................S-47
Liquidation Proceeds........................................................S-47
Lock-Box Account......................................................S-15, S-45
Lock-Box Bank...............................................................S-15
Lock-Box Processor..........................................................S-15
Mandatory Redemption..................................................S-11, S-42
Master Spread Account Agreement.............................................S-52
Note Owners...........................................................S-17, S-41
Note Prepayment Amount................................................S-12, S-42
Noteholders............................................................S-8, S-41
Noteholders' Distributable Amount...........................................S-48
Notes........................................................................S-1
Obligors....................................................................S-24
Order.......................................................................S-58
Original Pool Balance........................................................S-5
Owner Trustee................................................................S-1
Participants................................................................S-43
Payment Date.................................................................S-8
Policy.................................................................S-1, S-14
Pool Balance................................................................S-39
Post Office Box.............................................................S-14
prepayments.................................................................S-39
Pre-Funded Amount ...........................................................S-7
Pre-Funding Account..........................................................S-7
S-ii
INDEX OF TERMS (cont.)
Principal Balance ..........................................................S-48
Principal Distributable Amount........................................S-10, S-48
PTCE........................................................................S-62
Purchase Amount.............................................................S-47
Rating Agencies.............................................................S-18
Receipt.....................................................................S-58
Receivables..................................................................S-5
Received....................................................................S-58
Record Date.................................................................S-14
Recoveries..................................................................S-48
Registration Statement.......................................................S-2
Regulation..................................................................S-62
Requisite Amount............................................................S-13
Requisite Reserve Amount....................................................S-46
Rule of 78's Receivables....................................................S-38
Samco Purchase Agreement...............................................S-5, S-44
Samco Receivables ...........................................................S-5
Samco............................................................S-1, S-19, S-26
Scheduled Payments....................................................S-14, S-57
Scheduled Receivable Payment................................................S-48
Securities Act...............................................................S-2
Seller..................................................................S-1, S-4
Servicer Termination Event..................................................S-55
Servicer.....................................................................S-4
Servicing Assumption Agreement..............................................S-15
Servicing Fee Rate..........................................................S-15
Servicing Fee...............................................................S-46
Simple Interest Receivables.................................................S-38
Spread Account..............................................................S-52
Standard Program............................................................S-26
Standby Fee.................................................................S-15
Standby Servicer......................................................S-15, S-40
Sub-Prime Borrowers.........................................................S-25
Subsequent Closing Date......................................................S-6
Subsequent Cutoff Date.......................................................S-6
Subsequent Receivables.......................................................S-6
Subsequent Transfer Agreement...............................................S-20
Total Distribution Amount...................................................S-47
Trust Agreement..............................................................S-4
Trust Assets.................................................................S-5
Trustee Fee.................................................................S-49
Trust...................................................................S-1, S-4
UCC.........................................................................S-45
Underwriters................................................................S-63
S-iii
INDEX OF TERMS (cont.)
Underwriting Agreement......................................................S-63
S-iv
================================================================================
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
S-v
TABLE OF CONTENTS
Page
Prospectus Supplement
Available Information....................................................S-2
Incorporation of Certain Documents by Reference..........................S-2
Reports to Noteholders...................................................S-3
Summary ................................................................S-4
Risk Factors............................................................S-19
Formation of the Trust..................................................S-23
The Trust Assets........................................................S-24
CPS's Automobile Contract Portfolio.....................................S-25
The Receivables Pool....................................................S-33
Yield Considerations....................................................S-39
Pool Factors and Other Information......................................S-39
Use of Proceeds.........................................................S-40
The Seller and CPS......................................................S-40
The Standby Servicer....................................................S-40
Description of the Notes................................................S-41
Registration of Notes...................................................S-43
Description of the Trust Documents......................................S-44
Credit Enhancement......................................................S-57
The Policy..............................................................S-57
The Insurer.............................................................S-59
Federal Income Tax Consequences.........................................S-62
ERISA Considerations....................................................S-62
Underwriting............................................................S-63
Legal Opinions..........................................................S-64
Experts ...............................................................S-64
Index of Terms...........................................................S-i
Prospectus
Prospectus Supplement......................................................2
Available Information......................................................2
Incorporation of Certain Documents by Reference............................2
Reports to Noteholders.....................................................3
Summary of Terms...........................................................4
Risk Factors..............................................................10
Formation of the Trust....................................................16
The Trust Assets..........................................................16
Acquisition of Receivables by the Seller..................................17
The Receivables...........................................................18
S-vi
CPS's Automobile Contract Portfolio.......................................20
Pool Factors..............................................................20
Use of Proceeds...........................................................21
The Seller and CPS........................................................21
Description of the Certificates...........................................22
Certain Information Regarding the Certificates............................23
Description of the Trust Documents........................................31
Certain Legal Aspects of the Receivables..................................40
Federal Income Tax Consequences...........................................43
ERISA Considerations......................................................47
Methods of Distribution...................................................47
Legal Opinions............................................................48
Financial Information.....................................................48
Additional Information....................................................48
Defined Terms.............................................................49
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 1997-3
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
-
PROSPECTUS SUPPLEMENT
-
PaineWebber Incorporated
Black Diamond Securities, LLC
S-vii
August [ ], 1997
S-viii
S-ix
PROSPECTUS
CPS Auto Receivables Trusts
Auto Receivables Backed Notes and Certificates Issuable in Series
CPS Receivables Corp.
Seller
Consumer Portfolio Services
Sponsor and Servicer
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series (each a "Series"), in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Each Series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued by a trust to be formed by the Seller for the purpose of
issuing one or more Series of such Securities (each, a "Trust"). A Trust issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer".
Each class of Securities of any Series will evidence beneficial
ownership in a segregated pool of assets (the "Trust Assets") (such Securities,
Certificates) or will represent indebtedness of the Issuer secured by the Trust
Assets (such Securities, Notes), as described herein and in the related
Prospectus Supplement. The Trust Assets may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers including purchasers who are Sub-Prime
Borrowers (as defined herein). See "CPS Automobile Contract Portfolio." The
Trust Assets will be secured by new and used automobiles, light trucks, vans and
minivans financed thereby, and originated by CPS or an Affiliated Originator,
together with all moneys received relating thereto (the "Contracts"). The Trust
Assets will also include a security interest in the underlying new and used
automobiles light trucks, vans and minivans and property relating thereto,
together with the proceeds thereof (the "Financed Vehicles" together with the
Contracts, the "Receivables"). If and to the extent specified in the related
Prospectus Supplement, credit enhancement with respect to the Trust Assets or
any class of Securities may include any one or more of the following: a
financial guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination, cross-support
among the Receivables or over-collateralization. See "Description of the Trust
Documents - Credit and Cash Flow Enhancement." Except to the extent that a
Prospectus Supplement for a series provides for a pre-funding period, the
Receivables included in the Trust Assets for a Series will have been originated
or acquired by CPS or an Affiliated Originator on or prior to the date of
issuance of the related Securities, as described herein and in the related
Prospectus Supplement. The Receivables included in a Trust will be serviced by a
servicer (the "Servicer") as described in the related Prospectus Supplement.
Each Series of Securities may include one or more classes (each, a
"Class"). A Series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any Series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A Series may include two or more Classes of
Securities which may differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a Series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described herein and in the
related Prospectus Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE [ 15] HEREIN AND IN THE RELATED PROSPECTUS
SUPPLEMENT. THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY
AND DO NOT REPRESENT OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT
BENEFICIAL INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN
OR OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY CPS,
ANY SELLER, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES,
EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any Series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is July 23, 1997.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder, among other things, will set forth with respect to such
Series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Interest Rate" or other applicable
rate (or the manner of determining such rate) and authorized denominations of
each Class of such Securities; (iii) certain information concerning the
Receivables and insurance polices, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees or other forms of credit
enhancement, if any, relating to one or more pools of Receivables or all or part
of the related Securities; (iv) the specified interest, if any, of each Class of
Securities in, and manner and priority of, the distributions from the Trust
Assets; (v) information as to the nature and extent of subordination with
respect to such Series of Securities, if any; (vi) the payment date to
Securityholders; (vii) information regarding the Servicer(s) for the related
Receivables; (viii) the circumstances, if any, under which the Trust Assets may
be subject to early termination; (ix) information regarding tax considerations;
and (x) additional information with respect to the method of distribution of
such Securities.
AVAILABLE INFORMATION
This Prospectus, together with the Prospectus Supplement for each
Series of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission (the "Commission") in Washington, D.C., and may be
obtained at rates prescribed by the Commission upon request to the Commission
and may be inspected, without charge, at the Commission's offices.
The Sponsor has also filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a web site at
http://www.sec.gov containing reports, proxy statements, information statements
and other information regarding registrants, including CPS, that file
electronically with Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
-2-
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Sponsor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any Series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
So long as the Securities of a Series are in book-entry form, monthly
and annual reports concerning the Securities and the Trust will be sent by the
applicable Trustee to Cede & Co., as the nominee of DTC and as registered holder
of the Securities pursuant to the related Indenture. DTC will supply such
reports to Securityholders in accordance with its procedures. To the extent
required by the Securities Exchange Act of 1934, as amended, each Trust will
provide financial information to the Securityholders which has been examined and
reported upon, with an opinion expressed by, an independent public accountant;
to the extent not so required, such financial information will be unaudited.
Each Trust will be formed to own the Receivables, hold and administer the
Pre-Funding Account, if any, to issue the Securities and to acquire the
Subsequent Receivables, if available. No Trust will have any assets or
obligations prior to issuance of the Securities and no Trust will engage in any
activities other than those described herein. Accordingly, no financial
statements with respect to the related Trust will be included in any Prospectus
Supplement.
-3-
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer......................... With respect to any Series of Securities, a
trust (each, a "Trust") to be formed pursuant
to a trust agreement (the "Trust Agreement" )
between the Seller and the trustee for such
trust. A Trust issuing Securities pursuant to
this Prospectus and the related Prospectus
Supplement shall be referred to herein as the
"Issuer" with respect to the related
Securities.
Seller......................... CPS Receivables Corp. or another
special-purpose subsidiary of CPS (each, a
"Seller"). See "The Seller and CPS".
Sponsor........................ Consumer Portfolio Services, Inc. ("CPS" or
the "Sponsor"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS".
Servicer....................... The entity named as Servicer in the related
Prospectus Supplement (the "Servicer"). Each
Prospectus Supplement will specify whether the
Servicer will service the Receivables in the
related Receivables Pool directly or
indirectly through one or more subservicers
(each, a "Subservicer").
Trustee........................ The Trustee for each Series of Securities will
be specified in the related Prospectus
Supplement. In addition, a Trust may
separately enter into an Indenture and may
issue Notes pursuant to such Indenture; in any
such case, the Trust and the Indenture will be
administered by separate, independent trustees
as required by the rules and regulations under
the Trust Indenture Act of 1939 and the
Investment Company Act of 1940.
The Securities................. Each Class of Securities of any Series will
either evidence beneficial interests in a
segregated pool of assets (the "Trust Assets")
(such Securities, "Certificates") or will
represent indebtedness of the Trust secured by
the Trust Assets (such Securities, "Notes"),
as described herein and in the related
Prospectus Supplement.
-4-
With respect to Securities that represent debt
issued by the Trust, the Trust will enter into
an indenture (each, an "Indenture") by and
between the Trust and the trustee named in
such Indenture (the "Indenture Trustee"). Each
Indenture will describe the related pool of
Receivables comprising the Trust Assets and
securing the debt issued by the related
Issuer. The Receivables comprising the Trust
Assets will be serviced by the Servicer
pursuant to a servicing agreement (each, a
"Servicing Agreement") by and between the
Servicer and the related Issuer. In the case
of the Trust Assets of any class of
Securities, the contractual arrangements
relating to the establishment of a Trust, if
any, the servicing of the related Receivables
and the issuance of the related Securities may
be contained in a single agreement, or in
several agreements which combine certain
aspects of the Trust Agreement, the Servicing
Agreement and the Indenture described above
(for example, a servicing and collateral
management agreement). For purposes of this
Prospectus, the term "Trust Documents" as used
with respect to Trust Assets means,
collectively, and except as otherwise
described in the related Prospectus
Supplement, any and all agreements relating to
the establishment of a Trust, if any, the
servicing of the related Receivables and the
issuance of the related Securities. The term
"Trustee" means any and all persons acting as
a trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse. The
Securities will not be obligations, either
recourse or non-recourse, of CPS, any Seller,
the related Servicer or any person other than
the related Issuer. The Notes of a given
Series represent obligations of the Issuer,
and the Certificates of a given Series
represent beneficial interests in the related
Issuer only and do not represent interests in
or obligations of CPS, any Seller, the related
Servicer or any of their respective affiliates
other than the related Issuer. In the case of
Securities that represent beneficial ownership
interest in the related Issuer, such
Securities will represent the beneficial
ownership interests in such Issuer and the
sole source of payment will be the assets of
such Issuer. In the case of Securities that
represent debt issued by the related Issuer,
such Securities will be secured by assets in
the related Trust Assets. Notwithstanding the
foregoing, and as to be described in the
related Prospectus Supplement, certain types
of credit enhancement, such as a letter of
credit, financial guaranty insurance policy or
reserve fund may constitute a full recourse
obligation of the issuer of such credit
enhancement.
-5-
General Payment Terms of Securities. As
provided in the related Trust Documents and as
described in the related Prospectus
Supplement, the holders of the Securities
("Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Payment Date").
Payment Dates with respect to Securities will
occur monthly, quarterly or semi-annually, as
described in the related Prospectus
Supplement. The related Prospectus Supplement
will describe a date (the "Record Date")
preceding such Payment Date, as of which the
Trustee or its paying agent will fix the
identity of the Securityholders for the
purpose of receiving payments on the next
succeeding Payment Date. As described in the
related Prospectus Supplement, the Payment
Date will be a specified day of each month,
(or, in the case of quarterly-pay Securities,
a specified day of every third month; and in
the case of semi-annual pay Securities, a
specified day of every sixth month) and the
Record Date will be the close of business as
of a specified day preceding such Payment
Date. Each Indenture and Trust Agreement will
describe a period (each, a "Collection
Period") preceding each Payment Date (for
example, in the case of monthly-pay
Securities, the calendar month preceding the
month in which a Payment Date occurs). As more
fully described in the related Prospectus
Supplement, collections received on or with
respect to the related Receivables
constituting Trust Assets during a Collection
Period will be required to be remitted by the
Servicer to the related Trustee prior to the
related Payment Date and will be used to fund
payments to Securityholders on such Payment
Date. As may be described in the related
Prospectus Supplement, the related Trust
Documents may provide that all or a portion of
the payments collected on or with respect to
the related Receivables may be applied by the
related Trustee to the acquisition of
additional Receivables during a specified
period (rather than be used to fund payments
of principal to Securityholders during such
period), with the result that the related
Securities will possess an interest-only
period, also commonly referred to as a
revolving period, which will be followed by an
amortization period. Any such interest only or
revolving period may, upon the occurrence of
certain events to be described in the related
Prospectus Supplement, terminate prior to the
end of the specified period and result in the
earlier than expected amortization of the
related Securities. In addition, and as may be
described in the related Prospectus
Supplement, the related Trust Documents may
provide that all or a portion of such
collected
-6-
payments may be retained by the Trustee (and
held in certain Eligible Investments,
including Receivables) for a specified period
prior to being used to fund payments of
principal to Securityholders. Such retention
and temporary investment by the Trustee of
such collected payments may be required by the
related Trust Documents for the purpose of (a)
slowing the amortization rate of the related
Securities relative to the installment payment
schedule of the related Receivables, or (b)
attempting to match the amortization rate of
the related Securities to an amortization
schedule established at the time such
Securities are issued. Any such feature
applicable to any Securities may terminate
upon the occurrence of events to be described
in the related Prospectus Supplement,
resulting in distributions to the specified
Securityholders and an acceleration of the
amortization of such Securities. As more fully
specified in the related Prospectus
Supplement, neither the Securities nor the
underlying Receivables will be guaranteed or
insured by any governmental agency or
instrumentality or CPS, any Seller, the
related Servicer, any Trustee, or any of their
respective affiliates.
Each Series of Securities will be issued
pursuant to the related Indenture, in the case
of the Notes, and pursuant to the related
Trust Agreement, in the case of the
Certificates. The related Prospectus
Supplement will specify which Class or Classes
of Securities of the related Series are being
offered thereby.
Each Class of Securities will have a stated
security balance (the "Security Balance") and
will accrue interest on such Security Balance
at a specified rate (with respect to each
Class of Securities the "Interest Rate") as
set forth in the related Prospectus
Supplement. Each Class of Securities may have
a different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate,
or any combination of the foregoing. The
related Prospectus Supplement will specify the
Interest Rate, or the method for determining
the applicable Interest Rate, for each Class
of Securities.
A Series of Securities may include two or more
Classes of Securities that differ as to timing
and priority of distributions, seniority,
allocations of losses, Interest Rate or amount
of distributions in respect of principal or
interest. Additionally, distributions in
respect of principal or interest in respect of
any such Class or Classes may or may not be
made upon the occurrence of specified events
or on the basis of collections from
-7-
designated portions of the related Receivables
Pool. If specified in the related Prospectus
Supplement, one or more Classes of Securities
("Strip Securities") may be entitled to (i)
principal distributions with disproportionate,
nominal or no interest distributions or (ii)
interest distributions with disproportionate,
nominal or no principal distributions. If
specified in the related Prospectus Supplement
a Series may include one or more Classes of
Securities ("Accrual Securities"), as to which
certain accrued interest will not be
distributed but rather will be added to the
principal balance (or nominal balance, in the
case of Accrual Securities which are also
Strip Securities) thereof on each Payment Date
or in the manner described in the related
Prospectus Supplement. If so provided in the
related Prospectus Supplement, a Series may
include one or more other Classes of
Securities (collectively, the "Senior
Securities") that are senior to one or more
other Classes of Securities (collectively, the
"Subordinate Securities") in respect of
certain distributions of principal and
interest and allocations of losses on
Receivables. In addition, certain Classes of
Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or
Subordinate) Securities in respect of such
distributions or losses. See "Description of
the Securities - General Payment Terms of the
Securities".
Securities will be available for purchase in
the minimum denomination specified in the
related Prospectus Supplement and will be
available in book-entry form unless the
related Prospectus Supplement provides only
for Definitive Securities. Securityholders
will only be able to receive Definitive
Securities in the limited circumstances
described herein or in the related Prospectus
Supplement. See "Description of the Securities
- Definitive Notes".
If the Servicer or any Subservicer exercises
its option to purchase the Receivables of a
Trust (or if not and, if and to the extent
provided in the related Prospectus Supplement,
satisfactory bids for the purchase of such
Receivables are received), in the manner and
on the respective terms and conditions
described under "Description of the Trust
Documents--Termination", the Securities will
be prepaid as set forth in the related
Prospectus Supplement. In addition, if the
related Prospectus Supplement provides that
the property of a Trust will include a
Pre-Funding Account that will be used to
purchase additional Receivables after the
applicable Closing Date, one or more Classes
of
-8-
Securities may be subject to a partial
prepayment of principal at or immediately
following the end of the period specified in
such Prospectus Supplement for the purchase of
such additional Receivables, in the manner and
to the extent specified in the related
Prospectus Supplement.
The Residual Interest.......... With respect to each Trust, the "Residual
Interest" at any time represents the rights to
the related Trust Assets in excess of the
Securityholders' interest of all Series then
outstanding that were issued by such Trust.
The Residual Interest in any Trust Assets will
fluctuate as the aggregate Pool Balance (as
hereinafter defined) of such Trust changes
from time to time. A portion of the Residual
Interest in any Trust may be sold separately
in one or more public or private transactions.
Cross-Collateralization........ As described in the related Trust Documents
and the related Prospectus Supplement, the
source of payment for Securities of each
Series will be the assets of the related Trust
only. However, as may be described in the
related Prospectus Supplement, a Series or
Class of Securities may include the right to
receive moneys from a common pool of credit
enhancement which may be available for more
than one Series of Securities, such as a
master reserve account, master insurance
policy or a master collateral pool consisting
of similar Receivables. Notwithstanding the
foregoing, and as described in the related
Prospectus Supplement, no payment received on
any Receivable held by any Trust may be
applied to the payment of Securities issued by
any other Trust (except to the limited extent
that certain collections in excess of the
amounts needed to pay the related Securities
may be deposited in a common master reserve
account or an overcollateralization account
that provides credit enhancement for more than
one Series of Securities issued pursuant to
the related Trust Documents).
Trust Assets................... The property of each Trust will include a pool
of simple interest or Rule of 78's motor
vehicle installment sale contracts or motor
vehicle installment loans secured by new and
used automobiles, light trucks, vans and
minivans (the "Receivables"), including the
right to receive payments received or due on
or with respect to such Receivables on or
after the date or dates specified in the
related Prospectus Supplement (each, a "Cutoff
Date"), security interests in the vehicles
financed thereby (the "Financed Vehicles"),
and any proceeds from claims under certain
related insurance policies. See "The
Receivables - The Receivables." On the date of
-9-
issuance of a Series of Securities specified
in the related Prospectus Supplement (the
"Closing Date" for such Series), the
applicable Seller will convey Receivables
having the aggregate principal balance
specified in such Prospectus Supplement as of
the Cutoff Date specified therein to such
Trust pursuant to a sale and servicing
agreement (the "Sale and Servicing Agreement")
among the Seller, the Servicer and the Trustee
of such Trust. The property of each Trust also
will include amounts on deposit in, or certain
rights with respect to, certain trust
accounts, including the related Collection
Account, any Pre-Funding Account and any other
account identified in the applicable
Prospectus Supplement. See "Description of the
Trust Documents - Accounts".
If the related Prospectus Supplement provides
that the property of a Trust will include
moneys, in any case not to exceed 34% of the
Trust's Assets or 25% of the Certificate
Balance, if any, initially deposited into an
account (a "Pre-Funding Account"), such moneys
will be used to purchase additional
Receivables after the Closing Date, the Seller
will be obligated pursuant to the Sale and
Servicing Agreement to sell additional
Receivables (the "Subsequent Receivables") to
the related Trust, subject only to the
availability thereof, having an aggregate
principal balance approximately equal to the
amount deposited to the Pre-Funding Account on
the Closing Date (the "Pre-Funded Amount"),
and the Trust will be obligated to purchase
such Subsequent Receivables (subject to the
satisfaction of certain conditions set forth
in the related Trust Documents) from time to
time during the period (the "Funding Period"),
not to exceed 6 months , specified in such
Prospectus Supplement for the purchase of such
Subsequent Receivables. Any Subsequent
Receivables conveyed to a Trust will have been
acquired by the Seller, directly or
indirectly, from CPS or a subsidiary of CPS
(such subsidiary, an "Affiliated Originator")
and will meet all of the credit, underwriting
and other criteria set forth herein and in the
related Prospectus Supplement. Any funds on
deposit in the Pre-Funding Account and not yet
invested in Subsequent Receivables will be
invested in Permitted Investments. See "Risk
Factors - Varying Characteristics of
Subsequent Receivables", "The Receivables",
and "Description of the Trust Documents - Sale
and Assignment of Receivables" herein and "The
Receivables Pool" in the related Prospectus
Supplement.
As used in this Prospectus, the term
Receivables will include the Receivables
transferred to a Trust on the
-10-
related Closing Date (such Receivables, the
"Initial Receivables") as well as any
Subsequent Receivables transferred to such
Trust during the related Funding Period, if
any.
Amounts on deposit in any Pre-Funding Account
during the related Funding Period will be
invested by the Trustee (as directed by the
Servicer) in Eligible Investments, and any
resultant investment income, less any related
investment expenses ("Investment Income"),
will be added, on the Payment Date immediately
following the date on which such Investment
Income is paid to the Trust, to interest
collections on the Receivables for the related
Collection Period and distributed in the
manner specified in the related Prospectus
Supplement. Any funds remaining in a
Pre-Funding Account at the end of the related
Funding Period will be distributed as a
prepayment or early distribution of principal
to holders of one or more classes of the
Securities of the related Series of
Securities, in the amounts and in accordance
with the payment priorities specified in the
related Prospectus Supplement. Such
distribution may affect the yield realized by
Securityholders and Securityholders may not be
able to reinvest those funds in investments
realizing comparable returns. See "Risk
Factors - Distribution of Pre-Funded Amount -
Effect on Yield and Maturity".
Registration of Securities..... Securities may be represented by global
securities registered in the name of Cede &
Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC"), or another nominee of
DTC. In such case, Securityholders will not be
entitled to receive definitive securities
representing such Securityholders' interests.
See "Description of the Securities -
Book-Entry Registration" herein.
Credit and Cash Flow
Enhancement.................... If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to the Trust Assets or any Class of
Securities may include any one or more of the
following: subordination of one or more other
classes of Securities of the same Series,
reserve funds, spread accounts, surety bonds,
insurance policies, letters of credit, credit
or liquidity facilities, cash collateral
accounts, over-collateralization, guaranteed
investment contracts, swaps or other interest
rate protection agreements, repurchase
obligations, other agreements with respect to
third party payments or other support, cash
deposits, or other arrangements. To the
-11-
extent specified in the related Prospectus
Supplement, a form of credit enhancement with
respect to a Trust or a Class or Classes of
Securities may be subject to certain
limitations and exclusions from coverage
thereunder.
Repurchase Obligations and
the Receivables Acquisition
Agreement...................... As more fully described in the related
Prospectus Supplement, CPS will be obligated
to acquire from the related Trust Assets any
Receivable which was transferred pursuant to a
Sale and Servicing Agreement or Purchase
Agreement or pledged pursuant to an Indenture
if the interest of the Securityholders therein
is materially adversely affected by a breach
of any representation or warranty made by CPS
with respect to such Receivable, which breach
has not been cured. In addition, if so
specified in the related Prospectus
Supplement, CPS may from time to time
reacquire certain Receivables of the Trust
Assets, subject to specified conditions set
forth in the related Trust Documents.
Servicer's Compensation........ The Servicer shall be entitled to receive a
fee for servicing the Trust Assets equal to a
specified percentage of the value of such
Trust Assets, as set forth in the related
Prospectus Supplement. See "Description of the
Trust Documents - Servicing Compensation"
herein and in the related Prospectus
Supplement.
Optional Termination........... The Servicer, CPS, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options,
effect early retirement of a Series of
Securities under the circumstances and in the
manner set forth herein under "Description of
The Trust Documents -- Termination" and in the
related Prospectus Supplement.
Mandatory Termination.......... The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a Series
of Securities by soliciting competitive bids
for the purchase of the Trust Assets or
otherwise, under the circumstances and in the
manner specified in "Description of The Trust
Documents -- Termination" and in the related
Prospectus Supplement.
Tax Considerations............. Upon the issuance of each series of
Securities, unless the related Prospectus
Supplement does not so provide, Federal Tax
Counsel to the applicable Trust will deliver
an opinion to the effect that, for Federal
income tax
-12-
purposes: (i) either (x) the Notes of such
series will be characterized as debt or (y)
the Notes of such series should be
characterized as debt (but if not
characterized as debt, the Notes of such
series will be characterized as interests in a
partnership) and (ii) such Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note
of a given series, will agree to treat such
Note as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate of a given series, will agree to
treat the related Trust as a partnership in
which such Certificateholder is a partner, for
Federal income tax purposes. Alternative
characterizations of such Trust and such
Certificates are possible, but would not
result in materially adverse tax consequences
to Certificateholders. See "Certain Federal
Income Tax Consequences" for additional
information concerning the application of
Federal income tax laws to the Notes and
Certificates of a series and to the applicable
Trust.
ERISA Considerations........... The Prospectus Supplement for each Series of
Securities will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), relevant to
the purchase of such Securities by employee
benefit plans and individual retirement
accounts. See "ERISA Considerations" in the
related Prospectus Supplement.
Ratings........................ Each Class of Securities offered pursuant to
this Prospectus and the related Prospectus
Supplement will be rated in one of the four
highest rating categories by one or more
"national statistical rating organizations",
as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and
commonly referred to as "Rating Agencies".
Such ratings will address, in the opinion of
such Rating Agencies, the likelihood that the
Issuer will be able to make timely payment of
all amounts due on the related Securities in
accordance with the terms thereof. Such
ratings will neither address any prepayment or
yield considerations applicable to any
Securities nor constitute a recommendation to
buy, sell or hold any Securities. The ratings
expected to be received with respect to any
Securities will be set forth in the related
Prospectus Supplement.
-13-
RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Sub-Prime Obligors. The Obligors on the Receivables to be conveyed to a
Trust will include "sub-prime" borrowers who have limited or adverse credit
histories, low income or past credit problems and, therefore, are unable to
obtain financing from traditional sources of consumer credit. The average
interest rate charged by CPS to such "sub-prime" borrowers is generally higher
than that charged to more creditworthy customers. The payment experience on
receivables of obligors with this credit profile is likely to be different from
that on receivables of traditional auto financing sources in that default rates
are likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the obligors
and the APRs of such receivables, the historical credit loss and delinquency
rates on such receivables are generally higher than those experienced by banks
and the captive finance companies of the automobile manufacturers.
Effect of Social, Economic and Other Factors on Losses. The ability of
the Obligors to make payments on the Receivables, as well as the prepayment
experience thereon, will be affected by a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perceptions of economic conditions generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the Receivables.
Risk of Replacing CPS as Servicer. CPS Servicing receivables of
sub-prime obligors is more difficult than servicing receivables of prime
obligors. Officers and employees of CPS have many years of experience in this
type of servicing. If CPS were to cease acting as Servicer, delays in processing
payments on the Receivables and information in respect thereof could occur and
result in delays in payments to the Securityholders.
Risk of CPS's Inability to Repurchase Receivables. In certain
circumstances, CPS will be required to acquire Receivables from the related
Trust with respect to which such representations and warranties have been
breached. In the event that CPS is incapable of complying with its repurchase
obligations and no other party is obligated to perform or satisfy such
obligations, Securityholders of the applicable Trust may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
The related Prospectus Supplement will set forth certain information
regarding CPS. In addition, CPS is subject to the information requirements of
the Exchange Act and, in accordance therewith, files reports and other
information with the Commission. For further information regarding CPS reference
is made to such reports and other information which are available as described
under "Available Information".
Effect of Prepayments on Yield and Maturity. All of the Receivables are
prepayable at any time. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a receivable without the consent of CPS. (For this purpose the term
"prepayments" includes prepayments in full, certain partial prepayments related
to refunds of extended service contract costs and unearned insurance premiums,
liquidations due to default, as well as receipts of
-14-
proceeds from physical damage, credit life and credit accident and health
insurance policies and certain other Receivables repurchased for administrative
reasons.) The rate of prepayment on the Receivables may also be influenced by
the structure of the loan, the nature of the Obligors and the Financed Vehicles
and servicing decisions as discussed above. In addition, under certain
circumstances, CPS is obligated to repurchase Receivables as a result of
breaches of representations and warranties, and under certain circumstances the
Servicer is obligated to purchase Receivables pursuant to the Sale and Servicing
Agreement as a result of breaches of certain covenants. Subject to certain
conditions, the Servicer also has the right to purchase the Receivables when the
aggregate principal balance thereof is 10% or less of the aggregate principal
balance thereof on the Cutoff Date. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Receivables will be borne entirely
by the Securityholders.
The rate of prepayments of Receivables cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
Distribution of Pre-Funded Amount - Effect on Yield and Maturity. If so
provided in the related Prospectus Supplement, on the Closing Date the Seller
will deposit the Pre-Funded Amount specified in such Prospectus Supplement into
the Pre-Funding Account. The Pre-Funded Amount will be used to purchase
Subsequent Receivables from the Seller (which, in turn, will acquire such
Subsequent Receivables from CPS or an Affiliated Originator specified in the
related Prospectus Supplement) from time to time during the related Funding
Period. During the related Funding Period and until such amounts are applied by
the Trustee to purchase Subsequent Receivables, amounts on deposit in the
Pre-Funding Account will be invested by the Trustee (as instructed by the
Servicer) in Eligible Investments, and any investment income with respect
thereto (net of any related investment expenses) will be added to amounts
received on or in respect of the Receivables during the related Collection
Period and allocated to interest and will be distributed on the Payment Date
pursuant to the payment priorities specified in the related Prospectus
Supplement.
To the extent that the entire Pre-Funded Amount has not been applied to
the purchase of Subsequent Receivables by the end of the related Funding Period,
any amounts remaining in the Pre-Funding Account will be distributed as a
prepayment of principal to Securityholders on the Payment Date at or immediately
following the end of the Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any such prepayment
of principal could have the effect of shortening the weighted average life of
the Securities of the related Series. In addition, holders of the related
Securities will bear the risk that they may be unable to reinvest any such
principal prepayment at yields at least equal to the yield on such Securities.
Varying Characteristics of Subsequent Receivables. If so provided in
the related Prospectus Supplement, the Seller will be obligated pursuant to the
Trust Documents to sell Subsequent Receivables to the Trust, and the Trust will
be obligated to purchase such Subsequent Receivables, subject only to the
satisfaction of certain conditions set forth in the Trust Documents and
described in
-15-
the related Prospectus Supplement. If the principal amount of the eligible
Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Purchase Agreement; (ii) the Seller shall not have selected such
Subsequent Receivables in a manner that is adverse to the interests of holders
of the related Securities; (iii) as of the respective Cutoff Dates for such
Subsequent Receivables, all of the Receivables in the Trust, including the
Subsequent Receivables to be conveyed to the Trust as of such date, must satisfy
the parameters described under "The Receivables Pools" herein and "The
Receivables Pool" in the related Prospectus Supplement; and (iv) the Seller must
execute and deliver to such Trust a written assignment conveying such Subsequent
Receivables to such Trust. In addition, as and to the extent specified in the
related Prospectus Supplement, the conveyance of Subsequent Receivables to a
Trust is subject to the satisfaction of the condition precedent, among others,
that the Seller deliver certain legal opinions to the related Trustee with
respect to the validity of the conveyance of the Subsequent Receivables to the
Trust. If any such conditions precedent are not met with respect to any
Subsequent Receivables, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period. See "The
Receivables" herein.
Certain Legal Aspects - Lack of Perfected Security Interests in
Financed Vehicles. The transfer of the Receivables by the applicable Seller to
the Trustee pursuant to the related Sale and Servicing Agreement, perfection of
the security interests in the Receivables and the enforcement of rights to
realize on the Financed Vehicles as collateral for the Receivables are subject
to a number of federal and state laws, including the UCC as in effect in various
states. To the extent specified in a Prospectus Supplement, no action will be
taken to perfect the rights of the Trustee in proceeds of any VSI insurance
policy insurance policies covering individual Financed Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trust prior to the time such proceeds are
deposited by the Servicer into a Trust Account (as hereinafter defined). See
"Certain Legal Aspects of the Receivables".
In connection with each sale of Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by CPS and each
Affiliated Originator to the Seller. Due to the administrative burden and
expense of retitling each of the Financed Vehicles in the appropriate state, the
certificates of title to the Financed Vehicles will not be amended or reissued
to reflect the assignment to the Trust. In the absence of such an amendment or
reissuance, the Trust may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states. By virtue of the assignment of
the applicable Purchase Agreement to the related Trust, CPS will be
-16-
obligated to repurchase any Receivable sold to the Trust by CPS or an Affiliated
Originator as to which there did not exist on the Closing Date a perfected
security interest in the name of CPS or the relevant Affiliated Originator in
the Financed Vehicle, and the Servicer will be obligated to purchase any
Receivable sold to the Trust as to which it failed to maintain a perfected
security interest in the name of CPS or the relevant Affiliated Originator in
the Financed Vehicle securing such Receivable if, in either case, such breach
materially and adversely affects such Receivable and if such failure or breach
is not cured prior to the expiration of the applicable cure period. To the
extent the security interest of CPS or the Affiliated Originator is perfected,
the Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or the Affiliated Originator, and therefore the Trust, could lose the priority
of its security interest or its security interest in a Financed Vehicle. Neither
CPS nor the Servicer will have any obligation to purchase a Receivable as to
which a lien for repairs of a Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority of the security interest in
such Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables - Security Interests in the Financed Vehicles".
Consumer Protection Laws. Federal and state consumer protection laws
impose requirements on creditors in connection with extensions of credit and
collections of retail installment loans, and certain of these laws make an
assignee of such a loan (such as a Trust) liable to the obligor thereon for any
violation by the lender. To the extent specified herein and in the related
Prospectus Supplement, CPS will be obligated to repurchase any Receivable that
fails to comply with such legal requirements from the Seller and the Seller
shall be obligated to repurchase such Receivable from the Trust, and the Seller
and the Servicer will undertake to enforce such obligation on behalf of the
Trust. See "Certain Legal Aspects of the Receivables - Consumer Protection
Laws".
Non-Consolidation. Each Seller has taken or will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by CPS 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 CPS.
These steps include the creation of each Seller as a separate, limited-purpose
subsidiary pursuant to articles 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 prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of a Seller
would not result in a court concluding that the assets and liabilities of such
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion, then delays in
distributions on the related Securities could occur or reductions in the amounts
of such distributions could result. See "The Seller and CPS".
True Sale. CPS will warrant to the Seller in each Purchase Agreement
that the sale of the Receivables by it or an Affiliated Originator to the Seller
is a valid sale of such Receivables to such Seller. In addition, CPS, each
Affiliated Originator and each Seller will treat the transactions described
herein as a sale of the Receivables to the Seller, and each Seller has taken and
will take all actions that are required to perfect the Seller's ownership
interest in the Receivables. Notwithstanding the foregoing, if CPS or an
Affiliated Originator were to become a debtor in a bankruptcy case and a
creditor or trustee-in-bankruptcy of CPS (or such Affiliated Originator) or CPS
(or such Affiliated Originator) itself were to take the position that the sale
of Receivables to the Seller
-17-
should be recharacterized as a pledge of such Receivables to secure a borrowing
of such Seller, then delays in payments of collections of Receivables to the
Seller could occur or, should the court rule in favor of any such trustee,
debtor or creditor, reductions in the amount of such payments could result. If
the transfer of Receivables to the Seller is recharacterized as a pledge or a
tax or government lien on the property of CPS or an Affiliated Originator
arising before the transfer of a Receivable to the Seller may have priority over
the Seller's interest in such Receivable. If the transactions contemplated
herein are treated as a sale, the Receivables would not be part of the
bankruptcy estate of CPS or the Affiliated Originator, as applicable, and would
not be available to creditors of CPS or the Affiliated Originator, as
applicable.
The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known, and the extent
to which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a bankruptcy of CPS or an Affiliated Originator, however, even if the transfers
of Receivables to the Seller and to the Trust were treated as sales, the
Receivables would be part of the bankruptcy estate and would be subject to
claims of certain creditors and delays and reductions in payments to the
Securityholders could result. CPS will warrant in the Purchase Agreement that
the sale of the Receivables to the Seller (including Receivables sold by an
Affiliated Originator) is a valid sale of the Receivables to the Seller, and the
Seller will warrant in the Sale and Servicing Agreement that the sale of the
Receivables to the Trust is a valid sale of the Receivables to the Trust.
Risk of Changes in Delinquency Levels. There can be no assurance that
the historical levels of delinquencies and losses experienced by CPS on its
respective loan and vehicle portfolio will be indicative of the performance of
the Contracts included in the Trust or that such levels will continue in the
future. Delinquencies and losses could increase significantly for various
reasons, including changes in the federal income tax laws, changes in the local,
regional or national economies or due to other events. For a discussion and
analysis see "CPS's Automobile Contract Portfolio - Delinquency and Loss
Experience".
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Notes of a Series may be subordinated in priority of payment to interest and
principal due on other Classes of Notes of a related Series. Moreover, each
Trust will not have, nor is it permitted or expected to have, any significant
assets or sources of funds other than the related Receivables and, to the extent
provided in the related Prospectus Supplement, the related reserve account,
spread account, and any other Credit Enhancement. The Securities represent
beneficial interests in the related Trust only and will not represent a recourse
obligation to other assets of CPS or the Seller. No Securities of any Series
will be insured or guaranteed by CPS, the Seller, the Servicer, or the
applicable Trustee. Consequently, holders of the Securities of any Series must
rely for repayment primarily upon payments on the Receivables and, if and to the
extent available, any Credit Enhancement, all as specified in the related
Prospectus Supplement.
-18-
Limited Liquidity. There can be no assurance that a secondary market
for the Securities of any Series or Class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of such Securities. The Prospectus Supplement for any
Series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
Priority of Interest in Receivables. In connection with the issuance of
any Series of Securities, CPS will originate Receivables. The Seller will
warrant in a Sale and Servicing Agreement that the transfer of the Contracts to
such Trust is either a valid assignment, transfer and conveyance of the
Receivables to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Receivables. As will be described in the related
Prospectus Supplement, the related Trust Documents will provide that the Trustee
will be required to maintain possession of such original copies of all
Receivables that constitute chattel paper; provided that the Servicer may take
possession of such original copies as necessary for the enforcement of any
Receivables. If the Servicer, the Trustee or other third party, while in
possession of any Receivable, sells or pledges and delivers such Receivable to
another party, in violation of the Sale and Servicing Agreement, there is a risk
that such other party could acquire an interest in such Receivable having a
priority over the Trust's interest. Furthermore, if the Servicer or a third
party, while in possession of any Receivable, is rendered insolvent, such an
event of insolvency may result in competing claims to ownership or security
interests in such Receivable. Such an attempt, even if unsuccessful, could
result in delays in payments on the Securities. If successful, such attempt
could result in losses to the Securityholders or an acceleration of the
repayment of the Securities. CPS will be obligated to repurchase any Receivable
if there is a breach of CPS's representations and warranties that materially and
adversely affects the interests of the Trust in such Receivable and such breach
has not been cured.
Limitations on the Amount of Recoveries. Unless specific limitations
are described on the related Prospectus Supplement with respect to specific
Receivables, all Receivables will provide that the obligations of the Obligors
thereunder are absolute and unconditional, regardless of any defense, set-off or
abatement which the Obligor may have against CPS or any other person or entity
whatsoever. CPS will warrant that no claims or defenses have been asserted or
threatened with respect to the Receivables and that all requirements of
applicable law with respect to the Receivables have been satisfied.
In the event that CPS or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Sale and Servicing Agreement), the Issuer
may not realize the full amount due on a Receivable (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Receivable include whether amendments
to certificates of title relating to the Financed Vehicles had been filed,
depreciation, obsolescence, damage or loss of any financed Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
Insurance on Financed Vehicles. Each Receivable generally requires the
Obligor to maintain insurance covering physical damage to the Financed Vehicle
in an amount not less than the unpaid principal balance of such Receivable
pursuant to which CPS is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies vary.
-19-
In addition, although each Receivable generally gives CPS the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither CPS nor the
Servicer is obligated to place such coverage. In the event insurance coverage is
not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Financed
Vehicles included in the Trust Assets, as a result of which Securityholders
could suffer a loss on their investment.
Security Rating. The rating of Securities credit enhanced by a letter
of credit, financial guaranty insurance policy, reserve fund, credit or
liquidity facilities, cash deposits or other forms of credit enhancement
(collectively "Credit Enhancement") will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer to honor its obligations pursuant to any
such Credit Enhancement below the rating initially given to the Securities would
likely result in a reduction in the rating of the Securities.
Limitations Due to Book-Entry Registration. Issuance of the Securities
in book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain definitive physical securities representing such
Securityholders' interests, except in certain circumstances described in the
related Prospectus Supplement.
Since transactions in Securities will, in most cases, be effected only
through DTC, direct or indirect participants in DTC's book-entry system ("Direct
Participants" or "Indirect Participants") or certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities - Book-Entry
Registration".
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Receivable and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Receivables. In addition, the
Relief Act imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Receivable during the Obligor's period of active duty
status. Thus, in the event that such a Receivable goes into default, there may
be delays and losses occasioned by the inability of the Servicer to realize upon
the Financed Vehicle in a timely fashion.
-20-
THE ISSUERS
With respect to each Series of Securities, the Seller will establish a
separate Trust that will issue such Securities pursuant to the related Trust
Documents. For purposes of this Prospectus and the related Prospectus
Supplement, the related Trust, if a Trust issues the related Securities, shall
be referred to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given Series, the proceeds
from such issuance will be used by CPS to originate Receivables. The Servicer
will service the related Receivables pursuant to a sale and servicing agreement
(the "Sale and Servicing Agreement"), and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables by
each Trustee and CPS, as may be set forth in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by
the subordination of another Class of Securities of such Series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such Series is insufficient, the Trust must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Financed Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Trust's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such Series.
THE TRUST ASSETS
To the extent specified in the Prospectus Supplement for a Trust, the
Trust Assets of a Trust will include a pool (a "Receivables Pool") of retail
installment sale contracts between dealers (the "Dealers") in new and used
automobiles, light trucks, vans and minivans and retail purchasers (the
"Obligors") (including Sub-Prime Borrowers) and, with respect to Rule of 78's
Receivables, certain moneys due thereunder after the applicable Cutoff Date and,
with respect to Simple Interest Receivables, certain moneys received thereunder
after the applicable Cutoff Date. Pursuant to agreements between the Dealers and
CPS ("Dealer Agreements"), the Receivables will be purchased by CPS. As further
described in the related Prospectus Supplement, the Trust Assets of a Trust will
also include (i) such amounts as from time to time may be held in one or more
trust accounts established and maintained by the Trustee pursuant to the Trust
Agreement or Indenture; (ii) the rights of the Seller under the Sale and
Servicing Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. If so specified in the related Prospectus Supplement, the Trust
Assets also will include the Credit Enhancement provided for the benefit of
Securityholders of such Trust.
-21-
If so provided in the related Prospectus Supplement, the property of a
Trust may also include a Pre-Funded Amount, which the Seller will deposit to the
Pre-Funding Account on the Closing Date and which will be used by the Trust to
purchase Subsequent Receivables from the Seller during the related Funding
Period (not to exceed 6 months). Any Subsequent Receivables so conveyed to a
Trust will also be assets of such Trust. The Pre-Funded Amount will not exceed
34% of the Trust Assets nor 25% of the Certificate Balance, if any.
If the protection provided to Securityholders, if any, by any such
Credit Enhancement is insufficient, such Securityholders will have to look to
payments by or on behalf of Obligors on the related Receivables and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables for distributions of principal and interest on the Securities. In
such event, certain factors, such as the applicable Trust's not having perfected
security interests in all of the Financed Vehicles, may limit the ability of a
Trust to realize on the collateral securing the related Receivables, or may
limit the amount realized to less than the amount due under the related
Receivables. Securityholders may thus be subject to delays in payment on, or may
incur losses on their investment in, such Securities as a result of defaults or
delinquencies by Obligors and depreciation in the value of the related Financed
Vehicles. See "Description of the Trust Documents - Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables".
The Receivables comprising the Trust Assets will, as specifically
described in the related Prospectus Supplement, be either (i) originated by CPS
or an Affiliated Originator, (ii) originated by various manufacturers (or their
captive finance companies) and acquired by CPS or an Affiliated Originator,
(iii) originated by various Dealers and acquired by CPS or an Affiliated
Originator or (iv) acquired by CPS or an Affiliated Originator from other
originators or owners of Receivables. Such Receivables will generally have been
originated or acquired by CPS or an Affiliated Originator in accordance with
CPS's specified underwriting criteria. The underwriting criteria applicable to
the Receivables included in any Trust will be described in all material respects
in the related Prospectus Supplement.
The Receivables included in the Trust Assets will be selected from
those Receivables held by CPS or an Affiliated Originator based on the criteria
specified in the applicable Purchase Agreement or Affiliate Purchase Agreement
and described herein or in the related Prospectus Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, CPS will, and an Affiliated
Originator may, sell and assign to the Seller, without recourse, except as
provided in the related Purchase Agreement, its entire interest in the
applicable Receivables, together with its security interests in the Financed
Vehicles, pursuant to a purchase agreement between CPS and the Seller (a
"Purchase Agreement") or pursuant to a purchase agreement between an Affiliated
Originator and the Seller (an "Affiliate Purchase Agreement").
In each Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided with respect to
the applicable Receivables is correct in all material respects; (ii) at the date
of issuance of the Securities, physical damage insurance covering each Financed
Vehicle is in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the applicable Securities, the related Receivables are free
and clear of all security interests, liens, charges, and encumbrances and no
offsets, defenses, or counterclaims against Dealers have been asserted or
threatened; (iv) at the date of issuance of the Securities, each of the
Receivables is or will be secured by a first-priority perfected security
interest in the Financed Vehicle in favor of CPS or the applicable
-22-
Affiliated Originator; and (v) each Receivable, at the time it was originated,
complied and, at the date of issuance of the Securities, complies in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the Seller and CPS of a breach of
any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the Trust for the Purchase Amount. The "Purchase Amount" equals the unpaid
principal balance owed by the Obligor plus interest thereon at the respective
APR to the last day of the month of repurchase. The repurchase obligation will
constitute the sole remedy available to the Securityholders, the Credit Enhancer
(if any) or the Trustee for any such uncured breach.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Receivables
Pool will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution of
such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cutoff Date.
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Sale and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Sale and Servicing Agreement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Risk Factors--Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Sale and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Securities; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pool" in
the related Prospectus Supplement; and (iv) the Seller must execute and deliver
to such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period specified in the related Prospectus
Supplement, that the Seller deliver certain legal opinions to the related
Trustee with respect to the validity of the conveyance of the Subsequent
Receivables to the Trust. If any such conditions precedent are not met with
respect to any Subsequent Receivables within the time period specified in the
related Prospectus Supplement, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
-23-
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary from those described in the related Prospectus Supplement as
Subsequent Receivables are conveyed to such Trust from time to time during the
Funding Period or Revolving Period; provided that the Trust will not acquire any
Subsequent Receivable on a Subsequent Transfer Date if the addition of such
Subsequent Receivable (giving consideration to all other Subsequent Receivables
acquired by the Trust on or prior to such Subsequent Transfer Date) would result
in any characteristic of the related Receivables Pool varying by more than 5%
from the description of such characteristic in the related Prospectus Supplement
. The Sponsor will file each Subsequent Transfer Agreement with the Commission
on Form 8-K.
The Receivables
As specified in the related Prospectus Supplement, the Receivables may
consist of any combination of Rule of 78's Receivables, Actuarial Receivables or
Simple Interest Receivables. Generally, "Rule of 78's Receivables" provide for
fixed level monthly payments which will amortize the full amount of the
Receivable over its term. The Rule of 78's Receivables provide for allocation of
payments according to the "sum of periodic balances" method (also referred to as
the "sum of monthly payments" method) (the "Rule of 78's"). Each Rule of 78's
Receivable provides for the payment by the Obligor of a specified total amount
of payments, payable in monthly installments on the related due date, which
total represents the principal amount financed and finance charges in an amount
calculated on the basis of a stated annual percentage rate ("APR") for the term
of such Receivable. The rate at which such amount of finance charges is earned
and, correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal balance of the related Receivable are
calculated in accordance with the Rule of 78's. Under the Rule of 78's, the
amount of interest earned in any period is equal to the total finance charge due
under the contract multiplied by a fraction the numerator of which is the
remaining number of periods of the contract and the denominator of which is the
sum of the digits for the term of the contract. For example, on a 36 month
contract in its 17th month, the numerator would be nineteen and the denominator
would be 666 (1+2+3+4....+36=666). Under the Rule of 78's, the portion of each
payment allocable to interest is higher during the early months of the term of a
Receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78's Receivables may be
allocated on an actuarial or simple interest basis.
Generally, "Actuarial Receivables" provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
An Actuarial Receivable provides for amortization of the amount financed over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
Financed Vehicle to CPS, provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions.
"Simple Interest Receivables" provide for the amortization of the
amount financed under the Receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under Rule of 78's Receivables,
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
-24-
principal balance. Accordingly, if an Obligor pays a fixed monthly installment
before its scheduled 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 scheduled
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.
If an Obligor elects to prepay a Rule of 78's Receivable in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the Obligor is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable calculated in accordance with the Rule of 78's will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78's rebates
under the Rule of 78's Receivable because, as specified in the related
Prospectus Supplement, such distributions may be determined using the actuarial
or simple interest method.
Delinquencies, Repossessions And Net Losses
Certain information relating to CPS's delinquency, repossession and net
loss experience with respect to Receivables it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Receivables in CPS's portfolio
during certain specified periods. There can be no assurance that the
delinquency, repossession and net loss experience with respect to any Trust will
be comparable to CPS's prior experience.
Maturity And Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
CPS will be obligated to acquire Receivables from the related Trust pursuant to
the applicable Purchase Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from prepayments will be
borne entirely by the related Securityholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Securities, together with a description of any applicable prepayment penalties.
-25-
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
CPS and certain of its subsidiaries (each such subsidiary, an
"Affiliated Originator") purchase Contracts from Dealers or independent finance
companies ("IFC's") with the intent to resell them. CPS and Affiliated
Originators may also purchase Contracts from third parties that have been
originated by others. Prior to the issuances of the Securities, Contracts have
been sold to institutional investors either as bulk sales or as private
placements or public offerings of securities collateralized by the Contracts.
Purchasers of Contracts receive a pass-through rate of interest set at the time
of the sale, and CPS receives a base servicing fee for its duties relating to
the accounting for and collection of the Contracts. In addition, CPS is entitled
to certain excess servicing fees that represent collection on the Contracts in
excess of those required to pay principal and interest due to the investor at
face value and without recourse except that the representations and warranties
made to CPS by the Dealers are similarly made to the investors by CPS. CPS has
some credit risk with respect to the excess servicing fees it receives in
connection with the sale of contracts to investors and its continued servicing
function since the receipt by CPS of such excess servicing fees is dependent
upon the credit performance of the Contracts. Additional information with
respect to CPS's automobile contract portfolio, including information regarding
CPS's underwriting criteria and servicing and collection procedures, will be set
forth in each Prospectus Supplement.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
For further information about CPS see "CPS's Automobile Contract
Portfolio" in the Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement
with respect to each Series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of
-26-
information. In addition, Securityholders of record during any calendar year
will be furnished information for tax reporting purposes not later than the
latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the applicable Seller
and to make the deposit of the Pre-Funded Amount, if any, to the Pre-Funding
Account. CPS will use the portion of such proceeds paid to it for general
corporate purposes.
THE SELLER AND CPS
Each Seller will be a wholly-owned subsidiary of CPS. CPS Receivables
Corp. was incorporated in the State of California in June of 1994. CPS
Receivables Corp. was, and each other Seller will be, organized for the limited
purpose of purchasing automobile installment sale contracts from CPS 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 CPS Receivables Corp. are located at 2 Ada, Suite
100, Irvine, California 92618; telephone (714) 753-6800.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by CPS under any Insolvency Law will result in consolidation
of the assets and liabilities of the Seller or the Trust with those of CPS.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to articles 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 prior 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 CPS in a proceeding under any
Insolvency Law.
The Seller has received the advice of Mayer, Brown & Platt to the
effect that, subject to certain facts, assumptions and qualifications, in a
properly presented case under current law, in the event that CPS becomes a
debtor in a case under the Bankruptcy Code, a United States Bankruptcy Court
would not order the substantive consolidation of the assets and liabilities of
the Seller with those of CPS. Among other things, it is assumed by Mayer, Brown
& Platt that the Seller will follow certain procedures in the conduct of its
affairs, including maintaining records and books of account separate from those
of CPS, refraining from commingling its assets with those of CPS and refraining
from holding itself out as having agreed to pay, or being liable for, the debts
of CPS. 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, and in certain other circumstances, 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 CPS. If a court were to reach such a conclusion, or a
filing were made to litigate any of the foregoing issues, delays in
distributions on the Securities (and possible reductions in the amount of such
distributions) could occur. See "Risk Factors - Non-Consolidation".
CPS was incorporated in the State of California on March 8, 1991. On
October 22, 1992, CPS completed a public offering of 1,300,000 shares
(approximately 31% of the shares then outstanding) of its common stock at an
initial price of $5.00 per share. Prior to that time, 100% of the common stock
of CPS was owned by CPS Holdings, Inc., a holding company the majority of the
shares of which are owned by
-27-
Charles E. Bradley, Sr. On March 6, 1995, CPS completed a second public offering
of 1,000,000 shares (approximately 18.5% of the shares then outstanding) of its
common stock at $14.75 per share. CPS and its subsidiaries engage primarily in
the business of purchasing, selling and servicing Contracts originated by
Dealers located primarily in California, Florida, Pennsylvania, Texas, Illinois
and Nevada. CPS specializes in Contracts with Sub-Prime Borrowers who generally
would not be expected to qualify for traditional financing such as that provided
by commercial banks or automobile manufacturers' captive finance companies.
Sub-Prime Borrowers generally have limited credit history, lower than average
income or past credit problems. CPS also provides accounting and collection
services to third party owners of automobile loan portfolios that were not
originated by CPS. CPS's executive offices are located at 2 Ada, Irvine,
California 92618; telephone (714) 753-6800.
THE TRUSTEE
The Trustee for each Series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Documents.
With respect to each Series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series (each a "Series"). Each Series
of Securities (or, in certain instances, two or more Series of Securities) will
be issued pursuant to a Trust Agreement and, if Notes are issued, an Indenture.
The following summaries (together with additional summaries under "The
Description of the Trust Documents" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement and
Indenture. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Trust Documents for the related Securities and the related Prospectus
Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
The Securities may either represent beneficial ownership interests in
the related Receivables held by the related Trust or debt secured by certain
assets of the related Trust.
Each Series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
Series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A Series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a
-28-
schedule or formula, or on the basis of collections from designated portions of
the related pool of Receivables. Any such Series may include one or more Classes
of Accrual Securities, as to which certain accrued interest will not be
distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a Series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Documents and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi--annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date will be a specified day of each month
(or, in the case of quarterly-pay Securities, a specified day of every third
month; and in the case of semi-annual pay Securities, a specified day of every
sixth month) and the Record Date will be the close of business as of a specified
day preceding such Payment Date.
Each Trust Agreement and Indenture will describe a Collection Period
preceding each Payment Date (for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a Payment Date occurs). As more
fully provided in the related Prospectus Supplement, collections received on or
with respect to the related Receivables held by a Trust during a Collection
Period will be required to be remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Documents may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
Eligible Investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders. "Eligible
Investments" are generally limited to investments acceptable to the Rating
Agencies as being consistent with the rating of such Securities. Subject to
certain conditions, Eligible Investments may include securities issued by CPS,
the Servicer or
-29-
their respective affiliates or other trusts created by CPS or its affiliates.
See "Description of the Trust Documents - Accounts".
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Documents for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the installment payment schedule of the related Receivables, or (b)
attempting to match the amortization rate of the related Securities to an
amortization schedule established at the time such Securities are issued. Any
such feature applicable to any Securities may terminate upon the occurrence of
events to be described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an acceleration of the
amortization of such Securities.
Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or CPS, any
Seller, the Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each Series will either evidence specified beneficial ownership interests in the
Trust Assets or represent debt secured by the related Trust Assets. To the
extent that any Trust Assets include certificates of interest, the related
Prospectus Supplement will describe the material terms and conditions of such
certificates.
Book-Entry Registration
As specified in the related Prospectus Supplement, Securityholders of a
given Series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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 UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC 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, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will
-30-
be effected in DTC in accordance with DTC rules on behalf of the relevant
European international clearing system by 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, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing 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 Securityholders of a given Series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such Series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given Series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given Series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. Unless the related Prospectus Supplement provides for
Definitive Securities it is anticipated that the only "Securityholder" in
respect of any Series will be Cede, as nominee of DTC, or another nominee of
DTC. Securityholders of a given Series will not be recognized as Securityholders
of such Series, and such Securityholders will be permitted to exercise the
rights of Securityholders of such Series only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such Series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given Series to pledge Securities of such Series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related Series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such Series are credited. DTC may take conflicting actions with
-31-
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
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 28
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. 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.
Euroclear 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 28 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. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), 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 certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
-32-
Except as required by law, the Trustee in respect of a Series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
Except to the extent that the related Prospectus Supplement provides
for book-entry Securities, the Securities will be issued in fully registered,
certificated form ("Definitive Securities") to the Securityholders of a given
Series or their nominees, rather than to DTC or its nominee, only if (i) the
Trustee in respect of the related Series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Securities and such Trustee is unable to locate a qualified
successor, (ii) such Trustee, at its option, elects to terminate the
book-entry-system through DTC or (iii) after the occurrence of an "Event of
Default" under the related Indenture or a default by the Servicer under the
related Trust Documents, Securityholders representing at least a majority of the
outstanding principal amount of such Securities advise the applicable Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in such Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given Series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Reports to Securityholders
With respect to each Series of Securities, on or prior to each Payment
Date for such Series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Assets setting forth the
information specified in the related Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year, the applicable Trustee will
provide to the Securityholders a statement containing
-33-
information required by applicable tax laws, for the purpose of the
Securityholders' preparation of federal income tax returns.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Trust Documents
pursuant to which a Trust will be created and the related Securities in respect
of such Trust will be issued. For purposes of this Prospectus, the term "Trust
Documents" as used with respect to a Trust means, collectively, and except as
otherwise specified, any and all agreements relating to the establishment of the
related Trust, the servicing of the related Receivables and the issuance of the
related Securities, including without limitation the Indenture, (i.e. pursuant
to which any Notes shall be issued). A form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. This summary does not purport to be complete. It is qualified in its
entirety by reference to the provisions of the Trust Documents.
Sale and Assignment of Receivables
On or prior to the closing date specified with respect to any given
Series of securities ( the "Closing Date"), CPS or an Affiliated Originator will
sell and assign to a Seller, without recourse, except as otherwise provided in
the applicable Purchase Agreement or Affiliate Purchase Agreement, its entire
interest in the Receivables to be included in such Trust, together with its
security interests in the Financed Vehicles. At the time of issuance of the
Securities, such Seller will either transfer such Receivables to a Trust
pursuant to a Sale and Servicing Agreement. The obligations of the Seller and
the Servicer under the related Sale and Servicing Agreement include those
specified below and in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, CPS will
be obligated to acquire from the related Trust its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of any representation or warranty made by CPS with respect to such
Receivable, which breach has not been cured following the discovery by or notice
to CPS of the breach. In addition, if so specified in the related Prospectus
Supplement, CPS may from time to time reacquire certain Receivables or
substitute other Receivables for such Receivable subject to specified conditions
set forth in the related Purchase Agreement.
Accounts
With respect to each Series of Securities issued by a Trust, the
Servicer will establish and maintain with the applicable Trustee one or more
accounts, in the name of such Trustee on behalf of the related Securityholders,
into which all payments made on or with respect to the related Receivables will
be deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
[If the related Prospectus Supplement so provides, the Pre-Funding
Account will be maintained with the Indenture Trustee and is intended solely to
hold funds to be applied by the Indenture Trustee during the Funding Period to
pay to the Seller the purchase price for Subsequent Receivables and any
Permitted Investments purchased with funds not yet invested in Subsequent
-34-
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables and any Permitted
Investments purchased with funds not yet invested in Subsequent Receivables. On
the Closing Date, the Pre-Funding Account will be funded with the initial
Pre-Funded Amount from the sale proceeds of the Securities].
[If the related Prospectus Supplement so provides the Seller will
establish and maintain an account (the "Interest Reserve Account") in the name
of the Indenture Trustee on behalf of the Noteholders and Certificateholders. On
the Closing Date, the Seller will deposit an amount equal to the Requisite
Reserve Amount (as described below) as of the Closing Date in the Interest
Reserve Account. On certain Payment Dates to be specified in the related
Prospectus Supplement, funds on deposit in the Interest Reserve Account which
are in excess of the Requisite Reserve Amount for such Payment Date will be
withdrawn from the Interest Reserve Account and deposited in the Distribution
Account for distribution].
Any other accounts to be established with respect to a Trust, including
any other reserve account, yield supplement account or negative arbitrage
account, will be described in the related Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the
Distribution Account, any Pre-Funding Account, any reserve account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") shall be invested as provided in the related Trust
Agreement or Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Securities. Subject to certain conditions,
Eligible Investments may include securities issued by CPS, the Servicer or their
respective affiliates or other trusts created by CPS or its affiliates. Except
as described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such Series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term
-35-
unsecured debt rating or certificate of deposit rating acceptable to the Rating
Agencies or (B) the parent corporation of which has either (y) a long-term
unsecured debt rating acceptable to the Rating Agencies or (z) a short-term
unsecured debt rating or certificate of deposit rating acceptable to the Rating
Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer under each Sale and Servicing Agreement will be named in
the related Prospectus Supplement. The entity serving as Servicer may be CPS or
an affiliate of CPS and may have other business relationships with CPS or CPS's
affiliates. The Servicer with respect to each Series will service the
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Sale and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Securityholders will constitute a default by the Servicer
under the related Sale and Servicing Agreement.
A Sale and Servicing Agreement may contain provisions providing for a
standby servicer ("Standby Servicer") to serve as successor servicer in the
event the Servicer is terminated or resigns as Servicer pursuant to the terms of
such Sale and Servicing Agreement. A Standby Servicer will receive a fee on each
Payment Date for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer becomes the Servicer under a
Sale and Servicing Agreement, it will receive compensation as a Servicer in an
amount set forth in such Sale and Servicing Agreement.
Servicing Procedures
Each Sale and Servicing Agreement will provide that the Servicer will
follow its then-employed standards, or such more exacting standards as the
Servicer employs in the future, in servicing the Receivables that are part of
the Trust. Each Sale and Servicing Agreement will provide that the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables that are part of the Trust and, in a manner consistent with such
Sale and Servicing Agreement, will continue such collection procedures as it
follows with respect to automotive retail installment sale contracts it services
for itself and others. Consistent with its normal procedures, the Servicer may,
in its sole discretion, arrange with the Obligor on a Receivable to extend the
payment schedule; provided, however, that the Servicer may be limited as to the
number of times an extension may be granted and as to the timing of such
extensions. No such arrangement will, for purposes of a Sale and Servicing
Agreement, modify the original due dates or the amount of the scheduled
payments, or extend the final payment date on any Receivable beyond the last day
of the penultimate Collection Period before the Final Schedule Payment Date
under the related Trust Documents. If the Servicer grants an extension with
respect to a Receivable other than in accordance with the aforementioned
limitations, the Servicer will be required to purchase the Receivable. Following
any such purchase of a Receivable by the Servicer, such Receivable will be
released from the Trust and conveyed to the Servicer. The Servicer may sell the
Vehicle securing the respective defaulted Receivable, if any, at a public or
private sale, or take any other action permitted by applicable law. See "Certain
Legal Aspects of the Receivables".
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
-36-
Payments on Receivables
With respect to each Series of Securities, unless the related
Prospectus Supplement does not so provide, the Servicer will notify each Obligor
that payments made by such Obligor after the Cutoff Date with respect to a
Receivable must be mailed directly to the Post Office Box set forth in the Sale
and Servicing Agreement relating to such Receivable. On each Business Day, the
Lock-Box Processor set forth in the Sale and Servicing Agreement relating to
such Receivable (the "Lock-Box Processor") will transfer any such payments
received in the applicable post office box in the name of the applicable Trustee
for the benefit of the Securityholders and the related Credit Enhancer (if any)
(the "Post Office Box") to the applicable segregated lock-box account in the
name of the applicable Trustee for the benefit of the Securityholders and the
related Credit Enhancer (if any) (the "Lock-Box Account"). Any payments received
by the Servicer from an Obligor or from a source other than an Obligor must be
deposited in the applicable Lock-Box Account or the applicable Collection
Account upon receipt. The Servicer will, following the receipt of funds in such
Lock-Box Account, direct the Lock-Box Bank to transfer such funds to the
applicable Collection Account. Prior to the applicable Payment Date, the
applicable Trustee, on the basis of instructions provided by the Servicer, will
transfer funds held in such Collection Account to the applicable Payahead
Account if such payments constitute Payaheads or to the applicable Distribution
Account for distribution to, the Securityholders of the related Series.
Collections on a Rule of 78's Receivable made during a Collection
Period will be applied first, to the scheduled payment on such Rule of 78's
Receivable, and second, to any late fees accrued with respect to such Rule of
78's Receivable.
Servicing Compensation
As will be described in the related Prospectus Supplement with respect
to any Series of Securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee on each Payment Date (the "Servicing Fee"), equal to the
product of one-twelfth of the specified percentage per annum and the Pool
Balance (each as set forth in the related Prospectus Supplement) as of the close
of business on the last day of the second preceding Collection Period; provided,
however, that with respect to the first Payment Date, the Servicing Fee will
equal the product of one-twelfth of the Servicing Fee Rate and the original Pool
Balance. So long as CPS is Servicer, a portion of the Servicing Fee will be
payable to the Standby Servicer, if any (as set forth in the related Prospectus
Supplement), for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer, or any other entity serving at
the time as Standby Servicer, becomes the successor Servicer, it will receive
compensation for acting in such capacity. See "Standby Servicer" in the related
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges, including, in the
case of a Rule 78's Receivable that is part of the Trust and that is prepaid in
full, to the extent not required by law to be remitted to the related Obligor,
the difference between the principal balance of such Receivable computed on an
actuarial basis plus accrued interest to the date of prepayment and the
principal balance of such Receivable computed according to the Rule of 78's, and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables that are part of the Trust, and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to scheduled payments, late fees and other charges
and principal and interest in accordance with the Servicer's normal practices
and procedures. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to Securityholders of the related Series.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
-37-
Receivables that are part of the Trust, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, paying costs
of disposition of defaults and policing the collateral. The Servicing Fee also
will compensate the Servicer for administering the Receivables that are part of
the Trust, including accounting for collections and furnishing monthly and
annual statements as required with respect to a Series of Securities regarding
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables that are part of the Trust.
Distributions
With respect to each Series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee to the holders of Notes (the "Noteholders") and by the applicable
Trustee to the holders of Certificates (the "Certificateholders") of such
Series. The timing, calculation , allocation, order, source, priorities of and
requirements for each class of Noteholders and all distributions to each class
of Certificateholders of such Series will be set forth in the related Prospectus
Supplement.
With respect to each Series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless not provided for therein,
distributions in respect of principal of a Class of Securities of a given Series
will be subordinate to distributions in respect of interest on such Class, and
distributions in respect of the Certificates of such Series will be subordinate
to payments in respect of the Notes of such Series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given Series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same Series, and Credit Enhancement for a Series of Securities may cover one or
more other Series of Securities.
The presence of Credit Enhancement for the benefit of any Class or
Series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or Series of Securities may not
provide protection against all risks of loss and may not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or Series will bear their
allocable share of deficiencies, as
-38-
described in the related Prospectus Supplement. In addition, if a form of Credit
Enhancement covers more than one Series of Securities, Securityholders of any
such Series will be subject to the risk that such Credit Enhancement will be
exhausted by the claims of Securityholders of other Series.
Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each Series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such Series described under "Description
of the Securities--Reports to Securityholders".
Evidence as to Compliance
Each Sale and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the related Trust and/or the
applicable Indenture Trustee and Credit Enhancer, annually, a statement as to
compliance by the Servicer during the preceding twelve months (or, in the case
of the first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
Each Sale and Servicing Agreement will also provide for delivery to the
related Trust and the applicable Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such Sale and Servicing Agreement in all material respects
throughout the preceding 12 months (or, in the case of the first such
certificate, the period from the applicable Closing Date) or, if there has been
a default in the fulfillment of any such obligation in any material respect,
describing each such default. The Servicer also will agree to give each
Indenture Trustee and each Trustee notice of certain Servicer Termination Events
(as hereinafter defined) under the related Sale and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
Certain Matters Regarding the Servicers
Each Sale and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and under certain other circumstances. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the applicable Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer, if any, will agree to assume the servicing obligations and duties
under the Sale and Servicing Agreement.
Each Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officer, employees, and agents will be under
any liability to the Trust or the Securityholders of the related Series for
taking any action or for refraining from taking any action pursuant to such Sale
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Sale and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to
-39-
its servicing responsibilities under the applicable Sale and Servicing Agreement
and that, in its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor to the Servicer under the applicable Sale and
Servicing Agreement.
Servicer Termination Event
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Termination Event" under the related Trust Documents will include (i)
any failure by the Servicer to deliver to the applicable Trustee for deposit in
any of the related Trust Accounts any required payment or to direct such Trustee
to make any required distributions therefrom, which failure continues unremedied
for more than three (3) Business Days after written notice from such Trustee is
received by the Servicer or after discovery by the Servicer; (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in such Trust Documents, which failure materially and
adversely affects the rights of the related Securityholders and which continues
unremedied for more than thirty (30) days after the giving of written notice of
such failure (1) to the Servicer by the applicable Trustee or (2) to the
Servicer, and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 50% of the voting rights of such
outstanding Securities; (iii) any Insolvency Event; and (iv) any claim being
made on a Policy issued as Credit Enhancement. An "Insolvency Event" shall mean
financial insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
Rights upon Servicer Termination Event
As more fully described and except as otherwise provided in the related
Prospectus Supplement, as long as a Servicer Termination Event under the related
Trust Documents remains unremedied, the applicable Trustee, Credit Enhancer or
holders of Notes of the related Series evidencing not less than 50% of the
voting rights of such then outstanding Notes or, after the Notes have been paid
in full, holders of Certificates of the related Series evidencing not less than
50% of the voting rights of such then outstanding Certificates may terminate all
the rights and obligations of the Servicer, if any, under such Sale and
Servicing Agreement, whereupon a successor servicer appointed by such Trustee or
such Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Trust Documents and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Termination Event other
than such appointment has occurred, such bankruptcy trustee or official may have
the power to prevent the applicable Trustee or such Securityholders from
effecting a transfer of servicing.
Waiver of Past Defaults
With respect to each Trust, except as otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Documents and its consequences, except a
default in making any required deposits to or payments from
-40-
any of the Trust Accounts in accordance with such Trust Documents. No such
waiver shall impair the Securityholders' rights with respect to subsequent
defaults.
Amendments
As more fully described in, and unless not provided for by, the related
Prospectus Supplement, each of the Trust Documents may be amended by the parties
thereto, without the consent of the related Securityholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Trust Documents or of modifying in any manner the rights of
such Securityholders; provided that such action will not, in the opinion of
counsel satisfactory to the applicable Trustee, materially and adversely affect
the interests of any such Securityholder and subject to the approval of any
Credit Enhancer. As may be described in the related Prospectus Supplement, the
Trust Documents may also be amended by CPS, the Servicer, and the applicable
Trustee with the consent of the holders of Notes evidencing at least a majority
of the voting rights of such then outstanding Notes or, after the Notes have
been paid in full, holders of Certificates of the related Series evidencing not
less than 50% of the voting rights of such then outstanding Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Trust Documents or of modifying in any manner the
rights of such Securityholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount or priority of, or accelerate or
delay the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of such
Securityholders or (ii) reduce the aforesaid percentage of the Securities of
such Series which are required to consent to any such amendment, without the
consent of the Securityholders of such Series.
Termination
With respect to each Trust, the obligations of the Servicer, CPS and
the applicable Trustee pursuant to the related Trust Documents will terminate
upon the earlier to occur of (i) the maturity or other liquidation of the last
related Receivable and the disposition of any amounts received upon liquidation
of any such remaining Receivables and (ii) the payment to Securityholders of the
related Series of all amounts required to be paid to them pursuant to such Trust
Documents. As more fully described in the related Prospectus Supplement, in
order to avoid excessive administrative expense, the Servicer will be permitted
in respect of the applicable Trust Assets, unless the related Prospectus
Supplement does not so provide, at its option to purchase from such Trust
Assets, as of the end of any Collection Period immediately preceding a Payment
Date, if the Pool Balance of the related Contracts is less than 10% of the
initial Pool Balance in respect of such Trust Assets, all such remaining
Receivables at a price equal to the aggregate of the Purchase Amounts thereof as
of the end of such Collection Period.
The related Securities will be redeemed following such purchase.
If and to the extent provided in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with the
events specified above and the subsequent distribution to the related
Securityholders of all amounts required to be distributed to them pursuant to
the applicable Trust Documents may effect the prepayment of the Certificates of
such Series.
-41-
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables by the Seller to the Trust pursuant to the
related Sale and Servicing Agreement, the perfection of the security interests
in the Receivables and the enforcement of rights to realize on the Financed
Vehicles as collateral for the Receivables are subject to a number of federal
and state laws, including the UCC as in effect in various states. As specified
in each Prospectus Supplement, the Servicer will take such action as is required
to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. Unless specified in a
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Financed
Vehicles or Obligors. Therefore, the rights of a third party with an interest in
such proceeds could prevail against the rights of the Trust prior to the time
such proceeds are deposited by the Servicer into a Trust Account.
Security Interests in the Financed Vehicles
In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles, light trucks, vans and
minivans by dealers to Obligors, the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the financed
automobiles, light trucks, vans and minivans is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
states in which the Receivables have been originated, a security interest in
automobiles, light trucks, vans and minivans is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title (in addition, in Louisiana, a copy of
the installment sale contract must be filed with the appropriate governmental
recording office).
Unless the related Prospectus Supplement does not so provide, each
Contract will name CPS or the applicable Affiliated Originator as obligee or
assignee and as the secured party. Unless the related Prospectus Supplement does
not so provide, CPS will have represented and warranted that it has taken all
actions necessary under the laws of the state in which the Financed Vehicle is
located to perfect CPS's or such Affiliated Originator's security interest in
the Financed Vehicle, including, where applicable, having a notation of its lien
recorded on such vehicle's certificate of title. The Obligors on the Contracts
will not be notified of the sale from CPS or an Affiliated Originator, directly
or indirectly, to the Seller, or the sale from the Seller to the Trust, and no
action will be taken to record the transfer of the security interest from CPS or
such Affiliated Originator, directly or indirectly, to the Seller or from the
Seller to the Trust by amendment of the certificates of title for the Financed
Vehicles or otherwise.
CPS or the related Affiliated Originator will transfer and assign its
security interest in the related Financed Vehicles directly or indirectly to the
Seller, and the Seller will transfer and assign its security interest in such
Financed Vehicles to the related Trust pursuant to a Sale and Servicing
Agreement. However, because of the administrative burden and expense, neither
CPS nor the Seller will amend the certificates of title of such Financed
Vehicles to identify the related Trust as the new secured party.
In most states, an assignment such as that under each Sale and
Servicing Agreement is an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. However, by
not
-42-
identifying such Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through fraud
or negligence.
Under the laws of most states, the perfected security interest in a
vehicle continues for four months after the vehicle is moved to a state other
than the state in which it is initially registered and thereafter until the
owner thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party will receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party will have the opportunity to re-perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. Unless the related Prospectus Supplement does not so provide,
under each Sale and Servicing Agreement, the Servicer will be obligated to take
appropriate steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles and will be obligated to purchase the related
Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain federal
tax liens over the lien of a secured party. The laws of certain states and
federal law permit the confiscation of vehicles by government authorities under
certain circumstances if used in unlawful activities, which may result in the
loss of a secured party's perfected security interest in the confiscated
vehicle.
Repossession
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. Among the
UCC remedies, the secured party has the right to perform self-help repossession
unless such act would constitute a breach of the peace. Unless otherwise
specified in the related Prospectus Supplement, self-help is the most likely
method to be used by the Servicer and is accomplished simply by retaking
possession of the financed vehicle. In the event of default by the obligor, some
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 repossession.
Generally, the right of reinstatement may be exercised on a limited number of
occasions in any one-year period. In cases where the obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the vehicle
must then be repossessed in accordance with that order.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
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 has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance.
-43-
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. However, the deficiency judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be useful
to seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
all indebtedness, there is a surplus of funds. In that case, the UCC requires
the creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exits or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges), and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. The application of
these laws to particular circumstances is not always certain and some courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of such laws. 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 Procedures Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Solders' and Sailors' Civil Relief Act of 1940, state adoptions of the National
Consumer Act and the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales act, retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a vehicle solely because
the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
To so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other statutes or the common law, has the
effect of subjecting an assignee of a seller of goods in a consumer credit
transaction (and certain related creditors) to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of
-44-
the applicable Financed Vehicle may assert against the seller of the Financed
Vehicle. Such claims are limited to a maximum liability equal to the amounts
paid by the Obligor on the Receivable. If an Obligor were successful in
asserting any such claim or defense, such claim or defense would constitute a
breach of CPS's warranties under the related Purchase Agreement and would create
an obligation of CPS to repurchase the Receivable unless the breach is cured.
See "Description of the Trust Documents - Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
Under most state vehicle dealer licensing laws, sellers of automobiles,
light trucks, vans and minivans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
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 provided to the
purchaser of a Financed Vehicle, the Obligor may be able to assert a defense
against the seller of the Financed Vehicle. If an Obligor on a Receivable were
successful in asserting any such claim or defense, the Servicer would pursue on
behalf of the related Trust any reasonable remedies against the seller or the
manufacturer of the vehicle, subject to certain limitations as to the expense of
any such action to be specified in the related Sale and Servicing Agreements.
Under each Purchase Agreement, CPS will have represented and warranted
that each Receivable complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against a Trust for violation
of any law and such claim materially and adversely affects such Trust's interest
in a Receivable, such violation would constitute a breach of the warranties of
CPS and would create an obligation of CPS to repurchase the Receivable unless
the breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossession a vehicle and, as part of the rehabilitation plan,
may reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), leaving the
creditor as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
-45-
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. However, the summary does not purport to deal with Federal income
tax consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. This discussion is directed to
prospective purchasers who purchase Notes or Certificates in the initial
distribution thereof and who hold the Notes or Certificates as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Prospective investors are urged to consult their own tax
advisors in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder, judicial authority, and ruling
authority, all of which are subject to change, which change may be retroactive.
Each Trust will be provided with an opinion of Mayer, Brown & Platt, special
Federal tax counsel to such Trust ("Federal Tax Counsel"), regarding certain
Federal income tax matters discussed below. An opinion of Federal Tax Counsel,
however, is not binding on the Internal Revenue Service (the "IRS") or the
courts. Moreover, there are no cases or IRS rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Notes, the Certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified herein, to
each Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
Tax Characterization of the Trust
Prior to the issuance of Securities by the related Trust, Federal Tax
Counsel will deliver its opinion that the Trust will not be an association (or
publicly traded partnership) taxable as a corporation for Federal income tax
purposes. This opinion will be based on the assumption that the terms of the
Trust Documents will be complied with, and on counsel's conclusions that the
nature of the income of the Trust will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for Federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for Federal, state and local income and franchise tax purposes. Prior to the
sale of Securities by the related Trust, Federal Tax Counsel will deliver its
opinion to the Trust with respect to each series of Notes that either (i) the
Notes of such series will be characterized as debt for Federal income tax
purposes or (ii) the Notes of such series should be characterized as debt for
Federal income tax purposes, but if such Notes are not characterized as debt,
such Notes will be characterized as interests in a partnership. Except as
described below under the
-46-
heading "-Possible Alternative Treatment of the Notes", below, the discussion
below assumes that the characterization of the Notes as debt for Federal income
tax purposes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes (the Federal income tax consequences for
which will be described in the applicable Prospectus Supplement). Moreover, the
discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID Regulations") relating to debt instruments issued with original issue
discount ("OID"), and that any OID on the Notes (i.e., any excess of the
principal amount of the Notes over their issue price) is de minimis (i.e., less
than 1/4% of their principal amount multiplied by the weighted average maturity
of the Notes), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes and as a
result the Notes are treated as issued with OID, additional tax considerations
with respect to such Notes will be disclosed in the applicable Prospectus
Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below, the Notes will not be considered issued with OID. The stated
interest thereon will be taxable to a Noteholder as ordinary interest income
when received or accrued in accordance with such Noteholder's method of tax
accounting. Under the OID Regulations, a holder of a Note issued with a de
minimis amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the Note. It is believed that any prepayment
premium paid as a result of a mandatory redemption will be taxable as contingent
interest when it becomes fixed and unconditionally payable. A purchaser who buys
a Note for more or less than its principal amount will generally be subject,
respectively, to the premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. Under the OID Regulations, all stated interest will be treated as
OID. An accrual basis holder of a Short-Term Note (and certain cash basis
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as OID
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include OID on the Short-Term
Note in income as it accrues, but would not be subject to the interest expense
deferral rule referred to in the preceding sentence. Certain special rules apply
if a Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used by a
-47-
corporate taxpayer only to offset capital gains, and by an individual taxpayer
only to the extent of capital gains plus $3,000 of other income.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States Federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in this statement
changes, the foreign person must inform the Trust within 30 days of such change.
If a Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the relevant
signed statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8 or substitute form provided by the
foreign person that owns the Note. If such interest is not portfolio interest,
then it will be subject to United States Federal income and withholding tax at a
rate of 30%, unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax; provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct Federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS as a credit against the holder's Federal income tax liability.
Possible Alternative Treatment of the Notes. In the opinion of Federal
Tax Counsel, in the event that any series of Notes were not treated as debt for
Federal income tax purposes, such series of Notes would be characterized for
Federal income tax purposes as interests in a partnership. If any series of the
Notes did constitute interests in such a partnership, it is expected that stated
interest payments on such Notes would be treated either as guaranteed payments
under section 707(c) of the Code or as a preferential allocation of net income
of the Trust (with all other items of Trust income, gain, loss, deduction and
credit being allocated to the holders of the Certificates). Although the Federal
income tax treatment of such Notes for most accrual basis taxpayers should not
differ materially under such characterization from the treatment of such Notes
as debt, such characterization could result in adverse effects for certain
holders of Notes. For example, holders of Notes treated as interests in a
partnership could be subject to tax on income equal to the entire amount of the
stated interest payments on the Notes (plus possibly certain other items) even
though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders
-48-
would in effect be required to report income in respect of such Notes on the
accrual basis and holders of such Notes could become liable for taxes on Trust
income even if they have not received cash from the Trust to pay such taxes.
Moreover, income allocable to a holder of a Note treated as a partnership
interest that is a pension, profit-sharing or employee benefit plan or other
tax-exempt entity (including an individual retirement account) would constitute
"unrelated debt-financed income" generally taxable to such a holder under the
Code, non-U.S. persons holding such Notes could be required to file a U.S.
Federal income tax return and to pay U.S. Federal income tax (and, in the case
of a corporation, branch profits tax) on their share of accruals of guaranteed
payments and Trust income, and individuals holding such Notes might be subject
to certain limitations on their ability to deduct their share of Trust expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of Federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller in its capacity as recipient of distributions from the Spread Account
and any other account specified in the related Prospectus Supplement in which
the Seller has an interest), and the Notes being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates may have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization should not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates and a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to Federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the Trust and its allocated share of other income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of interest and
finance charges earned on the Receivables (including appropriate adjustments for
market discount, OID and premium) and any gain upon collection or disposition of
Receivables. The Trust's deductions will consist primarily of interest accruing
with respect to the Notes, guaranteed payments on the Certificates, servicing
and other fees, and losses or deductions upon collection or disposition of
Receivables.
Under the Trust Agreement, stated interest payments on the Certificates
(including interest on amounts previously due on the Certificates but not yet
distributed) will be treated as "guaranteed payments" under Section 707(c) of
the Code. Guaranteed payments are payments to partners for the use
-49-
of their capital and, in the present circumstances, are treated as deductible to
the Trust and ordinary income to the Certificateholders. The Trust will have a
calendar year tax year and will deduct the guaranteed payments under the accrual
method of accounting. Certificateholders with a calendar year tax year are
required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the Trust deducts the
payments, and Certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the December
31 of the Trust year in which the Trust deducts the payments. It is possible
that guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining items of income, gain, loss and
deduction of the Trust will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach for
accruing guaranteed payments and allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be subject to tax on income equal to the entire amount of
stated interest payments on the Certificates plus the other items described
above even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Most of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit-sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated debt-financed income" generally taxable to such a holder
under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. It is not clear whether these rules would be applicable to a
Certificateholder accruing guaranteed payments.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. The purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the
-50-
Receivables will have been acquired at a premium or discount, as the case may
be. (As indicated above, the Trust will make this calculation on an aggregate
basis, but might be required to recompute it on a Receivable-by-Receivable
basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for Federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income and accruals of
guaranteed payments (includible in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificates and the amount realized on a sale of a Certificate would
include the holder's share of the Notes and other liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a pro rata portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
and accruals of guaranteed payments for a particular calendar month will be
apportioned among the Certificateholders in proportion to the principal amount
of Certificates owned by them as of the close of the last day of such month. As
a result, a holder purchasing Certificates may be allocated tax items and
accruals of guaranteed payments (which will affect its tax liability and tax
basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable
-51-
income or losses and accruals of guaranteed payments of the Trust might be
reallocated among the Certificateholders. The Company is authorized to revise
the Trust's method of allocation between transferors and transferees to conform
to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust issuing Certificates and will report each Certificateholder's accruals of
guaranteed payments and allocable share of items of Trust income and expense to
holders and the IRS on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties unless the holder notifies the IRS of all
such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the Trust
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
-52-
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of Federal withholding taxes with respect to non-U.S.
persons because there is no clear authority dealing with that issue under facts
substantially similar to those described herein. Although it is not expected
that the Trust would be engaged in a trade or business in the United States for
such purposes, the Trust will withhold as if it were so engaged in order to
protect the Trust from possible adverse consequences of a failure to withhold.
The Trust expects to withhold on the portion of its taxable income that is
allocable to foreign Certificateholders pursuant to Section 1446 of the Code, as
if such income were effectively connected to a U.S. trade or business, at a rate
of 35% for foreign holders that are taxable as corporations and 39.6% for all
other foreign holders. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust to change
its withholding procedures. In determining a holder's nonforeign status, the
Trust may rely on IRS Form W-8, IRS Form W-9 or the holder's certification of
nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return and pay U.S. income tax on the amount computed
therein (including, in the case of a corporation, the branch profits tax) on its
share of accruals of guaranteed payments and the Trust's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. A foreign holder generally would be entitled to file with the
IRS a claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, the IRS may assert that additional taxes are due,
and no assurance can be given as to the appropriate amount of tax liability.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. See "Tax Consequences to Holders of the Notes
- - Backup Withholding."
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Securities will summarize, subject
to the limitations discussed therein, considerations under ERISA relevant to the
purchase of such Securities by employee benefit plans and individual retirement
accounts.
PLAN OF DISTRIBUTION
CPS may sell Securities (i) through underwriters or dealers: (ii)
directly to one or more purchasers: or (iii) through agents. The related
Prospectus Supplement in respect of a Series offered hereby will set forth the
terms of the offering of such Securities, including the name or names of any
underwriters, the purchase price of such Securities and the proceeds to CPS from
such sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts or concessions
allowed or reallowed or paid to dealers. Only underwriters so named in such
Prospectus Supplement shall be deemed to be underwriters in connection with the
Securities offered thereby.
Subject to the terms and conditions set forth in an underwriting
agreement (an "Underwriting Agreement") to be entered into with respect to each
Series of Securities, CPS will agree to sell to each of the underwriters named
therein and in the related Prospectus Supplement, and each of such underwriters
-53-
will severally agree to purchase from CPS, the principal amount of Securities
set forth therein and in the related Prospectus Supplement (subject to
proportional adjustment on the terms and conditions set forth in the related
Underwriting Agreement in the event of an increase or decrease in the aggregate
amount of Securities offered hereby and by the related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities offered hereby and by the related Prospectus Supplement if any of
such Securities are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that CPS will indemnify the
related underwriters and, in certain limited circumstances, the underwriters
will indemnify CPS against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The place and time of delivery for any Series of Securities in respect
of which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
Series, including certain federal and state income tax consequences with respect
thereto and certain Bankruptcy matters, will be passed upon by Mayer, Brown &
Platt, New York, New York, or other counsel specified in the related Prospectus
Supplement.
FINANCIAL INFORMATION
Certain specified Trust Assets will secure each Series of Securities,
no Trust will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Assets will be
included in this Prospectus or in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Seller
or the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof or that there has been no change in
the affairs of the Trust or the Receivables since such date.
-54-
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$[ ]
CPS AUTO RECEIVABLES TRUST 1997- 3
[ ]% ASSET-BACKED CERTIFICATES, CLASS A
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO SERVICES, INC.
(SERVICER)
PROSPECTUS SUPPLEMENT
PAINEWEBBER INCORPORATION
BLACK DIAMOND SECURITIES, LLC
, 1997
-55-
TABLE OF CONTENTS
Page
Prospectus Supplement......................................................2
Available Information......................................................2
Incorporation of Certain Documents by Reference............................3
Reports to Securityholders.................................................3
Summary of Terms...........................................................4
Risk Factors............................................................. 15
The Issuers............................................................. 22
The Trust Assets........................................................ 22
Acquisition of Receivables by the Seller................................. 23
The Receivables......................................................... 24
CPS's Automobile Contract Portfolio..................................... 27
Pool Factors............................................................. 27
Use of Proceeds.......................................................... 28
The Seller and Cps...................................................... 28
The Trustee............................................................. 29
Description of the Securities............................................ 29
Description of the Trust Documents....................................... 35
Certain Legal Aspects of the Receivables................................. 43
Federal Income Tax Consequences.......................................... 47
ERISA Considerations.................................................... 55
Plan of Distribution..................................................... 55
Legal Opinions........................................................... 55
Financial Information.................................................... 56
Index of Terms......................................................... ...i
-i-
INDEX OF TERMS
Accrual Securities........................................................ 8
Actuarial Receivables.................................................... 25
Affiliate Purchase Agreement......................................... 23, 35
Affiliated Originator................................................ 10, 27
APR ....................................................... 25
Buyer's Guide ....................................................... 46
cash sale differential................................................... 46
Cede ....................................................... 11
CEDEL Participants................................................... 31, 33
Certificateholders....................................................... 39
Certificates .....................................................1, 4
chattel paper ....................................................... 19
Class .........................................................1
clearing agency ....................................................... 31
clearing corporation..................................................... 31
Closing Date ................................................... 10, 35
Collection Account....................................................... 36
Collection Period .........................................................6
Contracts ....................................................1, 27
Cooperative ....................................................... 33
CPS .........................................................4
Credit Enhancement....................................................... 21
Credit Enhancer ....................................................... 21
Cutoff Date ....................................................... 10
Dealer Agreements ....................................................... 22
Dealers ....................................................... 22
Definitive Securities.................................................... 34
Depositaries ....................................................... 31
Direct Participants...................................................... 21
Distribution Account..................................................... 36
DTC ....................................................... 11
Eligible Deposit Account................................................. 37
Eligible Institution..................................................... 37
Eligible Investments..................................................... 36
ERISA ....................................................... 13
Euroclear Operator....................................................... 33
Euroclear Participants................................................... 33
Event of Default ....................................................... 34
Exchange Act ....................................................3, 13
Federal Tax Counsel.............................................. 13, 47, 48
Financed Vehicles ....................................................1, 10
FTC Rule ....................................................... 46
Funding Period ....................................................... 10
Holder-in-Due-Course..................................................... 46
IFC's ....................................................... 27
Indenture .........................................................5
Indenture Trustee .........................................................5
-i-
INDEX OF TERMS (cont.)
Indirect Participants................................................ 21, 31
Initial Receivables...................................................... 11
Insolvency Event ....................................................... 41
Insolvency Laws ....................................................... 18
Interest Rate .....................................................2, 7
Investment Earnings...................................................... 36
Investment Income ....................................................... 11
Issuer .................................................1, 4, 22
Lock-Box Account ....................................................... 38
Lock-Box Processor....................................................... 38
national statistical rating organizations................................ 13
Noteholders ....................................................... 39
Notes .....................................................1, 4
Obligors ....................................................... 22
Participants ....................................................... 31
Payment Date .........................................................6
Policy .........................................................1
Pool Balance ....................................................... 28
Pool Factor ....................................................... 27
Post Office Box ....................................................... 38
Pre-Funded Amount ....................................................... 10
Pre-Funding Account...................................................... 10
prepayment ....................................................... 15
Prospectus Supplement......................................................1
Purchase Agreement....................................................... 23
Purchase Amount ....................................................... 24
Rating Agencies ....................................................... 13
Receivables .....................................................1, 9
Receivables Pool ....................................................... 22
Record Date .........................................................6
Registration Statement.....................................................2
Relief Act ....................................................... 21
Residual Interest ........................................................ 9
Rule of 78's ....................................................... 25
Rule of 78's Receivables................................................. 25
Rules ....................................................... 32
Sale and Servicing Agreement............................................. 23
Securities .........................................................1
Securities Act .........................................................2
Security Balance ........................................................ 7
Securityholder ....................................................6, 32
Securityholders .........................................................6
Seller .........................................................4
Senior Securities ........................................................ 8
Series ....................................................1, 29
Servicer ......................................................1, 4
Servicer Default ....................................................... 41
-ii-
INDEX OF TERMS (cont.)
Servicing Agreement........................................................5
Servicing Fee ....................................................... 38
Simple Interest Receivables.............................................. 25
Sponsor .........................................................4
Standby Servicer ....................................................... 37
Strip Securities .........................................................8
sub-prime ....................................................... 15
Sub-Prime Borrowers...................................................... 27
Subordinate Securities.................................................... 8
Subsequent Receivables................................................... 10
Subsequent Transfer Date................................................. 17
Subservicer .........................................................4
sum of monthly payments.................................................. 25
sum of periodic balances................................................. 25
Terms and Conditions..................................................... 34
The Receivables Pool..................................................... 17
Trust ......................................................1, 4
Trust Accounts ....................................................... 36
Trust Agreement .........................................................4
Trust Assets .....................................................1, 4
Trust Documents ....................................................5, 35
Trustee .........................................................5
Underwriting Agreement................................................... 55
-iii-
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee...............................................$ 227,272,73
Printing and Engraving...............................................40,000.00
Legal Fees and Expenses.............................................150,000.00
Accountants' Fees and Expenses.......................................20,000.00
Rating Agency Fees...................................................50,000.00
Miscellaneous Fees................................................. 10,000.00
---------
Total..............................................................$497,272.73
===========
Item 15. Indemnification of Directors and Officers
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such person's status as an
agent of Consumer Portfolio Services, Inc., if that person acted in good faith
and in a manner reasonably believed to be in the best interests of Consumer
Portfolio Services, Inc. and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
Article IV of the Articles of Incorporation and Section 2 of Article VI
of the Amended and Restated By-Laws of Consumer Portfolio Services, Inc.
provides that all officers and directors of the corporation shall be indemnified
by the corporation from and against all expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
person's status as an agent of Consumer Portfolio Services, Inc., if that person
acted in good faith and in a manner reasonably believed to be in the best
interests of Consumer Portfolio Services, Inc. and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful.
The form of the Underwriting Agreement, to be filed as an exhibit to
this Registration Statement, will provide that Consumer Portfolio Services, Inc.
will indemnify and reimburse the underwriter(s) and each controlling person of
the underwriter with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement will provide that the underwriter(s) will similarly
indemnify and reimburse Consumer Portfolio Services, Inc.
II-1
with respect to certain material misstatements or omissions in the Registration
Statement which are based on certain written information furnished by the
underwriter(s) for use in connection with the preparation of the Registration
Statement.
Insurance. As permitted under the laws which govern the organization of
the registrant, the registrant's Amended and Restated By-Laws permit the board
of directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the registrant would have the power to indemnify them against
such liability under applicable law.
II-2
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 --Form of Underwriting Agreement.*
4.1 -- Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.*
4.2 --Form of Indenture, and certain other related agreement as Exhibits
thereto.*
5.1 --Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 --Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 --Opinion of Mayer, Brown & Platt with respect to tax matters with
respect to CPS Auto Receivables Trust 1997-3.
10.1 --Form of Sale and Servicing Agreement, and certain other related
agreements as Exhibits thereto.*
10.2 --Form of Purchase Agreement.*
10.3 --Form of Samco Purchase Agreement.*
23.1 --Consent of Mayer, Brown & Platt (included in its opinions filed as
Exhibit 5.1, Exhibit 8.1 and Exhibit 8.2).**
24.1 --Powers of Attorney.*
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
* Previously filed.
** Previously filed with respect to Exhibit 5.1 and Exhibit 8.1.
II-3
Item 17. Undertakings
A. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement; provided, however, that paragraphs (1) and (2)
do not apply if the information required to be included in the
post-effective amendment is contained in periodic reports filed by the
Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Undertaking pursuant to Rule 415
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement
II-4
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 4 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
capacities indicated.
CONSUMER PORTFOLIO SERVICES, INC.,
as sponsor and manager of the Trust (Registrant)
By: /s/ Jeffrey P. Fritz
---------------------
Name: Jeffrey P. Fritz
Title: Senior Vice President
II-5
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 4 to Registration Statement has been signed on July 29, 1997 by
the following persons in the capacities indicated.
Signatures
Title
*
-------------------------------
Charles E. Bradley, Sr.
Director
/s/ Charles E. Bradley, Jr.
-------------------------------
Charles E. Bradley, Jr.
President and Director
*
-------------------------------
William B. Roberts
Director
*
-------------------------------
John G. Poole
Director
*
-------------------------------
Thomas L. Chrystie
Director
*
-------------------------------
Robert A. Simms
Director
II-6
/s/ Jeffrey P. Fritz
-------------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By: /s/ Jeffrey P. Fritz
-------------------------------
Jeffrey P. Fritz
as attorney-in-fact
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement.*
4.1 -- Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.*
4.2 -- Form of Indenture, and certain other related agreements as
Exhibits thereto.*
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.*
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.*
8.2 -- Opinion of Mayer, Brown & Platt with respect to tax matters with
respect to CPS Auto Receivables Trust 1997-3.
10.1 -- Form of Sale and Servicing Agreement, and certain other related
agreements in Exhibits thereto.*
10.2 -- Form of Receivables Purchase Agreement.*
10.3 -- Form of Samco Purchase Agreement.*
23.1 -- Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1, Exhibit 8.1 and Exhibit 8.2).**
24.1 -- Powers of Attorney.*
* Previously filed.
** Previously filed with respect to Exhibit 5.1 and Exhibit 8.1.
II-7
July 28, 1997
To the Parties Listed on
Schedule I hereto
Re: Consumer Portfolio Services, Inc.
Registration Statement on Form S-3 (No. 333-25301)
CPS Auto Receivables Trust 1997-3
Ladies and Gentlemen:
We have acted as special counsel to CPS Receivables Corp., a California
corporation (the "Seller"), and Consumer Portfolio Services, Inc., a California
corporation (the "Servicer"), in connection with the above-referenced
Registration Statement (together with the exhibits and any amendments thereto,
the "Registration Statement") filed by the Servicer with the Securities and
Exchange Commission in connection with the registration by the Servicer of Asset
Backed Notes (the "Notes") to be sold from time to time in one or more series in
amounts to be determined at the time of sale and to be set forth in one or more
Supplements (each, a "Prospectus Supplement") to the Prospectus (the
"Prospectus") included in the Registration Statement.
In connection with our engagement, we have examined and relied upon (i)
the Prospectus, (ii) the forms of the Sale and Servicing Agreement, the Trust
Agreement and the Indenture filed as exhibits to the Registration Statement, and
(iii) such other documents as we have deemed necessary. In addition, we have
examined and considered executed originals or counterparts, or certified or
other copies identified to our satisfaction as being true copies of such
certificates, instruments, documents and other corporate records of the Seller
and such matters of fact and law as we have deemed necessary for the purposes of
the opinion expressed below. Capitalized terms used and not otherwise defined
herein have the meanings given to them in the Sale and Servicing Agreement.
In our examination we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as certified or
photostatic copies, and the authenticity of the originals of such latter
documents. As to any facts material to the opinions expressed herein which were
not independently established or verified, we have relied upon statements and
representations of officers and representatives of the Seller, the Servicer, and
others.
The Parties Listed on
Schedule I hereto
July 28, 1997
Page 2
In rendering our opinion, we have also considered and relied upon the
Internal Revenue Code of 1986, as amended, administrative rulings, judicial
decisions, regulations, and such other authorities, all in effect on the date
this opinion letter is delivered, as we have deemed appropriate. The statutory
provisions, regulations, interpretations and other authorities upon which our
opinion is based are subject to change, and such changes could apply
retroactively. In addition, there can be no assurance that positions contrary to
those stated in our opinion will not be taken by the Internal Revenue Service
("IRS"). No tax rulings will be sought from the IRS with respect to any of the
matters discussed herein.
We express no opinion as to the laws of any jurisdiction other than the
Federal laws of the United States of America to the extent specifically referred
to herein.
Based on and subject to the foregoing and assuming that the Sale and
Servicing Agreement, the Trust Agreement and the Indenture are executed and
delivered in form satisfactory to us, we hereby confirm that (i) the statements
in the Prospectus Supplement describing the securities to be issued by CPS Auto
Receivables Trust 1997-3 under the heading "Federal Income Tax Consequences"
that are described to be our opinions as to the tax characterization of the
Class A Notes, the Class B Notes and the Trust in fact constitute our opinions
as to the foregoing and we also confirm that the statements in the Prospectus
under the heading "Federal Income Tax Consequences" that are described to be the
legal opinions that we will deliver prior to the issuance of Securities in fact
constitute our opinions as to the material federal income tax consequences,
discussed therein, of an investment in the Notes issued by CPS Auto Receivables
Trust 1997-3. There can be no assurance, however, that the tax conclusions
presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, changes in IRS positions or judicial
decisions, any of which challenges or alterations may be applied retroactively
with respect to completed transactions.
Except for the opinion expressed above, we express no opinion as to any
other tax consequences of the transaction under federal, state, local, or
foreign laws.
The Parties Listed on
Schedule I hereto
July 28, 1997
Page 3
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name under the heading "Federal Income
Tax Consequences" in the Prospectus.
Very truly yours,
/s/ Mayer, Brown & Platt
Schedule I
Consumer Portfolio Services, Inc.
2 Ada
Irvine, CA 92618
CPS Receivables Corp.
2 Ada
Irvine, CA 92618
