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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) December 1, 1998
----------------
CONSUMER PORTFOLIO SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
California
(State or Other Jurisdiction of Incorporation)
333-63805 33-0459135
--------- ----------
Commission File Number) (I.R.S. Employer Identification No.)
16355 Laguna Canyon, Irvine, California 92718
- --------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(949) 753-6800
--------------
(Registrant's Telephone Number, Including Area Code)
2 Ada, Irvine, California
-------------------------
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
None
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
No. Document Description
- ------- --------------------
20.31 Structural Term Sheet for CPS Auto Receivables Trust 1998-4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONSUMER PORTFOLIO SERVICES, INC.
(Registrant)
Dated: December 1, 1998 By: /s/ Jeffrey P. Fritz
--------------------
Name: Jeffrey P. Fritz
Title: Chief Financial Officer
INDEX TO EXHIBITS
Exhibit Sequential
No. Document Description Page No.
- ------- -------------------- ----------
20.31 Structural Term Sheet for CPS Auto Receivables Trust 1998-4
SUBJECT TO COMPLETION
TERM SHEET DATED NOVEMBER 30, 1998
- ----------------------------------
$310,000,000 Automobile Receivables-Backed Notes
CPS Auto Receivables Trust 1998-4
[CPS LOGO]
CPS RECEIVABLES CORP.
(Seller)
CONSUMER PORTFOLIO SERVICES, INC.
(Servicer)
Attached is a preliminary Term Sheet describing the structure, collateral pool
and certain aspects of the CPS Auto Receivables Trust 1998-4. The Term Sheet has
been prepared by the Seller for informational purposes only and is subject to
modification or change. The information and assumptions contained in the Term
Sheet are preliminary and will be superseded in their entirety by a Prospectus
Supplement and by any other additional information subsequently filed with the
Securities and Exchange Commission or incorporated by reference in the relevant
registration statement. In addition, the attached Term Sheet supersedes any
prior or similar term sheet.
The Registration Statement (including a Prospectus Supplement and a base
Prospectus) relating to the Trust has been filed with the Securities and
Exchange Commission and has been declared effective. The final Prospectus
Supplement relating to the securities offered by the Trust will be filed after
the securities have been priced and all of the terms and information are
finalized. This communication is not an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of the securities of the Trust in any
state in which such offer, solicitation or sale would be unlawful before the
registration or qualification under the securities laws of any such state. You
should review the Prospectus and Prospectus Supplement, and your investment
decision should be based upon the information in the Prospectus and Prospectus
Supplement as of their publication date. Sales of the securities to be offered
by the Trust may not be consummated unless you have received both the Prospectus
and the Prospectus Supplement. The securities to be offered under the Prospectus
Supplement have not been approved or disapproved by the Securities and Exchange
Commission or any state securities commission; any representation to the
contrary is a criminal offense.
First Union Capital Markets
November 30, 1998
CPS Auto Receivables Trust 1998-4
TERM SHEET
Subject to Revision.
OFFERED SECURITIES
CPS Auto Receivables Trust 1998-4 will issue the following securities under the
Prospectus Supplement and the accompanying Prospectus:
o % Asset-Backed Notes, Class A-1 (the "Class A-1 Notes") in the aggregate
original principal amount of $32,500,000.00;
o % Asset-Backed Notes, Class A-2 (the "Class A-2 Notes") in the aggregate
original principal amount of $77,500,000.00;
o % Asset-Backed Notes, Class A-3 (the "Class A-3 Notes") in the aggregate
principal amount of $81,375,000;
o % Asset-Backed Notes, Class A-4 (the "Class A-4 Notes") in the aggregate
principal amount of $100,000,000;
o % Asset-Backed Notes, Class A-5 in the aggregate principal amount of
$18,625,000 (the "Class A-5 Notes" and, together with the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes, the
"Notes").
The Trust will issue the Notes under an indenture (the "Indenture"), to be dated
November 1, 1998, between the Trust and Norwest Bank Minnesota, National
Association, as Indenture Trustee. The aggregate original principal amount of
the Notes will be $310,000,000.00. The Notes will be offered for purchase in
minimum denominations of $1,000 and integral multiples of $1,000, in book entry
form only, through the Depository Trust Company. For more information, read
"Description of the Securities Book-Entry Registration" in the Prospectus. The
Trust will also issue certificates that represent interests in the property of
the Trust that remains after full payment to you of interest on and principal of
the Notes. The Prospectus Supplement and the accompanying Prospectus offer only
the Notes.
ISSUER
The issuer of the Notes is CPS Auto Receivables Trust 1998-4 (the "Trust"). The
Trust was formed on September 11, 1998 under a trust agreement between CPS
Receivables Corp. (the "Seller"), a Delaware corporation that is a wholly-owned,
special-purpose subsidiary of Consumer Portfolio Services, Inc. and Bankers
Trust (Delaware), as the owner trustee.
The address and telephone number of Consumer Portfolio Services, Inc. are:
Consumer Portfolio Services, Inc.
16355 Laguna Canyon
Irvine, CA 92718
(949) 753-6800
CLOSING DATE
On or about December 1, 1998 (the "Closing Date").
INDENTURE TRUSTEE
Norwest Bank Minnesota, National Association.
OWNER TRUSTEE
Bankers Trust (Delaware).
TERMS OF THE NOTES
The principal terms of the Notes will be as described below:
Payment Dates
Payments on the Notes will be made on the 15th day of each month or, if the 15th
day is
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not a Business Day under the Indenture, on the next following Business Day (each
such day, a "Payment Date"). The first Payment Date will be December 15, 1998.
Payments will be made to holders of record of the Notes as of the close of
business on the record date applicable to such Payment Date. The record date for
a Payment Date will be the day immediately preceding the Payment Date.
Interest Rates
The Class A-1 Notes will bear interest at an annual rate equal to % (the "Class
A-1 Interest Rate"). The Class A-2 Notes will bear interest at an annual rate
equal to % (the "Class A-2 Interest Rate"). The Class A-3 Notes will
bear interest at an annual rate equal to % (the "Class A-3 Interest Rate").
The Class A-4 Notes will bear interest at an annual rate equal to % (the "Class
A-4 Interest Rate"). The Class A-5 Notes will bear interest at an annual rate
equal to % (the "Class A-5 Interest Rate"). Interest on the Class A-1 Notes
will be calculated on the basis of a 360-day year and the actual number of days
elapsed from and including the most recent Payment Date on which interest has
been paid (or, in the case of the first Payment Date, from and including the
Closing Date) to, but excluding, the following Payment Date (each a "Class A-1
Interest Period"). Interest on the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes and the Class A-5 Notes will be calculated on the basis of a
360-day year of twelve 30-day months.
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 for the applicable Class A-1 Interest Period at the Class A-1
Interest Rate on the outstanding principal amount of the Class A-1 Notes at the
close of the preceding Payment Date (or, in the case of the Initial Payment Date
as of the Closing 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 the preceding Payment Date. 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 the preceding Payment Date. On each Payment Date, the
holders of record of the Class A-4 Notes (the "Class A-4 Noteholders") as of the
related record date will be entitled to receive, pro rata, thirty (30) days of
interest at the Class A- 4 Interest Rate on the outstanding principal amount of
the Class A-4 Notes at the close of the preceding Payment Date. On each Payment
Date, the holders of record of the Class A-5 Notes (the "Class A-5 Noteholders")
as of the related record date will be entitled to receive, pro rata, thirty (30)
days of interest at the Class A-5 Interest Rate on the outstanding principal
amount of the Class A-5 Notes at the close of the preceding Payment Date.
Nevertheless, on the initial Payment Date, the interest payable to the
Noteholders of record of the Class A-2 Notes, the Class A-3 Notes, the Class A-4
Notes and the Class A-5 Notes, respectively, 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 to
and including December 14, 1998 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 interest rate applicable to such class.
See "Description of the Securities--Payment of Interest" in the Prospectus
Supplement.
Principal
Principal of the Notes will be payable on each Payment Date in an amount equal
to the sum of (i) 100% of the Principal Distributable Amount (the "Class A
Noteholders' Percentage") and (ii) any principal which was
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payable in respect of the Notes on a preceding Payment Date but was not so paid.
Notwithstanding the foregoing, all outstanding principal and interest with
respect to a class of Notes will be payable in full on the Final Scheduled
Payment Date for such class of Notes. See "Description of the Trust
Documents--Distributions" in the Prospectus Supplement.
The "Principal Distributable Amount" with respect to a Payment Date will equal
the sum of the following amounts (without duplication):
(a) collections on Receivables (other than Liquidated Receivables)
allocable to principal including full and partial prepayments;
(b) 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;
(c) the Principal Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection Period;
(d) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection
Period; and
(e) any net proceeds from the liquidation of the Trust Assets pursuant
to an acceleration of the Notes upon an Event of Default.
The Noteholders' Principal Distributable Amount will be allocated among the
classes of Notes as follows:
o On each Payment Date until the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes (collectively, the "Sequential Pay Notes") and the Class
A-4 Notes have been paid in full, the Noteholders' Principal Distributable
Amount will be applied to pay the Sequential Pay Notes and the Class A- 4
Notes according to the method calculated below.
o The Class A-5 Notes will receive no payments of principal until the
principal of the Sequential Pay Notes and the Class A- 4 Notes has been
paid in full.
o On each Payment Date until the Sequential Pay Notes have been paid in full,
an amount equal to the Sequential Pay Noteholders' Percentage of the
Noteholders' Principal Distributable Amount will be applied, sequentially,
to pay principal of the Class A-1 Notes until the outstanding principal
amount of the Class A-1 Notes has been reduced to zero, then to pay
principal of the Class A-2 Notes until the outstanding principal amount of
the Class A-2 Notes has been reduced to zero and then to pay principal of
the Class A-3 Notes until the outstanding principal amount of the Class A-3
Notes has been reduced to zero. The "Sequential Pay Noteholders'
Percentage" on any Payment Date on which any principal of the Sequential
Pay Notes is outstanding will be the percentage equivalent of a fraction
(a) the numerator of which is the aggregate initial principal amount of the
Sequential Pay Notes and (b) the denominator of which is the aggregate of
the initial principal amounts of the Sequential Pay Notes and the Class A-4
Notes; provided that, if principal of any Sequential Pay Notes is still
outstanding after the principal amount of the Class A-4 Notes has been
reduced to zero, the Sequential Pay Noteholders' Percentage will be 100%
until the Sequential Pay Notes have been paid in full.
o On each Payment Date until the Class A-4 Notes have been paid in full, an
amount equal to the Class A-4 Noteholders' Percentage of the Noteholders'
Principal Distributable Amount will be applied to pay principal of the
Class A-4 Notes until the outstanding principal amount of the Class A-4
Notes has been reduced to zero.
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The "Class A-4 Noteholders' Percentage" on any Payment Date on which any
principal of the Class A-4 Notes is outstanding will be a percentage equal
to 100% minus the Sequential Pay Noteholders' Percentage; provided that, if
principal of any Class A-4 Notes is still outstanding after the principal
amount of the Sequential Pay Notes has been reduced to zero, the Class A-4
Noteholders' Percentage will be 100% until the Class A-4 Notes have been
paid in full.
o On each Payment Date from and including the Payment Date on which the
Sequential Pay Notes and the Class A-4 Notes are paid in full, the Class
A-5 Notes will receive principal payments as follows:
-- on the Payment Date on which the outstanding principal amount of
the Sequential Pay Notes and the Class A-4 Notes is reduced to zero,
the remaining portion of the Noteholders' Principal Distributable
Amount, if any, will be applied to pay principal of the Class A-5
Notes; and
-- on each Payment Date thereafter, the Noteholders' Principal
Distributable Amount will be applied to pay principal of the Class A-5
Notes until the outstanding principal amount of the Class A-5 Notes
has been reduced to zero.
Final Scheduled Payment Dates
All unpaid principal of and accrued interest on each class of the Notes will be
payable in full on the date specified below for such class:
o A-1 Notes: December 1999
o A-2 Notes: February 2002
o A-3 Notes: September 2003
o A-4 Notes: September 2003
o A-5 Notes: September 2005
TRUST ASSETS
The primary source of funds to support payments of principal of and interest on
the notes will be the trust assets, which will include:
o a pool of retail installment sale contracts consisting of the right to
receive payments of interest, principal and other money secured by
used and new automobiles, light trucks, vans and minivans;
o the right to receive payments under the installment sale contracts
after specified cutoff dates;
o security interests in the automobiles, light trucks, vans and minivans
securing the installment sale contracts;
o certain bank accounts and the proceeds thereof, including accounts
that will be opened to receive part of the proceeds of this offering
and that will be used by the Trust to buy more retail installment
sales contracts;
o the right to receive proceeds from claims under, or refunds of
unearned premiums from, certain insurance policies and extended
service contracts relating to the vehicles financed under the
installment sale contracts;
o the rights of CPS Receivables Corp. under the contracts by which it
purchases the Trust Assets; and
o certain other property specified in the Prospectus Supplement under
"The Trust Assets."
The Receivables
The retail installment sale contracts to be transferred to the Trust will be
secured by new and used automobiles, light trucks, vans and minivans including
the rights to all payments received with respect to such contracts after a
specified cutoff date. Such installment sale contracts arise from loans
originated by automobile dealers, independent finance companies ("IFCs") and
deposit institutions ("Deposit Institutions") for assignment to Consumer
Portfolio Services, Inc., a California corporation ("CPS") and its affiliates
Samco Acceptance Corp., a Delaware corporation ("Samco"), and Linc
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Acceptance Company LLC, a Delaware limited liability company ("Linc"). The auto
loan programs of CPS, Samco and Linc target automobile purchasers with marginal
credit ratings who are generally unable to obtain credit from banks or other
low-risk lenders. See "The Originators' Automobile Contract Portfolio--
General," "The Receivables Pool," "Risk Factors--Sub-Prime Obligors" and "Risk
Factors--Servicing" in the Prospectus Supplement and "Risk Factors--Sub-Prime
Obligors" in the Prospectus.
The Initial Receivables
On the Closing Date, the Trust will acquire retail installment sale contracts
(the "Initial Receivables") having an aggregate principal balance as of October
21, 1998 (the "Cutoff Date") of approximately $275,647,271.04. For information
about the characteristics of the Initial Receivables as of the Cutoff Date, see
"The Receivables Pool" in the Prospectus Supplement.
Pre-Funding
In addition to the Initial Receivables, the Trust will (subject to availability
and certain conditions) purchase additional retail installment sale contracts
(the "Subsequent Receivables") from the Seller during a period (the "Funding
Period") beginning on the Closing Date and ending not later than February 20,
1999. The Subsequent Receivables and the Initial Receivables are collectively
referred to in the Prospectus Supplement as the "Receivables." See "Description
of the Trust Documents--Sale and Assignment of Receivables" in the Prospectus
Supplement.
Subsequent Receivables will be originated under the auto loan programs of CPS,
Samco and Linc but, as these programs are modified from time to time due to
changes in market conditions or otherwise in the judgment of CPS, Samco or Linc,
as applicable, 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" in the Prospectus Supplement.
The Pre-Funding Account
The purchase of Subsequent Receivables will be funded from amounts in the
Pre-Funding Account. On the Closing Date, the Seller will deposit into the
Pre-Funding Account, out of proceeds from the sale of the Notes, the sum of
$34,352,728.96. The Funding Period will end earlier than February 20, 1999 if
the Pre- Funding Account is reduced to less than $100,000. Until the amounts on
deposit in the Pre-Funding Account are used to purchase Subsequent Receivables,
they will be invested in certain types of preapproved investments. Any
Pre-Funded Amount remaining at the end of the Funding Period will be payable to
the holders of the Notes, pro rata in proportion to the principal balance of
each class of Notes, as a prepayment of principal. See "Description of the Trust
Documents--Sale and Assignment of Receivables" and "--Accounts" in the
Prospectus Supplement.
Interest Reserve Account
In order to provide a source of funds during the Funding Period to cover
anticipated shortfalls in interest earnings resulting from the excess of the
weighted average interest rate on the Notes over investment earnings on the
Pre-Funded Amount, the Indenture Trustee will establish the Interest Reserve
Account. On the Closing Date, the Seller will deposit an amount equal to the
Requisite Reserve Amount (as described below) in the Interest Reserve Account.
On each of the December
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1998 and January 1999 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 in this Term Sheet under "Priority of Payments."
The "Requisite Reserve Amount" as of any date during the Funding Period will
equal the product of:
(i) 1/360th of the difference between
(A) the weighted average of each of the Interest Rates for each
class of Notes (based on the outstanding principal amount of each
class on such date); and
(B) the assumed yield (2.5% per annum) of investments of funds in
the Pre-Funding Account.
(ii) the Pre-Funded Amount on such date; and
(iii) the number of days remaining until the Payment Date in February
1999;
provided that, upon the expiration of the Funding Period, the Requisite Reserve
Amount will be zero. See "Description of the Trust Documents--Accounts" in the
Prospectus Supplement.
SERVICING
After the sale of the Receivables to the Trust, CPS will continue to perform
certain administrative services with respect thereto in its capacity as servicer
of the Trust. Such services will include, among other things, collection of
payments, realization on collateral and monitoring the rate of performance of
the Receivables. In return for CPS's services, the Trust will pay a fee to CPS
out of the interest payments received by the Trust. On or prior to each
Determination Date, CPS will deliver to Loan Servicing Enterprise (the "Backup
Servicer") certain data with respect to the Receivables (in electronic form)
used by CPS to perform its obligations as Servicer of the Receivables. The
Backup Servicer will confirm that such information is readable by the Backup
Servicer's systems and will perform certain other operations and tests with
respect to such information. If CPS is terminated or resigns as servicer of the
Trust, Norwest Bank Minnesota, National Association, as standby servicer (the
"Standby Servicer") or another entity selected as successor servicer will take
over servicing responsibilities for the Trust. See "Risk Factors-Termination of
CPS as Servicer," "Description of the Trust Documents--Servicing Succession" in
the Prospectus Supplement.
PRIORITY OF PAYMENTS
On each Payment Date, the Indenture Trustee shall make the following
distributions in the following order of priority:
(1) to the Standby Servicer, the Standby Fee and all unpaid
Standby Fees from prior Collection Periods;
(2) to the Backup Servicer, the Backup Servicing Fee and all
unpaid Backup Servicing Fees from prior Collection Periods;
(3) to the Servicer, the Servicing Fee and all unpaid Servicing
Fees from prior Collection Periods;
(4) to any successor Servicer, to the extent not previously paid
by the predecessor Servicer under the Sale and Servicing Agreement,
reasonable transition expenses (up to a maximum of $50,000) incurred
in becoming the successor Servicer;
(5) to the Indenture Trustee and the Owner Trustee, pro rata, the
Trustee Fees and reasonable out-of-pocket expenses and all unpaid
Trustee Fees and unpaid reasonable out-of-pocket expenses from prior
Collection Periods;
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(6) to the Collateral Agent, all fees and expenses payable to the
Collateral Agent with respect to such Payment Date;
(7) to the Noteholders, the Noteholders' Interest Distributable
Amount;
(8) to the Noteholders, the Noteholders' Principal Distributable
Amount, plus the Noteholders' Principal Carryover Shortfall, if any;
(9) to the Insurer, any amounts due under the terms of the
Insurance Agreement; and
(10) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
Amounts distributed on account of the Noteholders' Principal Distributable
Amount under priority (8) above will be applied as described above under
"Principal." (See Item 6 above)
See "Description of the Trust Documents--Distributions--Priority of Distribution
Amounts" in the Prospectus Supplement.
Optional Redemption
The Notes, to the extent still outstanding, may be redeemed in whole, but not in
part, on any Payment Date on which CPS exercises its option to purchase all the
Receivables on or after 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 aggregate Cutoff Date principal balance of the Initial
Receivables and (ii) the initial Pre-Funded Amount. The redemption price will at
least equal the unpaid outstanding principal amount of the Notes, plus accrued
and unpaid interest thereon. See "Description of the Securities--Optional
Redemption" in the Prospectus Supplement.
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 if any portion of the
Pre-Funded Amount remains on deposit in the Pre-Funding Account after giving
effect to all purchases of all Subsequent Receivables on such Payment Date. The
aggregate outstanding 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 outstanding principal amount of each class of Notes) of the Pre-Funded
Amount on such date. The terms of such a mandatory redemption are described in
"Risk Factors--Possible Prepayments as a Result of Pre-Funding" in the
Prospectus Supplement.
The Notes may be accelerated and subject to immediate payment at par with
accrued interest thereon upon the occurrence of an "Event of Default" under the
Indenture. So long as the Insurer is not itself in default, 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
an Insurance Agreement, dated as of November 1, 1998. In the case of such an
Event of Default and notice by the Insurer, the Notes will automatically be
accelerated and subject to immediate payment at par with accrued interest. The
Policy does not guarantee payments of any amounts that become due on an
accelerated basis, unless the Insurer elects, in its sole discretion, to pay
such amounts on such accelerated basis in whole or in part, although the Insurer
will be required to pay Scheduled Payments under the Policy. See "Description of
the Trust Documents--Events of Default" in the Prospectus Supplement.
THE POLICY
On the Closing Date, Financial Security Assurance Inc. (the "Insurer") will
issue a financial guaranty insurance policy (the "Policy") to the Indenture
Trustee for the benefit of the Noteholders. Under the terms of the Policy, the
Insurer will unconditionally
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and irrevocably guarantee to the Noteholders payment of:
-- the Noteholders' Interest Distributable Amount; and
-- the Noteholders' Principal Distributable Amount
for each Payment Date (collectively, the "Scheduled Payments"). See "The Policy"
in the Pro spectus Supplement.
Tax Status
In the opinion of Mayer, Brown & Platt ("Federal Tax Counsel"), for Federal
income tax purposes the Notes will be characterized as debt and the Trust will
not be characterized as an association (or publicly traded partnership) taxable
as a corporation. In accepting a Note, each holder of that 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 the Prospectus Supplement for additional information concerning the
application of Federal tax laws to the Trust and the Notes.
Money Market Eligibility
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. A
fund should consult with its advisor regarding the eligibility of the Class A-1
Notes under Rule 2a-7 and the fund's investment policies and objectives.
ERISA Considerations
Subject to the considerations discussed under "ERISA Considerations," 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 of which is referred to as a "Benefit Plan"). By its acquisition of
a Note, each Benefit Plan shall be deemed to represent that its purchase and
holding of such Note will be covered by a Department of Labor class exemption.
See "ERISA Considerations" in the Prospectus Supplement.
Rating of the Notes
It is a condition of issuance that the Notes be rated by Standard & Poor's
Ratings Services, a Division of The McGraw Hill Companies ("Standard & Poor's")
and Moody's Investors Service, Inc. ("Moody's," and together with Standard &
Poor's, the "Rating Agencies"), as follows:
Rating
------
Class S&P Moody's
----- --- -------
A-1 A-1+ P-1
A-2 AAA Aaa
A-3 AAA Aaa
A-4 AAA Aaa
A-5 AAA Aaa
The basis of the ratings of the Notes will be 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.
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