actual Yield Supplement Overcollateralization Amount may differ depending on the actual prepayments, losses and repurchases on the Receivables with APRs less than the Required Rate. For purposes of the Yield Supplement Overcollateralization Amount schedule set forth below, the Required Rate is assumed to be 8.10% for any Payment Date. As of the Closing Date, the Yield Supplement Overcollateralization Amount will equal the Initial Yield Supplement Overcollateralization Amount.
The ABS Tables indicate the projected weighted average life of each class of Notes and set forth the percent of the initial principal balance of each class of Notes that is projected to be outstanding after each of the Payment Dates shown at various constant ABS percentages.
The ABS Tables also assume that the Receivables have been aggregated into hypothetical pools with all of the Receivables within each hypothetical pool having the characteristics set forth in the table below and that the level scheduled monthly payment for each of the pools, based on the aggregate principal balance, APR, original
term to maturity and remaining term to maturity as of the assumed cutoff date, will be such that the pool will be fully amortized by the end of its remaining term to maturity.
The actual characteristics and performance of the Receivables are expected to differ from the assumptions used in constructing the ABS Tables. The assumptions used are hypothetical and have been provided only to give a general sense of how the principal cash flows might behave under varying prepayment scenarios. For example, it is unlikely that the Receivables will prepay at a constant level of ABS until maturity, that all of the Receivables will prepay at the same level of ABS or that no defaults will occur on the Receivables. Moreover, the diverse terms of Receivables within each of the hypothetical pools could produce slower or faster principal distributions than indicated in the ABS Tables at the various percentages of ABS specified, even if the original and remaining terms to maturity of the Receivables are as assumed. Any difference between the assumptions and the actual characteristics and performance of the Receivables, or actual prepayment experience, will affect the percentages of initial amounts outstanding over time and the weighted average life of each class of Notes.
In calculating the Expected Final Payment Date shown on the cover to this prospectus for each class of the Notes, an ABS percentage of 1.40% was utilized and the Servicer’s option to purchase the Receivables was assumed to be exercised on the earliest Payment Date on which it is permitted and before giving effect to any payment of principal required to be made on that Payment Date. The actual Payment Date on which each class of the Notes are paid in full may be before or after this date depending on the actual payment experience of the Receivables.
Percentage of Class A-2a and Class A-2b Note Balance Outstanding at Various ABS Percentages(1)
The “Note Pool Factor” with respect to any class of Notes will be a two-digit decimal indicating the principal amount of that class of Notes as of the close of business on the Payment Date in that month as a fraction of the respective principal amount of that class of Notes as of the Closing Date. The Servicer will compute the Note Pool Factor each month for each class of Notes. Each Note Pool Factor will initially be 1.00 and thereafter will decline to reflect reductions in the principal amount of each class of Notes. The portion of the principal amount of any class of Notes for a given month allocable to a Noteholder can be determined by multiplying the original denomination of the Noteholder’s Note by the related Note Pool Factor for that month.
The Issuing Entity will use the net proceeds from the sale of the Notes to purchase the Receivables from the Depositor pursuant to the Sale and Servicing Agreement and to fund the Reserve Account. The net proceeds to be received by the Depositor from the sale of the Receivables to the Issuing Entity will be used by the Depositor in connection with its acquisition of the Receivables from BMW FS and BMW Bank and to pay other expenses in connection with the issuance of the Notes. Each of BMW FS and BMW Bank will use the proceeds from the sale of the related Receivables for general corporate purposes.
Statements to Noteholders
Pursuant to the Transfer and Servicing Agreements, on each Determination Date, the Servicer will provide the Indenture Trustee a report concerning the payments received on the Receivables, the Pool Balance, the related Note Pool Factors and various other items of information pertaining to the Issuing Entity, and the Indenture Trustee will make available, on the related Payment Date, the same to the Noteholders of record as of the most recent Record Date and to the Owner Trustee. The Indenture Trustee will make the foregoing statements available to the Noteholders via its Internet website, which is presently located at https://pivot.usbank.com. Noteholders of record during each calendar year, upon request to the Indenture Trustee, will be furnished the information by the Indenture Trustee or the Owner Trustee, as appropriate, for tax reporting purposes not later than the latest date permitted by law.
We refer you to “Description of the Transfer and Servicing Agreements—Statements to Noteholders and Certificateholders” in this prospectus for a more detailed description of the reports to be sent to Noteholders.
Where You Can Find More Information About Your Notes
Unless definitive securities are issued under the limited circumstances described in this prospectus, the sole holder of record will be Cede
.
The Indenture Trustee
will provide to Noteholders of record unaudited monthly and annual reports concerning the Receivables and other specified matters. We refer you to “
Description of the Transfer and Servicing Agreements—Statements to Noteholders and Certificateholders” and “
—Evidence as to Compliance” in this prospectus. Copies of these reports may be obtained at no charge at the offices specified in this prospectus.
BMW FS Securities LLC, as Depositor, has filed with the SEC a registration statement on Form SF-3 under the Securities Act of 1933, as amended (the “Securities Act”) of which this prospectus forms a part. The SEC maintains a website (http://www.sec.gov) that contains reports, registration statements, proxy and information statements and other information regarding issuers that file electronically with the SEC using the SEC’s Electronic Data Gathering Analysis and Retrieval system (commonly known as EDGAR). The registration statement and all reports filed by the Depositor may be found on EDGAR filed under the registration number 333-262471, and all reports filed by the Issuing Entity will be found on EDGAR filed under registration number 333-262471-04. Copies of the Transfer and Servicing Agreements relating to the Notes will also be filed with the SEC on EDGAR under the registration number of the Depositor or the Issuing Entity shown above.
The Depositor, on behalf of the Issuing Entity, will file the reports required under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. These reports include (but are not limited to):
| • | Reports on Form 8-K (Current Report) including as exhibits thereto the Transfer and Servicing Agreements; |
| • | Reports on Form 8-K (Current Report), following the occurrence of events specified in Form 8-K requiring disclosure, which are required to be filed within the time-frame specified in Form 8-K related to the type of event; |
| • | Reports on Form 10-D (Asset-Backed Issuer Distribution Report), containing the distribution and pool performance, asset representations review and investor communication information required on Form 10-D, which are required to be filed 15 days following the related Payment Date; |
| • | Reports on Form ABS-EE (Submission of Electronic Exhibits for Asset-Backed Securities), including as exhibits thereto monthly asset-level data for the related Collection Period and the Receivables, which exhibits will be incorporated by reference into the related Form 10-D; and |
| • | Report on Form 10-K (Annual Report), containing the items specified in Form 10-K with respect to a fiscal year, and the items required pursuant to Items 1122 and 1123 of Regulation AB of the Securities Act. |
Unless specifically stated in any report filed by or on behalf of the Issuing Entity with the SEC, the reports and any information included in such report will neither be examined nor reported on by an independent public accountant.
The distribution and pool performance reports filed on Form 10-D will be forwarded to each securityholder as specified in “Description of the Transfer and Servicing Agreements—Statements to Noteholders and Certificateholders” in this prospectus. For so long as the Issuing Entity is required to report under the Exchange Act, the Depositor, on behalf of the Issuing Entity, will file the Issuing Entity’s annual reports on Form 10-K, distribution reports on Form 10-D, any current reports on Form 8-K, and amendments to those reports with the SEC. Such reports will be available on the SEC’s website, which is located at www.sec.gov as soon as reasonably practicable after such reports are filed with the SEC.
Description of the Transfer and Servicing Agreements
The following summary of the Transfer and Servicing Agreements describes the material terms of the Transfer and Servicing Agreements. The description of the terms of the Transfer and Servicing Agreements in this prospectus does not purport to be complete and is subject to, and qualified in its entirety by reference to, all the provisions of the Transfer and Servicing Agreements. Forms of the Transfer and Servicing Agreements have been filed as exhibits to the registration statement. Copies of the final Transfer and Servicing Agreements will be filed as current reports on Form 8-K with the SEC. We refer you to “Where You Can Find More Information About Your Securities—The Depositor” in this prospectus for additional information regarding reports required to be filed by the Depositor.
Sale and Assignment of Receivables
On or prior to the Closing Date each of BMW FS and BMW Bank will sell and assign to the Depositor, without recourse, pursuant to the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement, respectively, its entire interest in the Receivables, including the security interests in the related financed vehicles. On the Closing Date, the Depositor will transfer and assign to the Issuing Entity, without recourse, pursuant to the Sale and Servicing Agreement, its entire interest in the Receivables, including its security interests in the related financed vehicles. Each Receivable will be identified in a schedule appearing as an exhibit to the Sale and Servicing Agreement, but the existence and characteristics of the Receivables will not be verified by the Indenture Trustee. The Issuing Entity will, concurrently with the transfer and assignment, execute and deliver the Notes and the Certificates. The net proceeds received from the sale of the Notes and the Certificates will be applied to the purchase of the Receivables from the Depositor and to make any required initial deposit into the Reserve Account.
BMW FS and BMW Bank, each as a Seller, pursuant to the Receivables Purchase Agreement and Bank Receivables Purchase Agreement, respectively, and the Depositor, pursuant to the Sale and Servicing Agreement, will represent and warrant, among other things, that as of the Closing Date:
| • | Each Receivable (a) was originated in the United States of America by the Seller (in the case of any Receivable originated through the “lease to loan” program described in this prospectus), by BMW Bank (in the case of any Receivable acquired by BMW FS from BMW Bank) or by a Dealer located in the United States of America, in each case in the ordinary course of such originator’s business and in compliance with the Seller’s customary credit policies and practices as of the date of origination or acquisition of such Receivable, (b) is payable in United States dollars, (c) has been fully and properly executed or electronically authenticated by the parties thereto, (d) except in the case of any Receivable originated through the “lease to loan” program or acquired by BMW FS from BMW Bank, has been (i) purchased by the Seller from the Dealer under an existing Dealer Agreement and (ii) validly assigned by such Dealer to the Seller, and (e) in the case of any Receivable purchased by BMW FS from BMW Bank, has been (i) purchased by BMW FS from BMW Bank under an existing purchase agreement and (ii) validly assigned by BMW Bank to BMW FS. |
| • | As of the Closing Date, the Seller has, or has started procedures that will result in the Seller having, a perfected, first priority security interest in the financed vehicle related to each Receivable, which security interest was validly created and has been assigned by the Seller to the Depositor, and will be assigned by the Depositor to the Issuing Entity. The certificate of title for the financed vehicle related to each Receivable shows BMW FS or BMW Bank, as applicable, named as the original secured party (or a properly completed application for such certificate of title has been completed). |
| • | Each Receivable is on a form contract containing customary and enforceable provisions such that the rights and remedies of the holder thereof are adequate for realization against the collateral of the benefits of the security, and represents the genuine, legal, valid and binding payment obligation of the Obligor thereon, enforceable by the holder thereof in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforcement of creditors’ rights in general and by general principles of equity and consumer protection laws, regardless of whether such enforceability is considered in a proceeding in equity or at law. |
| • | Each Receivable (a) provides for fixed level monthly payments (provided that the payment in the last month of the term of the Receivable may be different from the level scheduled payments) that fully amortize the Amount Financed by maturity and yield interest at the APR and (b) amortizes using the simple interest method. |
| • | To the Seller’s knowledge, each Receivable complied in all material respects at the time it was originated with all requirements of applicable laws. |
| • | None of the Receivables is due from the United States of America or any State or any agency, department, subdivision or instrumentality thereof. |
| • | To the best of the Seller’s knowledge, as of the Cutoff Date, no Obligor of a Receivable is or has been, since the origination of the related Receivable, the subject of a bankruptcy proceeding. |
| • | As of the Cutoff Date, none of the Receivables has been satisfied, subordinated or rescinded, nor has any Financed Vehicle been released from the lien of the related Receivable in whole or in part, and, to the Seller’s knowledge, no Receivable is subject to any right of rescission, setoff, counterclaim, dispute or defense. |
| • | None of the terms of any Receivable has been deferred or otherwise modified except by instruments or documents identified in the related Receivable File. |
| • | None of the Receivables has been originated in, or is subject to the laws of, any jurisdiction the laws of which would make unlawful, void or voidable the sale, transfer and assignment of such Receivable under the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement, as applicable, or the Sale and Servicing Agreement or the pledge of such Receivable under the Indenture. |
| • | Immediately prior to the transfers and assignments of the Receivables, the Seller has good and marketable title to the Receivable free and clear of all Liens (other than pursuant to the Transfer and Servicing Agreements) and, immediately upon the transfer and assignment thereof, the Depositor will have good and marketable title to each Receivable, free and clear of all Liens (other than pursuant to the Transfer and Servicing Agreements). |
| • | Each Receivable constitutes “tangible chattel paper” or “electronic chattel paper” within the meaning of the applicable UCC. With respect to any Receivable constituting “electronic chattel paper”, there is only one “authoritative copy” of the Receivable and, with respect to any Receivable constituting “tangible chattel paper”, there is no more than one original executed copy of such Receivable. |
| • | Except for a payment that is no more than 29 days delinquent, no payment default exists on any Receivable as of the Cutoff Date. |
| • | The Seller, in accordance with its customary procedures, has determined that the Obligor has obtained physical damage insurance covering each Financed Vehicle and, under the terms of the related Receivable, the Obligor is required to maintain such insurance. |
| • | No Receivable has a maturity date later than the last day of the Collection Period immediately preceding the maturity date of the latest maturing class of Notes. |
| • | Each Receivable had an original maturity of not less than 24 or more than 84 months. |
| • | All of the Receivables, as of the Cutoff Date, are due from Obligors with garaging addresses within the United States of America, its territories and possessions. |
| • | Each Receivable had a first scheduled payment due on or prior to 45 calendar days after the origination date thereof. |
| • | As of the Cutoff Date, each Receivable has a remaining term of at least 5 months and no more than 83 months. |
| • | As of the Cutoff Date, each Receivable has a remaining balance of at least $1,500.00. |
| • | The Obligor with respect to each Receivable has made at least one scheduled payment. |
As of the last day of the second (or, if BMW FS or BMW Bank so elects, the first) Collection Period following the discovery by or notice to BMW FS or BMW Bank of a breach of any representation or warranty set forth above and made by such party that materially and adversely affects the interests of the Issuing Entity or the Noteholders in the related Receivable and such breach is not timely cured, BMW FS or BMW Bank, as applicable, will repurchase that Warranty Receivable from the Issuing Entity, at a price equal to the Warranty Purchase Payment for that Receivable. Other than the remedies available to Noteholders, Verified Beneficial Owners and the Issuing Entity described under “Description of the Notes—Dispute Resolution for Repurchase Request,” and indemnification available to the Issuing Entity from BMW FS or BMW Bank, as applicable, in respect of any failure of a receivable to have been originated in compliance with all applicable requirements of law, this repurchase obligation will constitute the sole remedy available to the Noteholders, Verified Beneficial Owners or the Issuing Entity for any uncured breach by BMW FS or BMW Bank.
Maintenance and Safekeeping of the Receivables
The Servicer, in its capacity as custodian, will hold (or, with respect to any Receivables that are electronic chattel paper, maintain in electronic format) the Receivable files for the benefit of the Issuing Entity and the Indenture Trustee, and will maintain such accurate and complete accounts, records and computer systems pertaining to each Receivable file as shall enable the Issuing Entity to comply with the Sale and Servicing Agreement. In performing its duties as custodian, the Servicer will act with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to the Receivable files relating to all comparable automotive and motorcycle receivables that the Servicer services for itself or others. The Servicer will promptly report to the Issuing Entity and the Indenture Trustee any material failure on its part to hold or maintain the Receivable files and maintain its accounts, records and computer systems under the Sale and Servicing Agreement and will promptly take appropriate action to remedy any such material failure.
Pursuant to the Sale and Servicing Agreement, the Depositor and the Issuing Entity will designate the Servicer as custodian to maintain electronic or physical possession, as the Issuing Entity’s agent of the related contracts and any other documents relating to the Receivables. The Servicer, in its capacity as custodian, will maintain each Receivable file (or access to any Receivable files stored in an electronic format) at one of its offices specified in the Sale and Servicing Agreement or at such other office as shall be specified to the Issuing Entity and the Indenture Trustee by written notice not later than 30 days after any change in location (except that, in the case of any Receivable constituting “electronic chattel paper”, the “authoritative copy” (as such term is used in Section 9-105 of the UCC) of such Receivable shall be maintained by the servicer in a computer system such that the servicer maintains “control” (as such term is used in Section 9-105 of the UCC) over such “authoritative copy”).
The Servicer will maintain control of all electronic chattel paper evidencing a Receivable. To assure uniform quality in servicing both the Receivables and the servicer’s own portfolio of motor vehicle retail installment, as well as to facilitate servicing and reduce administrative costs, the documents evidencing the Receivables will not be physically segregated from other contracts of the servicer, or those which the servicer services for others, or marked to reflect the transfer to the Issuing Entity as long as BMW FS is servicing the Receivables. However, the Uniform Commercial Code (as in effect in the applicable jurisdiction (the “
UCC”)) financing statements reflecting the sale and assignment of the Receivables by BMW FS or BMW Bank to the Depositor and by the Depositor to the Issuing Entity
, and the assignment by the Issuing Entity to the Indenture Trustee, as applicable,
will be filed, and the respective accounting records and computer files of the Depositor, BMW FS and BMW Bank will reflect that sale and assignment. The Depositor, or the Servicer on behalf of the Depositor, will be responsible for maintaining such perfected security interest through the filing of continuation statements or amended financing statements, as applicable. Because the Receivables will remain in the Servicer’s possession and will not be stamped or otherwise marked to reflect the assignment to the Indenture Trustee, if a subsequent purchaser were able to take physical possession of the Receivables without knowledge of the assignment, the Issuing Entity’s interest in the Receivables could be defeated. In addition, in some cases, the Indenture Trustee’s security interest in collections that have been received by the Servicer but not yet remitted to the Collection Account could be defeated. We refer you to
“
Certain Legal Aspects of the Receivables—General”
and
“
Risk Factors—Risks Primarily Related to Bankruptcy and Insolvency of Transaction Parties and Perfection of Security Interests—If the servicer does not maintain control of the receivables evidenced by electronic contracts, the issuing entity may not have a perfected security interest in those receivables”
and
“
Risk Factors—Risks Primarily Related to Servicing—Commingling by the servicer may result in delays and reductions in payments on your notes” in this prospectus
.The Servicer will cause the Securities Intermediary to establish, and on and after the Closing Date the Securities Intermediary will maintain, the Collection Account, in the name of the Indenture Trustee on behalf of the Noteholders, into which payments made on or with respect to the Receivables and amounts released from the Reserve Account will be deposited for payment to the Noteholders.
The Issuing Entity will cause the Securities Intermediary to establish, and on and after the Closing Date the Securities Intermediary will maintain, an account in the name of the Indenture Trustee on behalf of the Noteholders, to be designated as the “Note Distribution Account”, of which the subaccount designated as the “Principal Distribution Account” is a part, into which amounts released from the Collection Account and the Reserve Account for payment to the Noteholders will be deposited and from which all distributions to the Noteholders will be made.
The Issuing Entity also will cause the Securities Intermediary to establish, and on and after the Closing Date the Securities Intermediary will maintain, the Reserve Account (together with the Collection Account and the Note Distribution Account, the “Accounts”) for the purposes described in this prospectus.
Funds in the Accounts will be invested, at the direction of the Servicer, as provided in the Sale and Servicing Agreement, in Eligible Investments, except that funds in the Note Distribution Account will remain uninvested.
“Eligible Investments” means, at any time, any one or more of the following instruments, obligations and securities, generally having original or remaining maturities of 30 days or less, but in no event occurring later than the Payment Date next occurring after the Indenture Trustee acquires the investments, which evidence:
| • | direct obligations of, and obligations fully guaranteed as to the full and timely payment by, the United States of America; |
| • | demand deposits, time deposits or certificates of deposit of any depository institution (including the Indenture Trustee acting in its commercial capacity or any affiliate of the Indenture Trustee) or trust company incorporated under the laws of the United States of America or any state thereof (or any domestic branch of a foreign bank) and subject to supervision and examination by federal or state banking or depository institution authorities; provided, however, that at the time of the investment or contractual commitment to invest therein, the commercial paper or other short-term unsecured debt obligations (other than such obligations the rating of which is based on the credit of a person other than such depository institution or trust company) thereof shall have a short-term deposit or issuer rating acceptable to the Rating Agencies; |
| • | repurchase obligations held by the Indenture Trustee with respect to any security that is a direct obligation of, or fully guaranteed by, the United States of America or any agency or instrumentality thereof the obligations of which are backed by the full faith and credit of the United States of America, in either case entered into with a depository institution or trust company (acting as principal) described in clause (b) above; |
| • | securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States or any state thereof, including the Indenture Trustee acting in its commercial capacity or any affiliate of the Indenture Trustee, so long as at the time of such investment or contractual commitment providing for such investment either (i) the long-term, unsecured debt of such corporation has a rating acceptable to the Rating Agencies or (ii) the commercial paper or other short-term debt of such corporation has a rating acceptable to the Rating Agencies; |
| • | investments of proceeds maintained in sweep accounts, short-term asset management accounts and the like utilized for the commingled investment, on an overnight basis, of residual balances in investment accounts maintained at the Indenture Trustee or any affiliate thereof; and |
| • | any other money market, common trust fund or obligation, or interest bearing or other security or investment (including those managed or advised by the Indenture Trustee or any affiliate thereof) which has a rating acceptable to the Rating Agencies. Such investments in this subsection (f) may include money market mutual funds or common trust funds, including any fund for which U.S. Bank Trust Co., in its capacity other than as the Indenture Trustee, or an affiliate thereof serves as an investment advisor, administrator, shareholder, servicing agent, and/or custodian or subcustodian, notwithstanding that (x) U.S. Bank Trust Co., the Indenture Trustee or any affiliate thereof charges and collects fees and expenses from such funds for services rendered, (y) U.S. Bank Trust Co., the Indenture Trustee or any affiliate thereof charges and collects fees and expenses for services rendered pursuant to the Indenture, and (z) services performed by the Indenture Trustee for such funds and pursuant to the Indenture may converge at any time. U.S. Bank Trust Co. or an affiliate thereof is authorized under the Indenture to charge and collect from the Indenture Trustee such fees as are collected from all investors in such funds for such services rendered to such funds (but not to exceed investment earnings thereon). |
Each of the foregoing criteria may be amended, modified or deleted and additional criteria may be added to this definition by the Depositor if the Rating Agency Condition has been satisfied with respect thereto.
Eligible Investments are generally limited to investments acceptable to the Rating Agencies as being consistent with the rating of the Notes, including obligations of the Servicer and its affiliates, to the extent consistent with that rating. Except as permitted by the Rating Agencies in writing with respect to the Reserve Account, Eligible Investments are limited to obligations or securities that mature on or before the next Payment Date. To the extent permitted by the Rating Agencies, funds in the Reserve Account may be invested in obligations or securities that will not mature prior to the next Payment Date and will not be sold to meet any shortfalls. Thus, the amount of cash in the Reserve Account at any time may be less than the balance of the Reserve Account. If the amount required to be withdrawn from the Reserve Account to cover shortfalls in collections on the Receivables exceeds the amount of cash in the Reserve Account, a shortfall in the amounts paid to the Noteholders could result, which could, in turn, increase the average life of the Notes.
Investment earnings on funds deposited in the Accounts, net of losses
and investment expenses, will be released to the Depositor on each Payment Date and will be the property of the Depositor.
Each of the Accounts will be a segregated account maintained at an Eligible Institution or a segregated trust account maintained at an Eligible Trust Account Institution. “
Eligible Institution” means (a) a bank or depository institution organized under the laws of the United States or any state thereof or any United States branch or agency of a foreign bank or depository institution that (i) is subject to supervision and examination by federal or state banking authorities, (ii) has (x) a short-term deposit rating acceptable to the Rating Agencies and (y) a short-term unsecured debt rating or issuer rating or certificate of deposit rating acceptable to the Rating Agencies, (iii) if the institution holds the related account other than as a segregated account and the deposits are to be held in the accounts for more than 30 days, has a long-term unsecured debt rating or issuer rating acceptable to the Rating Agencies and (iv) if the institution is organized under the laws of the United States, whose deposits are insured by the Federal Deposit Insurance Corporation, or (b) the corporate trust department of any bank or depository institution organized under the laws of the United States or any state thereof or any United States branch or agency of a foreign bank or depository institution that is subject to supervision and examination by federal or state banking authorities that (i) is authorized under those laws to act as a trustee or in any fiduciary capacity and (ii) has a long-term deposit or issuer rating acceptable to the Rating Agencies.
“
Eligible Trust Account Institution” means the corporate trust department of a financial institution organized under the laws of the United States of America or any State, having corporate trust powers and holding in trust funds deposited in such account, so long as any of the securities of such depository institution shall have a long-term credit or issuer rating acceptable to the Rating Agencies. If the institution maintaining the Accounts ceases to be an Eligible Institution or an Eligible Trust Account Institution, as applicable, the Securities Intermediary and the Indenture Trustee will, or will cooperate with the Servicer to, as applicable, cause each such account to be moved to an Eligible Institution or an Eligible Trust Account Institution within forty-five days (or such longer period in respect of which the Rating Agency Condition has been satisfied).
The Sale and Servicing Agreement will provide that the Servicer, for the benefit of the Issuing Entity, will manage, service, administer and make collections on the Receivables (other than Administrative Receivables and Warranty Receivables) in accordance with its customary and usual procedures. The Servicer’s duties will include collection and posting of all payments, responding to inquiries of Obligors or by federal, state or local government authorities with respect to the Receivables, investigating delinquencies, sending payment coupons to Obligors, reporting tax information to Obligors, monitoring the collateral, accounting for collections and furnishing monthly and annual statements to the Indenture Trustee and Owner Trustee with respect to distributions, generating federal income tax information, making Advances and performing the other duties specified in the Sale and Servicing Agreement. The Servicer may appoint a subservicer under the Sale and Servicing Agreement. The Servicer will follow its customary standards, policies and procedures and will have full power and authority, acting alone, to do any and all things in connection with such managing, servicing, administration and collection that it may deem necessary or desirable. Without limiting the generality of the foregoing, the Servicer will be authorized and empowered to execute and deliver, on behalf of itself, the Issuing Entity, the Indenture Trustee, the Noteholders, the Certificateholders or any of them, any and all instruments of satisfaction or cancellation, or of partial or full release or discharge and all other comparable instruments, with respect to the Receivables and the related financed vehicles. The Servicer is authorized to commence, in its own name or in the name of the Issuing Entity, Indenture Trustee, the Noteholders or the Certificateholders, a legal proceeding to enforce a defaulted Receivable or to commence or participate in a legal proceeding (including without limitation a bankruptcy proceeding) relating to or involving a Receivable, including a defaulted Receivable. If the Servicer commences or participates in such a legal proceeding in its own name, the Issuing Entity will be deemed to have automatically assigned such Receivable and the other related property of the Issuing Entity with respect to such Receivable to the Servicer solely for purposes of commencing or participating in any such proceeding as a party or claimant. The Servicer is also authorized and empowered under the Sale and Servicing Agreement to execute and deliver in the Servicer’s name any notices, demands, claims, complaints, responses, affidavits or other documents or instruments in connection with any such proceeding. If, in any enforcement suit or legal proceeding, it is held that the Servicer may not enforce a Receivable on the grounds that it is not real party in interest or a holder entitled to enforce such Receivable, the Indenture Trustee on behalf of the Issuing Entity will, at the Servicer’s expense and written direction, take steps to enforce such Receivable, including bringing suit in its name or the name of the Issuing Entity, the Indenture Trustee, the
Noteholders or the Certificateholders. The Owner Trustee on behalf of the Issuing Entity and the Indenture Trustee are required to furnish the Servicer with any powers of attorney and other documents and take any other steps which the Servicer may deem necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under the Sale and Servicing Agreement.
The Servicer will make reasonable efforts to collect all payments due with respect to the Receivables held by the Issuing Entity and will, consistent with the Sale and Servicing Agreement, follow the collection procedures it follows with respect to comparable motor vehicle retail installment sale contracts it services for itself or others and otherwise act with respect to the Receivables in such a manner as will, in the reasonable judgment of the Servicer, maximize the amount to be received by the Issuing Entity with respect thereto.
The Servicer will be authorized to grant, in some circumstances, rebates, adjustments or deferments with respect to a Receivable, but will not, except pursuant to an order of a court of competent jurisdiction, waive the right to collect the unpaid balance of any Receivable. However, if any modification of a Receivable extends the maturity of a Receivable beyond the last day of the Collection Period immediately preceding the Final Scheduled Payment Date of the Class A-4 Notes, the Servicer will be obligated to purchase the Receivable as described below.
In addition, the Servicer will covenant that, except as otherwise contemplated in the Sale and Servicing Agreement (including the provisions in the immediately two preceding paragraphs):
| • | it will not release any financed vehicle from the security interest granted in the related Receivable; |
| • | it will do nothing to impair the rights of the Issuing Entity in the Receivables; |
| • | it will not alter the APR of any Receivable; and |
| • | it will not extend the maturity of a Receivable beyond the last day of the Collection Period immediately preceding the Final Scheduled Payment Date of the Class A-4 Notes. |
The Servicer will inform the Indenture Trustee promptly upon the discovery of any breach by the Servicer of the above obligations. Unless the breach is cured by the last day of the second Collection Period following the discovery (or, if the Servicer so elects, the last day of the first Collection Period following the discovery), the Servicer is required to purchase from the Issuing Entity any Administrative Receivable in respect of which the interests of the Issuing Entity or the Noteholders are materially and adversely affected, for a price equal to the Administrative Purchase Payment for that Receivable.
Upon the purchase of any Administrative Receivable, the Servicer will for all purposes of the Sale and Servicing Agreement be deemed to have released all claims for the reimbursement of outstanding Advances made in respect of that Administrative Receivable. This purchase obligation will constitute the sole remedy available to the Issuing Entity, the Noteholders, the Certificateholders and the Indenture Trustee for any uncured breach by the Servicer of the specified covenants.
If the Servicer determines that eventual payment in full of a Receivable is unlikely, the Servicer will follow its customary practices and procedures to recover all amounts due upon that Receivable, including repossessing and disposing of the related financed vehicle at a public or private sale, or taking any other action permitted by applicable law. We refer you to “Certain Legal Aspects of the Receivables” in this prospectus.
The Transfer and Servicing Agreements generally require that the Servicer
and any successor servicer deposit all payments (other than Warranty Purchase Payments and Administrative Purchase Payments related to such Collection Period, as
described below) in respect of Receivables received from Obligors and all proceeds of Receivables collected during each Collection Period into the Collection Account not later than two Business Days after receipt. However, pursuant to the terms of the Transfer and Servicing Agreements, for so long as certain conditions established by the Rating Agencies have been satisfied, or alternative arrangements satisfactory to the Rating Agencies have been made, the Servicer may retain such amounts received during a Collection Period until the Business Day prior to each Payment Date (a “
Deposit Date”).
The Servicer or the applicable Seller, as the case may be, will remit the aggregate Warranty Purchase Payments and Administrative Purchase Payments in respect of Receivables to be purchased from the Issuing Entity into the Collection Account on or before each Deposit Date. All decisions regarding deposits and withdrawals from the Collection Account shall be made by the Servicer and will not be independently verified. The Servicer will be entitled to withhold, or to be reimbursed from amounts otherwise payable into or on deposit in the Collection Account, amounts previously deposited in the Collection Account but later determined to have resulted from mistaken deposits or postings. Except as described in the Sale and Servicing Agreement, pending deposit into the Collection Account, collections may be invested by the Servicer at its own risk and for its own benefit and will not be segregated from its own funds.
If the Servicer were unable to remit the funds as described above for any reason, Noteholders might incur a loss.
Collections on or in respect of a Receivable made during a Collection Period (including Warranty Purchase Payments and Administrative Purchase Payments) will be applied first to unreimbursed Advances, second to interest accrued to date, third to principal until the principal balance is brought current, fourth to reduce the unpaid late charges as provided in the Receivable and finally to prepay principal of the Receivable.
On each Payment Date all interest and other investment income (net of losses and expenses) on funds on deposit in the Collection Account for the related Collection Period will be released to the Depositor.
On or before the related Deposit Date, the Servicer will make a payment into the Collection Account of an amount equal to the aggregate of all scheduled payments of interest that were due during the related Collection Period that were not collected during such Collection Period (each such payment is referred to as an “Advance”), exclusive of amounts not collected as a result of application of the Relief Act and of amounts that the Servicer has determined would be non-recoverable. On each Payment Date, the Servicer may reimburse itself for the outstanding amount advanced to the extent of actual collections of late Scheduled Payments, Warranty Purchase Payments and Administrative Purchase Payments, each to the extent allocable to interest, prior to any application of those amounts to pay the Notes. In addition, if a Receivable becomes a Liquidated Receivable, the amount of accrued and unpaid interest on that Receivable (but not including interest for the current Collection Period) may, up to the amount of outstanding Advances in respect of that Receivable, be deemed non-recoverable and paid to the Servicer in reimbursement of the outstanding Advances, as described under “Payments on the Notes—Payment of Distributable Amounts” in this prospectus. No advances of principal will be made with respect to the Receivables. The Servicer will not be obligated to make an Advance, to the extent that it determines, in its sole discretion, that such Advance will not be recovered from subsequent collections on or in respect of the related Receivable. Advances that the Servicer has determined are non-recoverable will be reimbursed to the Servicer on each Payment Date at the same priority as the Servicing Fee and prior to any other distributions to be made on that Payment Date.
The Servicer will make all Advances by depositing into the Collection Account an amount equal to the aggregate of the Advances due in respect of a Collection Period on or before the related Deposit Date.
The Sale and Servicing Agreement will provide that consistent with its “Collection and Servicing Guidelines” as in effect from time to time, the Servicer may, in its discretion, defer monthly payments and extend the term of any Receivable; provided, that no such deferment shall extend the final payment date on any Receivable beyond the last day of the Collection Period immediately preceding the Final Scheduled Payment Date for the Class A-4 Notes. If any such deferment does not comply with the immediately preceding sentence, and if it materially and adversely affects the interests of the Issuing Entity or the Noteholders in the related Receivables, the Servicer will be required to purchase the Receivable affected by such breach. The Servicer will be required to remit the related purchase amount into the Collection Account on or before the related Deposit Date in accordance with the Sale and Servicing Agreement, with written notice to the Indenture Trustee of such deposit.
Servicing Compensation
On each Payment Date, the Servicer will be entitled to receive, as compensation for services rendered in respect of the related Collection Period, an amount equal to the product of 1/12 and 1.00% of the Pool Balance with respect to such Payment Date (such rate, the “Servicing Fee Rate” and the fee calculated in that manner, the “Servicing Fee”); provided that, in the case of the first Payment Date, the Servicing Fee will be an amount equal to the sum of (a) the product of 1/12 and 1.00% of the aggregate outstanding principal balance of the Receivables as of the Cutoff Date and (b) the product of 1/12 and 1.00% of the aggregate outstanding principal balance of the Receivables (exclusive of all Liquidated Receivables and, if applicable, all Receivables that are the subject of damages paid by the FDIC to the Issuing Entity) as of the close of business on January 31, 2025. The Servicing Fee (together with any portion of the Servicing Fee that remains unpaid from prior Payment Dates) will be paid solely to the extent of amounts available for that purpose as set forth in this prospectus, prior to the payment of available amounts to the Noteholders, all as described under “Payments on the Notes—Payment of Distributable Amounts” and “Description of the Notes—Indenture Events of Default; Change in Priority of Payments Following Acceleration.”
The Servicer will also be entitled to collect and retain any late fees, prepayment charges, deferment fees and other administrative fees or similar charges allowed by applicable law with respect to the Receivables (the “Supplemental Servicing Fee”). Payments by or on behalf of Obligors will be allocated to Scheduled Payments and late fees and other charges in accordance with the Servicer’s customary practices and procedures. In addition, the Servicer will be entitled to reimbursement from the Issuing Entity for certain other specified amounts, such as non-recoverable Advances, as described in this prospectus.
The Servicer will be paid the Servicing Fee for each Collection Period on the related Payment Date prior to the payment of interest on any class of Notes. However, the Servicing Fee in respect of a Collection Period (together with any portion of the Servicing Fee that remains unpaid from prior Payment Dates) will be paid at the beginning of that Collection Period out of collections of interest on the related Receivables, for so long as the Rating Agency Condition is satisfied in respect thereof.
The Servicing Fee and the Supplemental Servicing Fee will compensate the Servicer for performing the functions of a third party servicer of motor vehicle receivables as an agent for the beneficial owner of those Receivables, including collecting and posting all payments, responding to inquiries of Obligors on the Receivables, investigating delinquencies, sending payment statements to Obligors, reporting tax information to Obligors, paying costs of collections and monitoring the collateral. These fees also will compensate the Servicer for administering the Receivables, including making Advances, accounting for collections and furnishing monthly statements to the Owner Trustee and Indenture Trustee with respect to payments.
As an administrative convenience, as long as BMW FS is the Servicer, BMW FS will be permitted to make the deposit of collections, aggregate Advances and Administrative Purchase Payments for or with respect to the related Collection Period net of payments to be made to the Servicer with respect to that Collection Period. The Servicer may cause to be made a single, net transfer to the Collection Account. The Servicer, however, will account to the Indenture Trustee, the Noteholders and the Certificateholders as if all deposits, payments and transfers were made individually.
The outstanding Notes will be redeemed in whole, but not in part, on any Payment Date on which the Servicer or any successor to the Servicer exercises its option to purchase the Receivables. The Servicer or any successor to the Servicer may purchase the Receivables when the Pool Balance with respect to any Payment Date shall have declined to 5% or less of the Pool Balance with respect to the Closing Date. The “Redemption Price” for the outstanding Notes will be equal to the aggregate unpaid principal amount of the outstanding Notes plus accrued and unpaid interest on the Notes at the applicable interest rate on the date of the optional purchase. The Servicer or the Issuing Entity will provide prior notice of the redemption of the Notes to the Indenture Trustee at least 20 days prior to the Payment Date fixed for the redemption of the Notes, and the Indenture Trustee will provide at least 10 days’ prior notice thereof to the Noteholders. On the Payment Date fixed for redemption, the Notes will
be due and payable at the Redemption Price, and no interest will accrue on the Notes after the Payment Date if paid in full on such date.
The respective obligations of the Depositor, the Servicer, any Originator (so long as such Originator has rights or obligations under the related Transfer and Servicing Agreement), the Owner Trustee, the Indenture Trustee and the Asset Representations Reviewer, as the case may be, pursuant to a Transfer and Servicing Agreement will terminate upon the earlier of:
| • | the maturity or other liquidation of the last Receivable and the disposition of any amounts received upon liquidation of any remaining Receivables; |
| • | the final distribution of all funds or other proceeds of the assets of the Issuing Entity in accordance with the terms of the Indenture, including the payment to Noteholders and Certificateholders of all amounts required to be paid to them pursuant to the related agreement; or |
| • | the optional purchase by the Servicer of all of the Receivables as described above under “—Optional Purchase”. |
The Owner Trustee and Indenture Trustee will give written notice of termination to each Noteholder and Certificateholder of record. The final distribution to any Noteholder or Certificateholder will be made only upon surrender and cancellation of that holder’s Note or Certificate at the office or agency of the Owner Trustee or Indenture Trustee, as applicable, specified in the notice of termination. Any funds remaining in the Issuing Entity, after the Owner Trustee or the Indenture Trustee, as applicable, have taken measures to locate a Noteholder or Certificateholder set forth in the related Transfer and Servicing Agreement and those measures have failed, will be distributed, subject to applicable law to the Depositor or the Issuing Entity, respectively.
In connection with the termination of the Issuing Entity, the assets of the Issuing Entity will be liquidated and the proceeds from any liquidation, and amounts held in its Accounts, will be applied to pay the Notes and the Certificates, to the extent of amounts available.
Any outstanding Notes will be redeemed concurrently with any of the events specified above and the subsequent payment to the Certificateholders of all amounts required to be paid to them pursuant to the Trust Agreement will affect early retirement of the Certificates.
A Noteholder or a Verified Beneficial Owner may send a request to the Administrator stating that the Noteholder or Beneficial Owner is interested in communicating with other Noteholders and Beneficial Owners about the possible exercise of rights under the Transfer and Servicing Agreements. The Administrator has agreed in the Administration Agreement to include in the Form 10-D for any Collection Period any written request received by the Administrator during that Collection Period from a Noteholder or Verified Beneficial Owner to communicate with other Noteholders and Beneficial Owners regarding exercising their rights under the Transfer and Servicing Agreements.
Upon receipt of such a request, the Administrator will include in the Form 10-D for the relevant Collection Period the following information:
| • | the name of the requesting Noteholder or Verified Beneficial Owner; |
| • | the date the request was received; |
| • | a statement that the Administrator has received the request, and that the Noteholder or Verified Beneficial Owner is interested in communicating with other Noteholders and Beneficial Owners about the possible exercise of rights under the Transfer and Servicing Agreements; and |
| • | a description of the method by which the other Noteholders and Beneficial Owners may contact the requesting Noteholder or Verified Beneficial Owner. |
The Administrator is not required to include any additional information regarding a Noteholder or Verified Beneficial Owner’s written request in the Form 10-D, and is required to disclose a Noteholder’s or a Verified Beneficial Owner’s written request only where the communication relates to the exercise by a Noteholder or a Verified Beneficial Owner of its rights under the Transfer and Servicing Agreements. The expenses of administering the foregoing investor communication provisions will be the responsibility of the Administrator, which will be compensated by means of the administration fee paid by the Servicer as described below.
Modification of Indenture. The Issuing Entity and the Indenture Trustee may, with prior notice made available to the Rating Agencies and with the consent of the holders of at least a majority of the aggregate principal amount of the Notes outstanding, execute a supplemental indenture to add provisions to, change in any manner or eliminate any provisions of, the Indenture, or modify (except as provided below) in any manner the rights of the Noteholders; provided that, without the consent of the holders of each outstanding affected Note, no supplemental indenture will:
| ○ | the date of payment of any installment of principal of or interest on that Note or reduce the principal amount of that Note; |
| ○ | the interest rate for that Note or the redemption price for that Note; |
| ○ | provisions of the Indenture relating to the application of collections on, or proceeds of a sale of, the assets of the Issuing Entity to payments of principal of and interest on that Note; or |
| ○ | any place of payment where or the coin or currency in which that Note or any interest on that Note is payable; |
| • | impair the right to institute suit for the enforcement of specified provisions of the Indenture regarding payment; |
| • | reduce the percentage of the aggregate principal amount of the outstanding Notes, the consent of the holders of which is required for any supplemental indenture or any waiver of compliance with specified provisions of the Indenture or of specified defaults and their consequences as provided for in the Indenture; |
| • | modify or alter the provisions of the Indenture regarding the voting of Notes held by the Issuing Entity, any other Obligor on those Notes, the Depositor or an affiliate of any of them; |
| • | reduce the percentage of the aggregate principal amount of outstanding Notes required to direct the Indenture Trustee to sell or liquidate the Receivables if the proceeds of that sale would be insufficient to pay the principal balance of and accrued but unpaid interest on the outstanding Notes; |
| • | reduce the percentage of the aggregate principal amount of Notes required to amend the sections of the Indenture that specify the applicable percentages of aggregate principal amount of the Notes necessary to amend the Indenture; |
| • | modify any provisions of the Indenture in such manner as to affect the calculation of the amount of any payment of interest or principal due on any Note on any Payment Date (including the calculation of any individual component of such calculation) or to affect the rights of the holders of Notes to the benefit of any provisions for the mandatory redemption of the Notes; or |
| • | permit the creation of any lien ranking prior to or on a parity with the lien of the Indenture with respect to any of the collateral for that Note or, except as otherwise permitted or contemplated in the Indenture, terminate the lien of the Indenture on any of the collateral or deprive the holder of any Note of the security afforded by the lien of the Indenture. |
The Issuing Entity and the Indenture Trustee may also enter into a supplemental indenture, without the consent of Noteholders, and with written notice to each Rating Agency, for any of the following purposes:
| • | to correct or amplify the description of any property at any time subject to the lien of the Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the lien of the Indenture, or to subject additional property to the lien of the Indenture; |
| • | to evidence the succession, in compliance with the applicable provisions of the Indenture, of another Person to the Issuing Entity, and the assumption by any such successor of the covenants of the Issuing Entity contained in the Indenture and in the Notes; |
| • | to add to the covenants of the Issuing Entity for the benefit of the Noteholders, or to surrender any right or power under the Indenture conferred upon the Issuing Entity; |
| • | to convey, transfer, assign, mortgage or pledge any property to or with the Indenture Trustee; |
| • | to cure any ambiguity, correct or supplement any provision in the Indenture or in any supplemental indenture that may be inconsistent with any other provision in the Indenture or in any supplemental indenture or to add any other provisions with respect to matters or questions arising under the Indenture or in any supplemental indenture; provided that such other provisions will not adversely affect the interests of any Noteholder whose consent has not been obtained in respect thereof, as evidenced by an officer’s certificate; |
| • | to evidence and provide for the acceptance of the appointment under the Indenture by a successor trustee with respect to the Notes or to add to or change any of the provisions of the Indenture as are necessary to facilitate the administration of the trusts under the Indenture by more than one trustee, pursuant to the requirements set forth therein; or |
| • | to modify, eliminate or add to the provisions of the Indenture to the extent necessary to effect the qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), or under any similar federal statute hereafter enacted and to add to the Indenture such other provisions as may be expressly required by the Trust Indenture Act. |
The Issuing Entity and the Indenture Trustee may also enter into a supplemental indenture, without obtaining the consent of the Noteholders but with prior notice made available to the Rating Agencies, for the purpose of, among other things, adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or for the purpose of modifying in any manner the rights of the Noteholders; provided that such action will not, as evidenced by an opinion of counsel, adversely affect in any material respect the interests of any Noteholders whose consent has not been obtained in respect thereof; provided, further, that such action will be deemed not to adversely affect in any material respect the interests of any Noteholder and no opinion to that effect will be required if the Rating Agency Condition has been satisfied in respect thereof.
Notwithstanding anything under this heading to the contrary, the Indenture may be supplemented by the Issuing Entity without the consent of the Indenture Trustee, the Paying Agent, the Owner Trustee, any Noteholder or any other Person, and without satisfying any other provisions of the Indenture or any other transaction document related to supplements thereto, solely in connection with any SOFR Adjustment Conforming Changes or, following the determination of a Benchmark Replacement, any Benchmark Replacement Conforming Changes to be made by the Administrator; provided, that the Issuing Entity has delivered notice of such supplement to the Rating Agencies on or prior to the date such supplement is executed; provided, further, that any such SOFR Adjustment Conforming Changes or any such Benchmark Replacement Conforming Changes will not affect the Indenture Trustee’s, the Paying Agent’s or the Owner Trustee’s rights, indemnities or obligations without the consent of the Indenture Trustee, the Paying Agent or the Owner Trustee, respectively. For the avoidance of doubt, any SOFR Adjustment Conforming Changes or any Benchmark Replacement Conforming Changes in any supplement to the Indenture may be retroactive (including retroactive to the Benchmark Replacement Date) and the Indenture may be supplemented more than once in connection with any SOFR Adjustment Conforming Changes or any Benchmark Replacement Conforming Changes.
Notwithstanding the above, if any provision of the FDIC Rule is amended, or any interpretive guidance regarding the FDIC Rule is provided by the FDIC or its staff, and the Issuing Entity determines that an amendment to the FDIC Rule-related provisions of the Indenture is necessary or desirable, then the Issuing Entity and the Indenture Trustee will be authorized and entitled to amend the relevant provisions in accordance with such FDIC
Rule amendment or guidance, and no Noteholder or Certificateholder consent will be required in connection with any such amendment.
In entering into any supplemental indenture, the Indenture Trustee will be entitled to receive an opinion of counsel stating that the execution of such supplemental indenture is authorized or permitted by the Indenture, and that all conditions precedent thereto have been met.
Events of Default; Rights Upon Event of Default. “Events of Default” under the Indenture will consist of the occurrence and continuation of any of the following:
| • | a default for five days or more in the payment of any interest on any of the Notes when the same becomes due and payable; |
| • | a default in the payment of the principal of any Note on the related Final Scheduled Payment Date or on the redemption date; |
| • | a default in the observance or performance of any representation, warranty, covenant or agreement of the Issuing Entity (other than a covenant or agreement pursuant to the FDIC Rule Covenant) made in the Indenture or in any certificate or other writing delivered pursuant thereto or in connection therewith proving to have been incorrect in any material respect as of the time when the same has been made, and such default continues or is not cured, or the circumstance or condition in respect of which such misrepresentation or warranty was incorrect has not been eliminated or otherwise cured, for a period of 30 days after written notice is given to the Issuing Entity by the Indenture Trustee or to the Issuing Entity and the Indenture Trustee by the holders of at least 25% of the aggregate principal amount of the Notes then outstanding; or |
| • | particular events of bankruptcy, insolvency, receivership or liquidation of the Issuing Entity. |
Notwithstanding the foregoing, a delay in or failure of performance referred to under the first bullet point above for a period of 45 days or less, under the second bullet point above for a period of 60 days or less or under the third bullet point above for a period of 120 days or less, will not constitute an Event of Default if that failure or delay was caused by force majeure or other similar occurrence.
The amount of principal required to be paid to Noteholders under the Indenture will generally be limited to amounts available to be deposited in the Collection Account. Therefore, the failure to pay any principal of any class of Notes generally will not result in the occurrence of an Event of Default until the Final Scheduled Payment Date or redemption date for that class of Notes.
Noteholders holding at least a majority of the aggregate outstanding principal amount of the Notes, by written notice to the Issuing Entity and the Indenture Trustee, may waive any past default or Event of Default prior to the declaration of the acceleration of the maturity of the Notes, except a default in the payment of principal of any Note on the related Final Scheduled Payment Date or redemption date, or for failure to pay interest on any of the Notes, or in respect of any covenant or provision in the Indenture that cannot be modified or amended without unanimous consent of the Noteholders.
Following the occurrence of an Event of Default and acceleration of the maturity of the Notes, the Indenture Trustee is not required to sell the assets of the Issuing Entity, and the Indenture Trustee may sell the assets of the Issuing Entity only in accordance with the requirements specified in the Indenture. Under those circumstances, even if the maturity of the Notes has been accelerated, there may not be any funds to pay the principal owed on the Notes.
If an Event of Default should occur and be continuing, the Indenture Trustee may, or at the written direction of holders of at least a majority of the aggregate outstanding principal amount of the Notes, will, declare the Notes to be immediately due and payable; provided that the Notes will be automatically accelerated upon the occurrence of an Event of Default due to an event of bankruptcy, insolvency, receivership or liquidation of the Issuing Entity. Any such declaration may be rescinded by the holders of a majority of the aggregate outstanding principal amount of the Notes if:
| • | the Issuing Entity has paid or deposited with the Indenture Trustee a sum sufficient to pay: |
| ○ | all payments of principal of and interest on the Notes and all other amounts that would then be due on the Notes under the Indenture if the Event of Default giving rise to such acceleration had not occurred; and |
| ○ | all sums paid by the Indenture Trustee under the Indenture and the reasonable compensation, expenses and disbursements of the Indenture Trustee and its agents and counsel and the reasonable compensation, expenses and disbursements of the Owner Trustee and its agents and counsel; and |
| • | all Events of Default, other than the nonpayment of the principal of the Notes that has become due solely by such acceleration, have been cured or waived. |
Following an Event of Default, the Indenture Trustee may:
| • | institute proceedings to collect amounts due or foreclose on Issuing Entity property; |
| • | exercise remedies as a secured party; |
| • | if the maturity of the Notes has been accelerated, sell the assets of the Issuing Entity; or |
| • | elect to have the Issuing Entity maintain possession of those Receivables and continue to apply collections on those Receivables as provided in the Indenture. |
The Indenture Trustee is prohibited from selling the assets of the Issuing Entity following an Event of Default and an acceleration of the Notes (other than a default in the payment of any principal of any Note on its Final Scheduled Payment Date or redemption date or a default for five days or more in the payment of any interest on any Notes then outstanding), unless:
| • | 100% of the Noteholders consent to the sale; |
| • | the proceeds of the sale are sufficient to pay in full the principal of and the accrued interest on all outstanding Notes at the date of the sale; or |
| • | in the case of an Event of Default resulting from an insolvency or bankruptcy with respect to the Issuing Entity, the Indenture Trustee determines that the Issuing Entity property would not be sufficient on an ongoing basis to make all payments of principal and interest on the outstanding Notes as those payments would have become due if the Notes had not been accelerated, and the Indenture Trustee obtains the consent of the holders of at least 66⅔% of the aggregate principal amount of the Notes outstanding. |
After the occurrence of a default in the payment of any principal of any Note on its Final Scheduled Payment Date or redemption date or a default for five days or more in the payment of any interest on any Notes then outstanding, the Indenture Trustee may, but will not be obligated to, sell the assets of the Issuing Entity without the consent of any Noteholders.
Following an Event of Default and declaration of the acceleration of the maturity of the Notes, payments on the Notes will be made as described under “Description of the Notes—Indenture Events of Default; Change in Priority of Payments Following Acceleration” in this prospectus.
If an Event of Default occurs and is continuing and the Indenture Trustee has actual knowledge of such Event of Default, the Indenture Trustee will mail to each Noteholder notice of the Event of Default within 30 days after it occurs. Except in the case of an Event of Default in payment of principal of or interest on any Note (including payments pursuant to the mandatory redemption provisions of such Note), the Indenture Trustee may withhold the notice to Noteholders if and so long as a committee of its officers in good faith determines that withholding the notice is in the best interests of Noteholders.
Subject to the provisions of the Indenture relating to the duties of the Indenture Trustee, if an Event of Default occurs and is continuing, the Indenture Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any Noteholders or Verified Beneficial Owners (other than requests, demands or directions required to be honored by the Indenture Trustee in connection with the use by
Noteholders and Verified Beneficial Owners of the asset representations review, dispute resolution and investor communications provisions described herein), if the Indenture Trustee reasonably believes it will not be adequately indemnified against the costs, expenses and liabilities that might be incurred by it in complying with the request. Subject to the provisions for indemnification and other limitations contained in the Indenture, the holders of a majority of the aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustee, and the holders of at least a majority of the aggregate principal amount of the Notes then outstanding may, in some cases, prior to a declaration of the acceleration of the maturity of the Notes waive a default, except a default in the deposit of collections in respect of the Receivables or other required amounts, any required payment from amounts held in any Account in respect of amounts due on the Notes, payment of principal of, or interest or amounts due or a default in respect of a covenant or provision of the Indenture which cannot be modified without the consent of all the holders of the outstanding Notes.
No Noteholder will have the right to institute any proceeding with respect to the Indenture, unless:
| • | the Noteholder previously has given to the Indenture Trustee written notice of a continuing Event of Default; |
| • | Noteholders holding not less than 25% of the aggregate principal amount of the Notes then outstanding have requested in writing that the Indenture Trustee institute the proceeding in its own name as Indenture Trustee; |
| • | the Noteholder has offered the Indenture Trustee reasonable indemnity; |
| • | the Indenture Trustee has for 60 days failed to institute that proceeding; and |
| • | no direction inconsistent with such written request has been given to the Indenture Trustee during such 60-day period by the holders of a majority of the aggregate principal amount of the Notes then outstanding. |
In addition, the Indenture Trustee and the Noteholders, by accepting their Notes, will covenant that they will not at any time institute against the Issuing Entity any bankruptcy, reorganization or other proceeding under any federal or state bankruptcy or similar law.
Neither the Indenture Trustee nor the Owner Trustee in its individual capacity, nor any Certificateholder nor any of their respective owners, beneficiaries, agents, officers, directors, employees, successors or assigns will, in the absence of an express agreement to the contrary, be personally liable for the payment of the principal of or interest on the Notes or for the agreements of the Issuing Entity contained in the Indenture.
Particular Covenants. The Indenture will provide that the Issuing Entity may not consolidate with or merge into any other entity, unless, among other things,
| • | the entity formed by or surviving the consolidation or merger is organized under the laws of the United States or any state; |
| • | that entity expressly assumes the Issuing Entity’s obligation to make due and punctual payments upon the Notes and the performance or observance of every agreement and covenant of the Issuing Entity under the Indenture; |
| • | no Event of Default has occurred and is continuing immediately after the merger or consolidation; |
| • | the Rating Agency Condition has been satisfied in respect thereof; |
| • | the Issuing Entity has received an opinion of counsel to the effect that the consolidation or merger would have no material adverse tax consequence to the Issuing Entity or to any Noteholder or Certificateholder, |
| • | the parties take any action necessary to maintain the lien and security interest created by the Indenture; and |
| • | the Indenture Trustee has received an officer’s certificate and an opinion of counsel stating that the consolidation or merger comply with the terms of the Indenture and all conditions precedent provided in the Indenture have been complied with. |
The Issuing Entity will not, so long as any Notes are outstanding, among other things,
| • | except as expressly permitted by the Indenture, the applicable Transfer and Servicing Agreements or other specified documents, sell, transfer, exchange or otherwise dispose of any of the assets of the Issuing Entity unless directed to do so by the Indenture Trustee; |
| • | claim any credit on or make any deduction from the principal of and interest payable on the Notes (other than amounts withheld under the Internal Revenue Code of 1986, as amended (the “Code”), or applicable state law) or assert any claim against any present or former holder of those Notes because of the payment of taxes levied or assessed upon the Issuing Entity; |
| • | except as expressly permitted by the Transfer and Servicing Agreements, dissolve or liquidate in whole or in part; |
| • | permit the validity or effectiveness of the Indenture to be impaired or permit any person to be released from any covenants or obligations with respect to the Notes under the Indenture except as may be expressly permitted by the Indenture; |
| • | permit any lien or other encumbrance to be created on or extend to or otherwise arise upon or burden the assets of the Issuing Entity or any part of the Issuing Entity, or any interest in the assets of the Issuing Entity or the proceeds of those assets; |
| • | permit the lien of the Indenture not to constitute a valid first priority (other than with respect to any tax, mechanics’ or other lien) security interest in the assets of the Issuing Entity; or |
| • | assume or incur any indebtedness other than the Notes or as expressly permitted by the Transfer and Servicing Agreements. |
The Issuing Entity may not engage in any activity other than as specified in this prospectus and the Transfer and Servicing Agreements.
Annual Compliance Statement. The Issuing Entity will be required to file annually with the Indenture Trustee a written statement as to the fulfillment of its obligations under the Indenture.
Satisfaction and Discharge of Indenture. The Indenture will be discharged with respect to the collateral securing the Notes upon the delivery to the Indenture Trustee for cancellation of all of the Notes or, with some limitations (including receipt of certain opinions with respect to tax matters) upon deposit with the Indenture Trustee of funds sufficient for the payment in full of all of the Notes, including interest thereon, and any unpaid fees, expenses, indemnification amounts and other payments due and owing to the Servicer, the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer.
The transaction contemplated by this prospectus is intended to comply with the FDIC Rule. The FDIC Rule imposes a number of requirements on the Issuing Entity, the Depositor, the Sponsor and the Servicer, and each such party will agree to facilitate compliance with these requirements by complying with its obligations in the FDIC Rule Covenant. The Indenture will contain an FDIC Rule Covenant, which will require, among other things, that:
| • | payment of principal and interest on the securitization obligations must be primarily based on the performance of the financial assets transferred to the Issuing Entity and will not be contingent on market or credit events that are independent of such financial assets (except for interest rate or currency mismatches between the financial assets and the securitization obligations); |
| • | information describing the financial assets, obligations, capital structure, compensation of the relevant parties and historical performance data must be made available to the investors, including, without limitation (i) information about the obligations and securitized financial assets in compliance with subpart 229.1100-Asset Backed Securities (Regulation AB), 17 C.F.R. §§ 229.1100-229.1125, as amended from time to time (“ Regulation AB”), (ii) information about the transaction structure, performance of the obligations, priority of payments, subordination features, representations and warranties regarding the financial assets, remedies (and applicable cure periods), liquidity facilities, credit enhancement, waterfall |
triggers and policies governing delinquencies, servicer advances, loss mitigation and write-offs, (iii) information with respect to the credit performance of the obligations and financial assets on an ongoing basis, and (iv) the nature and amount of compensation paid to the originators, sponsor, rating agency or third-party advisor, broker and servicer and changes to such amounts paid, and the extent to which the risk of loss is retained by any of them;
| • | the obligations in the securitization cannot be predominantly sold to an affiliate (other than a wholly-owned subsidiary consolidated for accounting and capital purposes with BMW Bank or to an affiliated broker-dealer who purchased such obligations with a view to promptly resell such obligations to persons or entities that are neither affiliates (other than a wholly-owned subsidiary consolidated for accounting and capital purposes with BMW Bank) nor insiders of BMW Bank in the ordinary course of such broker-dealers business) or insider of BMW Bank; and |
| • | BMW Bank must identify in its financial asset databases and otherwise account for the financial assets transferred as specified by the FDIC Rule. |
See “Certain Legal Aspects of the Receivables—FDIC Rule” in this prospectus.
In addition, one of the requirements of the FDIC Rule is that the agreements for the related transaction require the retention of an economic interest in the credit risk of the securitized assets in accordance with Regulation RR of the Exchange Act. The risk retention regulations in Regulation RR of the Exchange Act require the Sponsor, either directly or through its majority-owned affiliates, to retain an economic interest in the credit risk of the Receivables. The Sponsor intends to satisfy its obligation to retain credit risk by causing the Depositor and BMW Bank, its wholly-owned subsidiaries, to retain the Certificates. In the Sale and Servicing Agreement, the Sponsor will agree (x) to cause the Depositor and BMW Bank to retain the Certificates on the Closing Date and (y) to comply, and to cause the Depositor, BMW Bank and each affiliate of the Sponsor to comply, with the provisions of Regulation RR applicable to it and the retained Certificates.
Each Noteholder and each Certificateholder, by accepting a Note or Certificate, will acknowledge and agree that the purpose of the FDIC Rule Covenant is to facilitate compliance with the FDIC Rule by BMW Bank, BMW FS, the Depositor and the Issuing Entity, and that the provisions set forth in the FDIC Rule Covenant will have the effect and meanings that are appropriate under the FDIC Rule as such meanings change over time on the basis of evolving interpretations of the FDIC Rule.
The Owner Trustee and the Indenture Trustee
Wilmington Trust, National Association will be the Owner Trustee under the Trust Agreement. U.S. Bank Trust Company, National Association will be the Indenture Trustee under the Indenture. The Owner Trustee, the Indenture Trustee and any of their respective affiliates may hold Notes in their own names or as pledgees.
For the purpose of meeting the legal requirements of some jurisdictions, the Administrator and the Owner Trustee or the Indenture Trustee (or in some instances, the Owner Trustee acting alone), will have the power to appoint co-trustees or separate trustees of all or any part of the assets of the Issuing Entity. In the event of an appointment of co-trustees or separate trustees, all rights, powers, duties and obligations conferred or imposed upon the Owner Trustee or the Indenture Trustee will be conferred or imposed upon the Owner Trustee or the Indenture Trustee and each of their respective separate trustees or co-trustees jointly, or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will be incompetent or unqualified to perform specified acts, singly upon that separate trustee or co-trustee who will exercise and perform those rights, powers, duties and obligations solely at the direction of the Owner Trustee or the Indenture Trustee.
The Owner Trustee may resign at any time by so notifying the Administrator and the Indenture Trustee. The Administrator may remove the Owner Trustee if the Owner Trustee ceases to be eligible under the Trust Agreement, is adjudged bankrupt or insolvent, a receiver or other public officer takes charge of the Owner Trustee or its property, or the Owner Trustee otherwise becomes incapable of acting. In those circumstances, the Administrator will be obligated to appoint a successor owner trustee. No resignation or removal of the Owner Trustee and no appointment of a successor owner trustee will become effective until the acceptance of appointment by the successor owner trustee pursuant to the Trust Agreement and payment of all fees owed to the outgoing Owner Trustee. The Administrator shall provide notice of such resignation or removal of the Owner Trustee to each
NRSRO hired by the sponsor to rate the Notes (a “Rating Agency”). Any costs associated with the resignation or removal of the Owner Trustee will be paid by the Servicer, in its capacity as Administrator.
The Indenture Trustee may resign at any time with thirty days’ prior written notice to the Issuing Entity, the Servicer, the Administrator and each Rating Agency. The holders of a majority of
the aggregate outstanding principal amount of the Notes may remove the Indenture Trustee if the Indenture Trustee fails to be eligible as Indenture Trustee under the eligibility requirements set forth in the
Indenture, the Indenture Trustee is adjudged bankrupt or insolvent, a receiver or other public officer takes charge of the Indenture Trustee or its property, the Indenture Trustee otherwise becomes incapable of acting. In those circumstances, the Issuing Entity will be obligated to appoint a successor Indenture Trustee. No resignation or removal of the Indenture Trustee and no appointment of a successor Indenture Trustee will become effective until the acceptance of appointment by the successor Indenture Trustee pursuant to the Indenture and payment of all fees owed to the outgoing Indenture Trustee. Any costs associated with the resignation or removal of the Indenture Trustee will be paid by the Servicer, in its capacity as Administrator.
Duties of the Owner Trustee and the Indenture Trustee
The Owner Trustee will make no representations as to the validity or sufficiency of the Trust Agreement, the Notes or the Certificates (other than the authentication of the Certificates) or of any Receivables or related documents and is not accountable for the use or application by the Depositor or the Servicer of any funds paid to the Depositor or the Servicer in respect of the Notes, the Certificates or the Receivables, or the investment of any monies by the Servicer before those monies are deposited into the Collection Account. The Owner Trustee will not independently verify the Receivables. The Owner Trustee is required to perform only those duties specifically required of it under the Trust Agreement. In addition to making distributions to the Certificateholders, those duties generally are limited to the receipt of the various certificates, reports or other instruments required to be furnished to the Owner Trustee under the Trust Agreement. The Administrator will manage and administer the Issuing Entity
.
In addition, the Owner Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Trust Agreement or to make any investigation of matters arising under the Trust Agreement or to institute, conduct or defend any litigation under the Trust Agreement or in relation thereto at the request, order or direction of the Certificateholders, unless the Certificateholders have offered to the Owner Trustee security or indemnity reasonably satisfactory to the Owner Trustee against the costs, expenses and liabilities that may be incurred by the Owner Trustee in connection with the exercise of those rights.
The Indenture Trustee will make no representations as to the validity or sufficiency of the Indenture, the Notes (other than authentication of the Notes) or of any Receivables or related documents, and is not accountable for the use or application by the Issuing Entity of any proceeds from the Notes, or the investment of any monies by the Servicer before those monies are deposited into the Collection Account. The Indenture Trustee will not independently verify the Receivables. If no Event of Default has occurred, the Indenture Trustee is required to perform only those duties specifically required of it under the Indenture. In addition to making distributions to the Noteholders, those duties generally are limited to the receipt of the various certificates, reports or other instruments required to be furnished to the Indenture Trustee under the Indenture, in which case it will only be required to examine them to determine whether they conform to the requirements of the Indenture. The Indenture provides that the Indenture Trustee will not be deemed to have knowledge of any event unless a responsible officer of the Indenture Trustee has actual knowledge of the event or has received written notice of the event.
If required by the Trust Indenture Act, the Indenture Trustee will mail each year to all Noteholders a brief report relating to its eligibility and qualification to continue as Indenture Trustee under the Indenture, any amounts advanced by it under the Indenture, the amount, interest rate and maturity date of specified indebtedness owing by the Issuing Entity to the Indenture Trustee in its individual capacity, the property and funds physically held by the Indenture Trustee and any action taken by it that materially affects the Notes and that has not been previously reported
.
The table below sets forth the fees and expenses payable by the Issuing Entity on each Payment Date.
| Party | Amount |
Servicer(1) | The product of 1/12 and 1.00% of the Pool Balance with respect to such Payment Date; provided that, in the case of the first Payment Date, the Servicing Fee will be an amount equal to the sum of (a) the product of 1/12 and 1.00% of the aggregate outstanding principal balance of the Receivables as of the Cutoff Date and (b) the product of 1/12 and 1.00% of the aggregate outstanding principal balance of the Receivables (exclusive of all Liquidated Receivables and, if applicable, all Receivables that are the subject of damages paid by the FDIC to the Issuing Entity) as of the close of business on January 31, 2025. |
Indenture Trustee(2) | An annual fee equal to $3,000 per annum, payable on the Payment Date occurring in March of each year, commencing in March 2026. |
Owner Trustee(2) | An annual fee equal to $3,000 per annum, payable on the Payment Date occurring in March of each year, commencing in March 2026. |
ARR Service Fee(2) | An annual fee equal to $5,000 per annum, payable on the Payment Date occurring in March of each year, commencing in March 2026. |
ARR Review Fee(2) | $175 per Receivable reviewed, in the event of an Asset Representations Review. |
________________
| (1) | To be paid before any amounts are distributed to Noteholders. A portion of the Servicing Fee will be paid to the Administrator as the administrator fee. |
| (2) | Fees, expenses, indemnification amounts and other payments due and owing to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer are to be paid before any amounts are distributed to Noteholders, subject to an aggregate cap equal to $250,000 in any calendar year, prior to the acceleration of the Notes. Amounts due and owing to any such party in excess of such aggregate cap will be payable after distributions of principal and interest to the Noteholders on any Payment Date prior to the acceleration of the Notes. After the acceleration of the Notes, all unpaid fees, expenses, indemnification amounts and other payments due and owing to the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer are to be paid before any amounts are distributed to Noteholders, without application of any cap on such amounts. |
Statements to Trustees and the Issuing Entity
On or prior to each Determination Date, the Servicer will provide to the Indenture Trustee a statement setting forth the information that is required to be provided in the periodic reports provided to Noteholders and Certificateholders as described under “— Statements to Noteholders and Certificateholders” below. The Indenture Trustee will provide that statement to the Owner Trustee on or prior to the related Payment Date.
Statements to Noteholders and Certificateholders
As described under “– Statements to Trustees and the Issuing Entity”, the Servicer will prepare and provide to the Indenture Trustee a statement to be delivered to the Noteholders and the Owner Trustee on each Payment Date. The Indenture Trustee will provide the statement to Noteholders, and the Owner Trustee will provide the statement to Certificateholders, on that Payment Date. Each such statement will include (to the extent applicable) the following information as to the Notes and the Certificates with respect to that Payment Date:
| • | the amount of the Collections allocable to the principal balance of each class of Notes, expressed in the aggregate and as a dollar amount per $1,000 of the original principal balance of each class of Notes; |
| • | the amount of the collections allocable to interest on each class of Notes, expressed in the aggregate and as a dollar amount per $1,000 of the original principal balance of each class of Notes; |
| • | the amount of the Yield Supplement Overcollateralization Amount, if any; |
| • | the number of and the aggregate principal balance of the Receivables as of the close of business on the first day and last day of the related Collection Period after giving effect to payments allocated to principal reported under the first bullet above; |
| • | the amount of the Servicing Fee and the Supplemental Servicing Fee paid to the Servicer with respect to the related Collection Period; |
| • | the Benchmark and the interest rate for the related interest accrual period with respect to the Class A-2b Notes; |
| • | the interest and principal shortfall, if any, in each case as applicable to each class of Notes, expressed in the aggregate and as a dollar amount per $1,000 of the original principal balance of each class of Notes; |
| • | the aggregate principal balance of the Notes outstanding and the Note Pool Factor for each class of those Notes, each before and after giving effect to all payments reported under the first bullet above on that date; |
| • | the amount of non-recoverable Advances on that Payment Date; |
| • | the balance of the Reserve Account on that date, before and after giving effect to changes to the Reserve Account on that date and the amount of those changes; |
| • | amounts due and payable to each of the Indenture Trustee, the Owner Trustee and the Asset Representations Reviewer, before and after giving effect to distributions on such Payment Date; |
| • | the amount available under the Servicer’s letter of credit, surety bond or insurance policy, as provided in the Sale and Servicing Agreement, if any, and the amount as a percentage of the aggregate principal balance of the Receivables as of the last day of that Collection Period; |
| • | the applicable Record Date, Determination Date, interest accrual period and Payment Date for each class of Notes; |
| • | the pool characteristics as of the last day of the Collection Period, including, but not limited to, the weighted average Interest Rate and weighted average remaining term to maturity; |
| • | delinquency and loss information for the Collection Period; |
| • | a description of any material modifications, extensions or waivers to Receivables terms, fees, penalties or payments during the related Collection Period, or that have cumulatively become material over time; |
| • | a description of any material breaches of representations and warranties made with respect to the Receivables, or covenants, contained in the Transfer and Servicing Agreements; |
| • | whether a Delinquency Trigger has occurred as of the end of the related Collection Period; |
| • | notice of the making of any SOFR Adjustment Conforming Changes; and |
| • | notice of the occurrence of a Benchmark Transition Event and its related Benchmark Replacement Date, the determination of a Benchmark Replacement, the Unadjusted Benchmark Replacement, the Benchmark Replacement Adjustment and the making of any Benchmark Replacement Conforming Changes. |
The statement to Noteholders related to the first Collection Period will also include the fair value of the Certificates as a dollar amount and the fair value of the Certificates as a percentage of the aggregate fair value of the Notes and the Certificates. Copies of the statements may be obtained by the Noteholders or Certificateholders by delivering a request in writing addressed to the Indenture Trustee or Owner Trustee, as applicable, at its respective address set forth in this prospectus.
Within the prescribed period of time for tax reporting purposes after the end of each calendar year during the term of the Issuing Entity, the Indenture Trustee or Owner Trustee, upon written request, will mail to each person who at any time during that calendar year has been a Noteholder or Certificateholder, as applicable, and received any payment a statement containing information for the purposes of that holder’s preparation of U.S. federal income tax returns. We refer you to “Material U.S. Federal Income Tax Considerations” in this prospectus.
The Servicer, on behalf of the Issuing Entity, will also prepare an asset-level data file with respect to the Receivables for each calendar month and file it with the SEC on Form ABS-EE at or before the time of filing the related Form 10-D. The exhibits to each Form ABS-EE filed by or on behalf of the Issuing Entity after the filing of this prospectus will be incorporated by reference into the related Form 10-D. Each asset-level data file will contain detailed information concerning each Receivable, including data regarding its origination characteristics, loan terms, characteristics of the related financed vehicle and Obligor, payment activity, servicing activity and status. Certain asset-level data, such as data related to collections and losses on the Receivables and repossessions of the related financed vehicles, may not match the aggregate data provided on the monthly statements to Securityholders as a result of differences between the methods of calculating such data for the purpose of presenting the monthly statements to Securityholders and for the purpose of presenting asset-level data in Form ABS-EE.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that the Servicer will be required to furnish to the Issuing Entity and the Administrator an annual servicer report detailing the Servicer’s assessment of its compliance with the servicing criteria set forth in the relevant SEC regulations for asset-backed securities transactions for the twelve-month period ending the end of each fiscal year of the Issuing Entity (or in the case of the first report, from the Closing Date, which may be shorter than twelve months). The Servicer’s assessment report will also identify any material instance of noncompliance.
The Sale and Servicing Agreement will provide that a firm of independent public accountants will furnish to the Issuing Entity, the Administrator and Indenture Trustee annually a statement as to compliance in all material respects by the Servicer during the preceding twelve months (or, in the case of the first statement, from the Closing Date, which may be shorter than twelve months) with specified standards relating to the servicing of the Receivables.
The Sale and Servicing Agreement will also provide for delivery to the Issuing Entity and Indenture Trustee, substantially simultaneously with the delivery of the accountants’ statement referred to above, of a certificate signed by a responsible officer of the Servicer stating that to the best of such officer’s knowledge, based on a review of the Servicer’s activities, the Servicer has fulfilled its obligations under the Sale and Servicing Agreement throughout the preceding twelve months (or, in the case of the first certificate, from the Closing Date, which may be shorter than twelve months) or, if there has been a default in the fulfillment of any obligation, describing each default known to such officer and the nature and status thereof. The Servicer has agreed to give the Indenture Trustee and Owner Trustee notice of specified Servicer Defaults under the Sale and Servicing Agreement.
Copies of the statements and certificates may be obtained by Noteholders or Certificateholders by a request in writing addressed to the Indenture Trustee or Owner Trustee, as applicable.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that BMW FS may not resign from its obligations and duties as Servicer under the Sale and Servicing Agreement, except upon BMW FS’ determination that its performance of those duties is no longer permissible under applicable law. No resignation will become effective until the Indenture Trustee or a successor servicer has assumed BMW FS’ 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 or agents will be under any liability to the Issuing Entity or the Noteholders or Certificateholders for taking any action or for refraining from taking any action pursuant to the Sale and Servicing Agreement or for errors in judgment; except that neither the Servicer nor any person will be protected against any liability that would otherwise be imposed by reason of
a breach of the agreement or willful misfeasance, bad faith or negligence in the performance of the Servicer’s duties under that document or by reason of reckless disregard of its obligations and duties under that document. In addition, the Sale and Servicing Agreement will provide that the Servicer is not obligated to appear in, prosecute or defend any legal action that is not incidental to the Servicer’s servicing responsibilities under the Sale and Servicing Agreement. The Servicer may, however, undertake any reasonable action that it may deem necessary or desirable in respect of the Sale and Servicing Agreement with respect to the rights and duties of the parties to the Sale and Servicing Agreement and the interests of the
Noteholders and Certificateholders thereunder. In that event, the legal expenses and costs of that action and any liability resulting from that course of action will be expenses, costs and liabilities of the Servicer, and the Servicer will not be entitled to be reimbursed for those costs and liabilities.
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 that acquires by conveyance, transfer or lease substantially all of the assets of the servicer, or any entity succeeding to the business of the Servicer will be the successor of the Servicer under the Sale and Servicing Agreement.
In addition, the Servicer will indemnify the Issuing Entity, the Depositor, the Noteholders, the Certificateholders, the Owner Trustee, the Indenture Trustee and any of the officers, directors, employees or agents of the Issuing Entity, the Depositor, the Noteholders, the Certificateholders, the Owner Trustee or the Indenture Trustee for any loss, claim, damage or expense (including attorney’s fees and expenses incurred in enforcing the Servicer’s obligations) that may be incurred by it as a result of any act or omission by the Servicer in connection with the performance of its duties under the Sale and Servicing Agreement but only to the extent such liability arose out of the Servicer’s negligence, willful misfeasance, bad faith or recklessness.
A “Servicer Default” under the Sale and Servicing Agreement will consist of the following:
| • | any failure by the Servicer to deposit in or credit to the Collection Account any required payment and that failure continues unremedied for five Business Days after discovery of that failure by the Servicer or after receipt of written notice by the Servicer; |
| • | failure on the part of the Servicer duly to observe or perform, in any material respect, any covenants or agreements of the Servicer set forth in the Sale and Servicing Agreement (other than a covenant or agreement pursuant to the FDIC Rule Covenant, if applicable), which failure (i) materially and adversely affects the rights of the Noteholders and (ii) continues unremedied for a period of 60 days after discovery of such failure by the Servicer or after the date on which written notice of such failure requiring the same to be remedied has been given to the Servicer by any of the Owner Trustee, the Indenture Trustee or Noteholders evidencing not less than 50% of the aggregate principal amount of the Notes then outstanding, voting together as a single class; or |
| • | the occurrence of an Insolvency Event with respect to the Servicer. |
Notwithstanding the foregoing, a delay in or failure of performance referred to under the first bullet for a period of 45 days or under the second bullet for a period of 90 days, will not constitute a Servicer Default if that failure or delay was caused by force majeure or other similar occurrence.
“Insolvency Event” means, with respect to a specified person:
| • | the filing of a decree or order for relief by a court having jurisdiction in the premises in respect of such person or any substantial part of its property in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such person or for any substantial part of its property, or ordering the winding-up or liquidation of such person’s affairs, and such decree or order remains unstayed and in effect for a period of 60 consecutive days; or |
| • | the commencement by such person of a voluntary case under any applicable federal or State bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such person to the entry of an order for relief in an involuntary case under any such law, or the consent by such person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such person or for any substantial part of its property, or the making by such person of any general assignment for the benefit of creditors, or the failure by such person generally to pay its debts as such debts become due, or the taking of action by such person in furtherance of any of the foregoing. |
Rights Upon Servicer Default
So long as a Servicer Default remains unremedied, the Indenture Trustee may, or at the written direction of holders of Notes evidencing at least 50% of the aggregate principal amount of the Notes then outstanding will, terminate all the rights and obligations of the Servicer under the Sale and Servicing Agreement, and at that time or following the resignation of the Servicer, the Indenture Trustee or a successor servicer appointed by the Indenture Trustee or the holders of at least 50% of the aggregate principal amount of the Notes then outstanding will succeed to all the responsibilities, duties and liabilities of the Servicer under the Sale and Servicing Agreement and will be entitled to similar compensation arrangements.
If the Indenture Trustee is unwilling or unable to so act, it, the Issuing Entity or the holders of at least 50% of the aggregate principal amount of the Notes then outstanding may petition a court of competent jurisdiction for the appointment of, a successor servicer with a net worth of at least $50,000,000 and whose regular business includes the servicing of motor vehicle receivables. The Indenture Trustee, or any person appointed as successor servicer, will be the successor in all respects to the predecessor servicer under the Sale and Servicing Agreement and all references in the Sale and Servicing Agreement to the Servicer will apply to that successor servicer. The predecessor servicer will cooperate with the Indenture Trustee and any successor servicer in effecting the termination of the predecessor servicer’s responsibilities and rights under the Sale and Servicing Agreement, including providing the Indenture Trustee and successor servicer, as applicable, all documents and records necessary to enable the successor servicer to perform the servicing functions under the Sale and Servicing Agreement. All reasonable costs and expenses incurred in connection with the transfer of servicing duties to a successor servicer will be payable by the predecessor servicer or, if the predecessor servicer is the Indenture Trustee acting as servicer, will be an expense reimbursable to the Indenture Trustee by the Issuing Entity. Notwithstanding termination, the Servicer will be entitled to payment of specified amounts payable to it prior to the termination for services it rendered prior to the termination. Upon payment in full of the principal of and interest on the Notes, the Certificateholders will succeed to the rights of the Noteholders with respect to removal of the Servicer.
However, if the servicer becomes a debtor in bankruptcy or, if not eligible to be a debtor in bankruptcy, becomes the subject of insolvency proceedings, and no Servicer Default other than the commencement of a bankruptcy or insolvency proceedings has occurred, that Indenture Trustee or those Noteholders may not be able to effect a transfer of servicing as described above.
The holders of not less than a majority of the aggregate principal amount of the Notes then outstanding (but excluding for purposes of calculation and action all Notes held by the Depositor, the Servicer or any of their affiliates) may, on behalf of all Noteholders and Certificateholders, waive any default by the Servicer in the performance of its obligations under the Sale and Servicing Agreement and its consequences, except a Servicer Default in making any required deposits to the Collection Account in accordance with the Sale and Servicing Agreement. No waiver will impair those Noteholders’ rights with respect to subsequent defaults.
Each of the Transfer and Servicing Agreements (other than the Indenture and the Trust Agreement) may be amended by the parties to that Transfer and Servicing Agreement, without the consent of the Noteholders or Certificateholders, for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of that Transfer and Servicing Agreement or of modifying in any manner the rights of the Noteholders or Certificateholders thereunder; provided, that any such amendment will not, as evidenced by an opinion of counsel, adversely affect in any material respect the interests of any Noteholder or Certificateholder whose consent has not been obtained in respect thereof; provided, further, that such amendment will be deemed not to adversely affect in any material respect the interests of any Noteholder and no opinion to that effect will be required if the Rating Agency Condition has been satisfied in respect thereof.
Each of the Transfer and Servicing Agreements (other than the Indenture and the Trust Agreement) may also be amended from time to time by the parties to that Transfer and Servicing Agreement with the consent of the Noteholders evidencing at least a majority of the aggregate principal balance of the Notes outstanding and the Certificateholders evidencing a majority of the Certificate Percentage Interest, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of the Transfer and Servicing Agreements or of modifying in any manner the rights of the Noteholders or Certificateholders, including changing the manner in which the Reserve Account is funded or eliminating the Reserve Account, changing any other form of credit enhancement or changing the remittance schedule for depositing collections to the related accounts; provided, that, without the consent of the holders of all of the outstanding Notes and/or Certificates, as applicable, the amendment may not:
| • | increase or reduce in any manner the amount of, or accelerate or delay the timing of, collections of payments on or in respect of the Receivables or distributions that are required to be made for the benefit of the Noteholders and/or Certificateholders; or |
| • | reduce the aforesaid percentage of the Notes or Certificates that is required to consent to the amendment. |
If specified in the Transfer and Servicing Agreements, the Indenture Trustee or Owner Trustee may be entitled to receive an opinion of counsel stating that the execution of such amendment is authorized or permitted by the Transfer and Servicing Agreement and that all conditions precedent thereto have been met. The Owner Trustee’s consent is required to be obtained in connection with any amendment to the Sale and Servicing Agreement and Indenture, to the extent such amendment affects the rights, duties, indemnities, immunities or liabilities of the Owner Trustee.
Notwithstanding anything under this heading to the contrary, the Sale and Servicing Agreement may be amended by the Depositor and the Administrator without the consent of the Indenture Trustee, the Paying Agent, the Securities Intermediary, the Issuing Entity, the Owner Trustee, any Noteholder or any other person, and without satisfying any other provisions of the Sale and Servicing Agreement related to amendments thereto or in any other transaction document, solely in connection with any SOFR Adjustment Conforming Changes or, following the determination of a Benchmark Replacement, any Benchmark Replacement Conforming Changes to be made by the Administrator; provided, that the Issuing Entity has delivered notice of such amendment to the Rating Agencies on or prior to the date such amendment is executed; provided, further, that any such SOFR Adjustment Conforming Changes or any such Benchmark Replacement Conforming Changes will not affect the Indenture Trustee’s, the Paying Agent’s or the Owner Trustee’s rights, indemnities or obligations without the Indenture Trustee’s, the Paying Agent’s or the Owner Trustee’s consent, respectively. For the avoidance of doubt, any SOFR Adjustment Conforming Changes or any Benchmark Replacement Conforming Changes in any amendment to the Sale and Servicing Agreement may be retroactive (including retroactive to the Benchmark Replacement Date) and the Sale and Servicing Agreement may be amended more than once in connection with any SOFR Adjustment Conforming Changes or any Benchmark Replacement Conforming Changes.
For a description of the amendment provisions of the Indenture, see “—The Indenture; Modification of Indenture” above. For a description of the amendment provisions of the Trust Agreement, see “The Issuing Entity” above.
The Asset Representations Review Agreement may be amended from time to time by the parties thereto, without the consent of any holders of the Notes to (i) comply with any change in any applicable federal or state law, to cure any ambiguity, to correct or supplement any provisions in the Asset Representations Review Agreement or for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions in the Asset Representations Review Agreement; provided, however, that such action will not, as evidenced by an opinion of counsel delivered to the Issuing Entity and the Servicer, adversely affect in any material respect the interests of any Noteholder whose consent has not been obtained, or (ii) correct any manifest error in the terms of the Asset Representations Review Agreement as compared to the terms expressly set forth in this prospectus. The Asset Representations Review Agreement may also be amended by the parties thereto, with the written consent of the holders of a majority of the aggregate outstanding principal amount of the Notes for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Asset Representations Review Agreement or of modifying in any manner the rights of the Noteholders.
If any provision of the FDIC Rule is amended, or any interpretive guidance regarding the FDIC Rule is provided by the FDIC or its staff, as a result of which the Issuing Entity determines that an amendment to the FDIC Rule Covenant is necessary or desirable, then the Issuing Entity and the Indenture Trustee will be authorized to
amend the FDIC Rule Covenant in accordance with such FDIC Rule amendment or guidance without Noteholder or Certificateholder consent.
The Indenture Trustee may, and at the direction of Noteholders evidencing at least a majority of the aggregate principal amount of the Notes then outstanding shall,
by written notice to the Servicer terminate the rights and obligations of the Servicer under the Sale and Servicing Agreement upon the occurrence
and continuance of a Servicer Default
.
Under those circumstances, or if the Servicer resigns, authority and power shall, without further action, pass to and be vested in the Indenture Trustee or a successor Servicer appointed by the Indenture Trustee or holders of at least 50% of the aggregate principal amount of the Notes outstanding in accordance with the Sale and Servicing Agreement. The Indenture Trustee or other successor Servicer will succeed to all the responsibilities, duties and liabilities of the Servicer in its capacity under the Sale and Servicing Agreement and will be entitled to the Servicing Fee; provided, however that no successor Servicer will have any responsibilities with respect to making Advances. Upon the termination of the Servicer, the Servicer subject to that termination or removal will continue to perform its functions as Servicer until the date on which a successor servicer will have been appointed under the Sale and Servicing Agreement. None of the responsibilities, duties and liabilities of the Servicer will transfer to the Indenture Trustee as successor servicer until the Indenture Trustee has received all documentation and data necessary to effect the transfer of the Servicer’s obligations to the Indenture Trustee. If, however, the Servicer becomes a debtor in bankruptcy or, if not eligible to be a debtor in bankruptcy, becomes the subject of insolvency proceedings, and no Servicer Default other than the commencement of bankruptcy or insolvency proceedings has occurred, the Indenture Trustee or the Noteholders (or Certificateholders) may not be able to effect a transfer of servicing. In the event that the Indenture Trustee is
unwilling or unable to act, it, the Indenture Trustee or holders of at least 50% of the aggregate principal amount of the Notes outstanding
may petition a court of competent jurisdiction to appoint a successor servicer. Notwithstanding termination following a Servicer Default, the Servicer shall be entitled to payment of amounts payable to it, for services rendered prior to termination, including for any outstanding Advances made with respect to the Receivables. For additional information regarding the removal of the Servicer during the occurrence or continuation of a Servicer Default, see
“—Rights Upon Servicer Default”.The Servicer will promptly reimburse the Indenture Trustee, the Issuing Entity and the Administrator for all reasonable expenses incurred by the Indenture Trustee, the Issuing Entity or the Administrator as such are incurred in connection with the termination of the Servicer and the transfer of servicing of the Receivables.
The Trust Agreement will provide that the Owner Trustee does not have the power to commence a voluntary proceeding in bankruptcy with respect to the Issuing Entity without the unanimous prior approval of all Certificateholders (including the Depositor) and the delivery to the Owner Trustee by each Certificateholder (including the Depositor) of a certificate certifying that that Certificateholder reasonably believes that the Issuing Entity is insolvent.
Under the Administration Agreement, the Administrator will agree to perform all the duties of the Issuing Entity and the Owner Trustee under the Indenture, the note depository agreement,
the Sale and Servicing Agreement, the Trust Agreement and the other related agreements to which the Issuing Entity is a party. The Administrator will monitor the performance of the Issuing Entity and will advise the Owner Trustee when action is necessary to comply with the respective duties of the Issuing Entity and the Owner Trustee under the Indenture and the note depository agreement. The Administrator will prepare, or will cause the preparation by other appropriate persons of, and will execute all such documents, reports, notices, filings, instruments, certificates and opinions that it will be the duty of the Issuing Entity or the Owner Trustee to prepare, file or deliver.
In addition, the Administrator will take (or cause to be taken) all appropriate action that the Issuing Entity or the Owner Trustee is required to take pursuant to the Indenture including, among other things:
| • | the preparation of or obtaining of the documents and instruments required for authentication of the Notes and delivery of the same to the Indenture Trustee; |
| • | the notification of Noteholders and the Rating Agencies hired by the sponsor of the final principal payment on the Notes; |
| • | the preparation of definitive Notes in accordance with the instructions of the applicable clearing agency; |
| • | the preparation, obtaining or filing of the instruments, opinions and certificates and other documents required for the release of collateral; |
| • | the maintenance of an office for registration of transfer or exchange of the Notes; |
| • | the duty to cause newly appointed paying agents, if any, to deliver to the Indenture Trustee the instrument specified in the Indenture regarding funds held in trust; |
| • | the direction to the Indenture Trustee to deposit monies with paying agents, if any, other than the Indenture Trustee; |
| • | the obtaining and preservation of the Issuing Entity’s qualifications to do business in each state where such qualification is required; |
| • | the preparation of all supplements and amendments to the Indenture and all financing statements, continuation statements, instruments of further assurance and other instruments and the taking of such other action as are necessary or advisable to protect the Issuing Entity’s property; |
| • | the delivery of the opinion of counsel on the closing date and the annual delivery of opinions of counsel as to the Issuing Entity’s property, and the annual delivery of the officer’s certificate and certain other statements as to compliance with the Indenture; |
| • | the notification of the Indenture Trustee and the Rating Agencies each Servicer Default and, if such Servicer Default arises from the failure of the Servicer to perform any of its duties or obligations under the Sale and Servicing Agreement with respect to the Receivables, the taking of all reasonable steps available to remedy such failure; |
| • | the notification of the Indenture Trustee of the appointment of a successor servicer; |
| • | the notification of the Indenture Trustee and the Rating Agencies of each Event of Default under the Indenture; |
| • | the monitoring of the Issuing Entity’s obligations as to the satisfaction and discharge of the Indenture and the preparation of an officer’s certificate and the obtaining of the opinion of counsel and the independent certificate relating thereto; |
| • | the compliance with the Indenture with respect to the sale of the Issuing Entity property in a commercially reasonable manner if an Event of Default has occurred and is continuing; |
| • | the preparation of all required documents and delivery to Noteholders of notice of the removal of the Indenture Trustee and the appointment of a successor Indenture Trustee; |
| • | the opening of one or more accounts in the Indenture Trustee’s name and the taking of all other actions necessary with respect to investment and reinvestment of funds in the accounts; |
| • | the preparation of issuer requests, the obtaining of opinions of counsel and the certification to the Indenture Trustee with respect to the execution of supplemental indentures and the mailing to the Noteholders of notices with respect to such supplemental indentures; |
| • | the duty to notify Noteholders and to make such notice available to the Rating Agencies of redemption of the Notes or to cause the Indenture Trustee to provide such notification pursuant to an optional purchase by the Servicer; and |
| • | the preparation and delivery of all officer’s certificates, opinions of counsel and independent certificates with respect to any requests by the Issuing Entity to the Indenture Trustee to take any action under the Indenture. |
To the extent any notice must be delivered to the Rating Agencies by the Issuing Entity, the Owner Trustee or the Indenture Trustee, under the terms of the Administration Agreement, such notice will be delivered to the Administrator and the Administrator will deliver such notice to the Rating Agencies hired by the Sponsor.
As further described herein under “Description of the Notes—Interest”, the Administrator will also make certain determination with respect to the Class A-2b Notes, including the Benchmark for the Class A-2b Notes, any Benchmark Transition Event and Benchmark Replacement Date, any SOFR Adjustment Conforming Changes and any Benchmark Replacement Conforming Changes.
As compensation for the performance of the Administrator’s obligations under the Administration Agreement and as reimbursement for its expenses related thereto, the Administrator will be entitled to a monthly administration fee in an amount agreed to between the Administrator and the Servicer, which fee will be paid by the Servicer out of the Servicing Fee.
Removal or Resignation of the Administrator
The Administrator may resign at any time by notifying the Issuing Entity. The Issuing Entity may remove the Administrator if the Administrator has defaulted in the performance of its duties under the Administration Agreement and has not cured such default, if certain bankruptcy events occur, or the Administrator fails to deliver any information, report, certification, attestation or accountant’s letter when and as required under the Administration Agreement. No resignation or removal of the Administrator and no appointment of a successor Administrator shall become effective until the acceptance in writing of appointment by the successor Administrator and until the Owner Trustee and the Indenture Trustee consent to such successor Administrator pursuant to the Administration Agreement.
Notes Owned by the Depositor, the Servicer or Affiliates
Any Notes owned by the
Issuing Entity, the Depositor, the Sponsor, the Sellers, the Servicer (as long as BMW FS is the Servicer) or any of their affiliates will be entitled to equal and proportionate benefits under the Transfer and Servicing Agreements, except that such Notes while unpledged will not be considered to be outstanding for the purpose of determining whether the requisite percentage of Noteholders have given any request, demand, authorization, direction, notice, consent or other action under the Transfer and Servicing Agreements.
Lists of Noteholders and Certificateholders
One or more Certificateholders evidencing not less than 51% of the Certificate Percentage Interest may, by written request to the Owner Trustee, obtain access to the list of all Certificateholders maintained by the Owner Trustee for the purpose of communicating with other Certificateholders with respect to their rights under the Trust Agreement or under those certificates.
Three or more Noteholders of any class, each of whom has owned a Note for at least six months, may, by written request to the Indenture Trustee, obtain access to the list of all Noteholders maintained by the Indenture Trustee for the purpose of communicating with other Noteholders with respect to their rights under the Indenture or the Notes. The Indenture Trustee may elect not to afford the requesting Noteholders access to the list of those Noteholders if it agrees to mail the desired communication or proxy, on behalf and at the expense of the requesting Noteholders, to all Noteholders of record.
No Transfer and Servicing Agreement will provide for the holding of annual or other meetings of Noteholders or Certificateholders.
Certain Legal Aspects of the Receivables
The transfer of the Receivables to the Issuing Entity and Indenture Trustee, 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. The
Receivables will be either “tangible chattel paper” or “electronic chattel paper,” (collectively, “chattel paper”) each as defined in the UCC.
All Contracts evidencing the Receivables acquired from Centers and Dealers name BMW FS or BMW Bank as obligee or assignee and as the secured party. BMW FS’ possession, as servicer, of tangible contracts and its control of electronic contracts on behalf of BMW FS, BMW Bank and their respective assigns will perfect their interests in the Contracts against the related Center or Dealer, as applicable, and their creditors and also provide BMW FS, BMW Bank and their respective assigns, as applicable, priority over any prior secured creditors, such as an inventory financer, that has a security interest in the Contracts.
The servicer and the Depositor will take the necessary actions to perfect the rights of the Indenture Trustee in the Receivables, including the filing of financing statements pursuant to the UCC to perfect the transfers of the Receivables from BMW FS and, if applicable, BMW Bank to the Depositor, from the Depositor to the Issuing Entity and the pledge thereof by the Issuing Entity to the Indenture Trustee. If, however, another party purchases (including the taking of a security interest in) the Receivables for new value in the ordinary course of its business, without knowledge that its purchase violates the rights of the Issuing Entity, and takes possession of the Receivables in tangible form or obtains “control” of the authoritative copy of the contracts in electronic form, that purchaser would acquire an interest in the Receivables superior to the interest of the Issuing Entity. The servicer and the Depositor will also take the actions described below to protect the rights of the Indenture Trustee in the financed vehicles.
BMW FS, on behalf of itself, BMW Bank and their respective assigns, will have “control” of an electronic contract under the UCC in effect in each state if either (1) (a) there is a “single authoritative copy” of the electronic contract that is readily distinguishable from all other copies and which identifies BMW FS as the owner, (b) all other copies of the electronic contract indicate that they are not the “authoritative copy” of the electronic contract, (c) any revisions to the authoritative copy of the electronic contract are readily identifiable as either authorized or unauthorized revisions, (d) authorized revisions of the electronic contract cannot be made without BMW FS’ or BMW Bank’s, as applicable, participation, and (e) the authoritative copy is communicated to and maintained by BMW FS or its designated custodian, or (2) except in New York and Oklahoma, the system employed by or on behalf of BMW FS and BMW Bank for evidencing the transfer of interests in the electronic chattel paper reliably establishes the secured party as the person to whom the electronic chattel paper is assigned.
Security Interests in Financed Vehicles
General. In states in which motor vehicle retail installment sale contracts, including the Receivables, evidence the credit sale of motor vehicles 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 financed motor vehicles is generally governed by the motor vehicle registration laws of the state in which the vehicle is located. In most states, a security interest in a motor vehicle is perfected by obtaining possession of the certificate of title to the motor vehicle or notation of the secured party’s lien on the motor vehicle’s certificate of title.
Each of BMW FS and BMW Bank also takes all actions necessary under the laws of the state in which the related financed vehicle is located to perfect its security interest in that financed vehicle, including, where applicable, having a notation of its lien recorded on the related certificate of title or obtaining possession of that certificate of title. Because BMW FS continues to service the Receivables as servicer under the Sale and Servicing Agreement, the Obligors on the Receivables will not be notified of the sale from BMW FS or BMW Bank to the Depositor or the sale from the Depositor to the Issuing Entity. The Receivables prohibit the sale or transfer of the financed vehicle without the consent of the related Dealer or its assignee.
Perfection. Pursuant to the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement, BMW FS and BMW Bank, respectively, will sell and assign its security interest in the financed vehicles to the Depositor and, with respect to the Issuing Entity, pursuant to the Sale and Servicing Agreement, the Depositor will assign its security interest in the financed vehicles to the Issuing Entity and, if applicable, the Issuing Entity will assign its security interest to the Indenture Trustee
. However, because of the administrative burden and expense, none of BMW FS, BMW Bank, the Depositor, the Owner Trustee or the Indenture Trustee will amend any certificate of title to identify the Issuing Entity as the new secured party on that certificate of title relating to a
financed vehicle and accordingly BMW FS or BMW Bank will continue to be named as the secured party. As a result and as discussed below, the security interest of the Issuing Entity could be deemed to be unperfected. However, UCC financing statements with respect to the transfer to the Depositor of BMW FS’ and BMW Bank’s security interest in the financed vehicles and the transfer to the Issuing Entity of the Depositor’s security interest in the financed vehicles and, if applicable, the pledge to the Indenture Trustee of the Issuing Entity’s security interest in the financed vehicles will be filed. In addition, the Servicer will continue to hold any certificates of title relating to the financed vehicles in its possession as custodian for the Issuing Entity pursuant to the Sale and Servicing Agreement. We refer you to “Description of the Transfer and Servicing Agreements—Sale and Assignment of Receivables” in this prospectus.
In most states, an assignment of contracts and interest in motor vehicles such as that under the Receivables Purchase Agreement, the Bank Receivables Purchase Agreement or the Sale and Servicing Agreement is an effective conveyance of a security interest without amendment of any lien noted on a motor vehicle’s certificate of title, and the assignee succeeds to the assignor’s rights as secured party. Although re-registration of the motor vehicle is not necessary to convey a perfected security interest in the financed vehicles to the Issuing Entity, the security interest of the Issuing Entity in the vehicle could be defeated through fraud or negligence because the Issuing Entity will not be listed as lienholder on the certificates of title. In those states, in the absence of fraud or forgery by the motor vehicle owner or the Servicer or administrative error by state or local agencies, the notation of BMW FS’ or BMW Bank’s, as applicable, lien on the certificates of title will be sufficient to protect the Issuing Entity against the rights of subsequent purchasers of a financed vehicle or subsequent lenders who take a security interest in a financed vehicle. In the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement, BMW FS and BMW Bank, respectively, will represent and warrant, and in the Sale and Servicing Agreement, the Depositor will represent and warrant, that it has taken all action necessary to obtain a perfected security interest in each financed vehicle. If there are any financed vehicles as to which BMW FS or BMW Bank failed to obtain and assign to the Depositor a perfected security interest, the security interest of the Depositor would be subordinate to, among others, subsequent purchasers of the financed vehicles and holders of perfected security interests in the financed vehicles. However, to the extent that failure has a material and adverse effect on the interests of the Issuing Entity or the Noteholders in the related Receivable and such breach is not timely cured, it would constitute a breach of the
representations and warranties of BMW FS or BMW Bank under the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement, as applicable. Accordingly, pursuant to the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement, BMW FS or BMW Bank would be required to repurchase the related Receivable unless the breach was cured. Pursuant to the Sale and Servicing Agreement, the Depositor will assign to the Issuing Entity its right to cause BMW FS or BMW Bank to repurchase that Receivable under the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement. We refer you to
“Description of the Transfer and Servicing Agreements—Sale and Assignment of Receivables” and
“Risk Factors—Risks Primarily Related to Bankruptcy and Insolvency of Transaction Parties and Perfection of Security Interest—Interests of other persons in the receivables and financed vehicles could be superior to the issuing entity’s interest, which may result in delayed or reduced payments on your notes” in this prospectus.
Continuity of Perfection. Under the laws of most states, the perfected security interest in a motor vehicle would continue for four months after the motor vehicle is moved to a state that is different from the one in which it is initially registered and thereafter until the owner re-registers the motor vehicle in the new state. A majority of states generally require surrender of a certificate of title to reregister a motor vehicle. In those states (for example, California) that require a secured party to hold possession of the certificate of title to maintain perfection of the security interest, the secured party would learn of the re-registration through the request from the Obligor under the related Receivable to surrender possession of the certificate of title. In the case of motor vehicles registered in states providing for the notation of a lien on the certificate of title but not possession by the secured party (for example, Texas), the secured party would receive notice of surrender from the state of re-registration if the security interest is noted on the certificate of title. Thus, the secured party would have the opportunity to re-perfect its security interest in the vehicle in the state of relocation. However, these procedural safeguards will not protect the secured party if through fraud, forgery or administrative error, the debtor somehow procures a new certificate of title that does not list the secured party’s lien.
The State of New York passed legislation allowing a dealer of used motor vehicles to have the lien of a prior lienholder in a motor vehicle released, and to have a new certificate of title with respect to that motor vehicle reissued without the notation of the prior lienholder’s lien, upon submission to the Commissioner of the New York
Department of Motor Vehicles of evidence that the prior lien has been satisfied without any signature or formal release by the prior lienholder. It is possible that, as a result of fraud, forgery, negligence or error, a lien on a financed vehicle could be released without prior payment in full of the Receivable.
Additionally, in states that do not require a certificate of title for registration of a motor vehicle, re-registration could defeat perfection. In the ordinary course of servicing the Receivables, BMW FS will take steps to effect re-perfection upon receipt of notice of re-registration or information from the Obligor as to relocation. Similarly, when an Obligor sells a financed vehicle, BMW FS must surrender possession of the certificate of title or will receive notice as a result of its lien noted on the certificate of title and accordingly will have an opportunity to require satisfaction of the related Receivable before release of the lien. Under the 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 and that failure has a material and adverse effect on the Issuing Entity’s interest in the Receivable.
Priority of Liens Arising by Operation of Law. Under the laws of most states (including California),
possessory
liens for repairs
and storage
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 specified federal tax liens over the lien of a secured party.
In addition, certain states grant priority to state tax liens over a perfected lien of a secured party. The laws of some states and federal law permit the confiscation of motor vehicles by governmental authorities under some circumstances if used in unlawful activities, which may result in the loss of a secured party’s perfected security interest in the confiscated vehicle. BMW FS and BMW Bank will represent and warrant to the Depositor in the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement, respectively, and the Depositor will represent and warrant to the Issuing Entity in the Sale and Servicing Agreement that, as of the Closing Date, each security interest in a financed vehicle is prior to all other present liens (other than tax liens and other liens that arise by operation of law) upon and security interests in that financed vehicle. However, liens for repairs or taxes could arise, or the confiscation of a financed vehicle could occur, at any time during the term of a Receivable. No notice will be given to the Owner Trustee, the Indenture Trustee, the Noteholders or the Certificateholders if a lien arises or confiscation occurs that would not give rise to BMW FS’ or BMW Bank’s repurchase obligation under the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement.
In the event of a default by an Obligor, the holder of the related retail 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 repossession by self-help means, unless it would constitute a breach of the peace or is otherwise limited by applicable state law. Unless a motor vehicle financed by BMW FS or BMW Bank is voluntarily surrendered, self-help repossession is the method employed by BMW FS (including on behalf of BMW Bank) in most states and is accomplished simply by retaking possession of the financed vehicle. In cases where an 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 that vehicle must then be recovered in accordance with that order. In some jurisdictions, the secured party is required to notify that Obligor of the default and the intent to repossess the collateral and to give that Obligor a time period within which to cure the default prior to repossession.
Generally, this right to cure may only be executed on a limited number of occasions during the term of the related Receivable. Other jurisdictions permit repossession without prior notice if it can be accomplished without a breach of the peace (although, in some states a course of conduct in which the creditor has accepted late payments has been held to create a right by the Obligor to receive prior notice). In some states, an Obligor has the right to reinstate its contract and recover the collateral by paying the delinquent installments and other amounts due.
Notice of Sale; Redemption Rights
In the event of default by an Obligor under a motor vehicle retail installment sale contract, some jurisdictions require that the Obligor be notified of the default and be given a time period within which to cure the default prior to repossession. Generally, this right of cure may only be exercised on a limited number of occasions during the term of the related contract.
The UCC and other state laws require the secured party to provide an Obligor with reasonable notice of
among other things
the date, time and place of any public sale or other disposition and/or the date after which any
private sale or other disposition of the collateral may be held
and certain additional information if the collateral constitutes consumer goods. In addition, some states also impose substantive timing requirements on the sale of repossessed vehicles and/or various substantive timing and content requirements relating to those notices
. In most states, an Obligor has the right to redeem the collateral prior to actual sale by paying the secured party the unpaid principal balance of the obligation, accrued interest on 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
and legal expenses
. In some states, an Obligor has the right to redeem the collateral prior to actual sale by payment of delinquent installments or the unpaid balance.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of
repossessed
motor 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 those judgments. In addition to the notice requirement described above, the UCC requires that every aspect of the sale or other disposition, including the method, manner, time, place and terms, be “commercially reasonable.” Generally,
in the case of consumer goods,
courts have held that when a sale is not “commercially reasonable,” the secured party loses its right to a
deficiency judgment. Generally, in the case of collateral that does not constitute consumer goods, the UCC provides that when a sale is not “commercially reasonable,” the secured party may retain its right to at least a portion of the
deficiency judgment. 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 or be uncollectible. In addition, the UCC permits the obligor or other interested party to recover for any loss caused by noncompliance with the provisions of the UCC.
In particular, if the collateral is consumer goods, the UCC grants the debtor the right to recover in any event an amount not less than the credit service charge plus 10% of the principal amount of the debt.
Also, prior to a sale, the UCC permits the Obligor or other interested person to prohibit the secured party from disposing of the collateral if it is established that the secured party is not proceeding in accordance with the “default” provisions under the UCC. Occasionally, after resale or other disposition of a repossessed vehicle and payment of all expenses and indebtedness, there is a surplus of funds. In that case, the UCC requires the secured party to remit the surplus to any holder of a subordinate lien with respect to that vehicle if the secured party receives an authenticated demand for proceeds from such lienholder before distribution of the proceeds is completed or if the secured party does not receive such a demand, the UCC requires the secured party to remit the surplus to the Obligor.
Certain Bankruptcy Considerations
In structuring the transactions contemplated by this prospectus, the Depositor has taken steps that are intended to make it unlikely that the voluntary or involuntary application for relief by the Depositor, under the United States Bankruptcy Code (the “Bankruptcy Code”) or similar applicable state laws (collectively, “Insolvency Laws”), will result in consolidation of the assets and liabilities of the Issuing Entity with those of the Depositor. These steps include the creation of the Issuing Entity as a limited purpose subsidiary of the Depositor pursuant to the Trust Agreement containing limitations, including restrictions on the nature of the Issuing Entity’s business and on its ability to commence a voluntary case or proceeding under any Insolvency Law without the unanimous affirmative vote of all of the Certificateholders and the satisfaction of certain other requirements, such as certifications that the Issuing Entity is insolvent. In addition, to the extent that BMW FS granted a security interest in the Receivables to the Depositor, and the Depositor granted a security interest in the Receivables to the Issuing Entity, each of which was validly perfected before the bankruptcy or insolvency of BMW FS or the Depositor and was not taken for granted in contemplation of insolvency or with the intent to hinder, delay or defraud BMW FS or the Depositor or their creditors, neither security interest should be subject to avoidance, and payments to the Issuing Entity with respect to the Receivables should not be subject to recovery by a creditor or trustee in bankruptcy of BMW FS or the Depositor.
However, delays in payments on the Securities and possible reductions in the amount of those payments could occur if:
| • | a court were to conclude that the assets and liabilities of the Issuing Entity should be consolidated with those of BMW FS or the Depositor in the event of the application of applicable Insolvency Laws to BMW FS or the Depositor; |
| • | a filing were made under any Insolvency Law by or against the Issuing Entity; or |
| • | an attempt were to be made to litigate any of the foregoing issues. |
On the Closing Date, counsel to the Depositor will give an opinion to the effect that, based on a reasoned analysis of analogous case law (although there is no precedent based on directly similar facts), and, subject to, facts, assumptions and qualifications specified in the opinion and applying the principles set forth in the opinion, in the event of a voluntary or involuntary bankruptcy case in respect of BMW FS under Title 11 of the Bankruptcy Code, the assets and liabilities of the Issuing Entity would not properly be substantively consolidated with the assets and liabilities of the estate of the Depositor. Among other things, that opinion will assume that each of the Issuing Entity and the Depositor will follow specified procedures in the conduct of its affairs, including maintaining records and books of account separate from those of the other, refraining from commingling its assets with those of the other, and refraining from holding itself out as having agreed to pay, or being liable for, the debts of the other. The Issuing Entity and the Depositor intend to follow these and other procedures related to maintaining their separate corporate identities. However, there can be no assurance that a court would not conclude that the assets and liabilities of the Issuing Entity should be consolidated with those of the Depositor.
BMW FS will warrant in the Receivables Purchase Agreement that the sale of the Receivables by it to the Depositor is a valid sale, and the Depositor will warrant in the Sale and Servicing Agreement that the sale of the Receivables by it to the Issuing Entity is a valid sale. Notwithstanding the foregoing, if BMW FS or the Depositor were to become a debtor in a bankruptcy case, a court could take the position that the sale of Receivables by BMW FS to the Depositor or by the Depositor to the Issuing Entity should instead be treated as a pledge of those Receivables to secure a borrowing by BMW FS or the Depositor, as applicable. If a court were to reach this conclusion, or a filing were made under any Insolvency Law by or against BMW FS or the Depositor, or if an attempt were made to litigate any of the foregoing issues, delays in payments on the Notes (and possible reductions in the amount of payments) could occur. In addition, if any of the transfers of the Receivables is treated as a pledge instead of a sale, a tax or government lien on the property of BMW FS or the Depositor arising before that transfer may have priority over the Issuing Entity’s interest in that Receivable. Also, while BMW FS is the servicer, cash collections on the Receivables may be commingled with general funds of BMW FS and, in the event of a bankruptcy of BMW FS, a court may conclude that the Issuing Entity does not have a perfected interest in those collections.
BMW FS and the Depositor will treat the transactions described in this prospectus as a sale of the Receivables to the Issuing Entity.
Certain Matters Relating to Insolvency
If BMW Bank were to become insolvent, were to be in an unsafe or unsound condition, or were to violate applicable laws or regulations in a manner that is likely to cause BMW Bank to become insolvent, or if other similar circumstances were to occur, the Federal Deposit Insurance Corporation (the “FDIC”) could be appointed receiver or conservator of BMW Bank. As receiver or conservator, the FDIC would have various powers under the Federal Deposit Insurance Act, including the power to repudiate any contract to which BMW Bank was a party, if the FDIC determined that performance of the contract was burdensome and that repudiation would promote the orderly administration of BMW Bank’s affairs. Among the contracts that might be repudiated is any Purchase Agreement between BMW Bank, as seller, and the Depositor, as purchaser, relating to your Notes.
The FDIC’s repudiation power would enable the FDIC to repudiate BMW Bank’s ongoing repurchase or indemnity obligations under any applicable Purchase Agreement between BMW Bank and the Depositor relating to your Notes, but would not empower the FDIC to repudiate transfers of Receivables made under such Purchase Agreement prior to the appointment of the receiver or conservator. However, if those transfers were not respected as legal true sales, then the Depositor under the applicable Purchase Agreement would be treated as having made a loan to BMW Bank, secured by the transferred Receivables. The FDIC ordinarily has the power to repudiate secured loans and then recover the collateral after paying “actual direct compensatory damages” (as described further below)
determined as of the date of the FDIC’s appointment as conservator or receiver. There is no statutory definition of “actual direct compensatory damages,” but the term does not include damages for lost profits or opportunity.
The FDIC has adopted a regulation entitled “Treatment of financial assets transferred in connection with a securitization or participation” (the “FDIC Rule”), which, if applicable, would limit certain rights of the FDIC described below under “—FDIC Rule.” Absent the application of a safe harbor under the FDIC Rule, the staff of the FDIC takes the position that, upon repudiation, damages would not include accrued and unpaid interest through the date of actual repudiation, so the Issuing Entity would have a claim for interest only through the date of the appointment of the FDIC as conservator or receiver. Since the FDIC may delay repudiation for up to 180 days following that appointment, the Issuing Entity may not have a claim for interest accrued during this 180 day period. In addition, in one case involving the repudiation by the Resolution Trust Corporation, formerly a sister agency of the FDIC, of certain secured zero-coupon bonds issued by a savings association, a United States federal district court held that “actual direct compensatory damages” in the case of a marketable security meant the market value of the repudiated bonds as of the date of repudiation. If that court’s view were applied to determine the “actual direct compensatory damages” in the circumstances described above, the amount of damages could, depending upon circumstances existing on the date of the repudiation, be less than the principal amount of the Receivables transferred and the interest accrued thereon and unpaid to the date of payment.
In addition, none of the parties to the Bank Receivables Purchase Agreement could exercise any right or power to terminate, accelerate, or declare a default under that agreement, or otherwise affect BMW Bank’s rights under that agreement without the FDIC’s consent, for 90 days after the receiver is appointed or 45 days after the conservator is appointed, as applicable. During the same period, the FDIC’s consent would also be needed for any attempt to obtain possession of or exercise control over any property of BMW Bank. The requirement to obtain the FDIC’s consent before taking these actions relating to a bank’s contracts or property is sometimes referred to as an “automatic stay.”
We intend to structure the transfers of Receivables under the Bank Receivables Purchase Agreement with the intent that they would be characterized as legal true sales under applicable state law. If the transfers are so characterized, then the FDIC would not be able to recover the transferred Receivables using its repudiation power even if the transaction does not satisfy the terms of the FDIC Rule, but there is no assurance the FDIC would not try to challenge the transfer.
The FDIC Rule contains four different safe harbors, each of which limits the powers that the FDIC can exercise in the insolvency of an insured depository institution when it is appointed as receiver or conservator (and references in this section to the FDIC are in its capacity as such). To qualify for a safe harbor, the securitization or participation must satisfy the requirements specified for that type of transaction. If one or more of the requirements specified in a safe harbor are not met, the FDIC’s powers would not be limited by the FDIC Rule. The relevant safe harbor for the Issuing Entity will be either the safe harbor for securitizations that do not satisfy the requirements for sale accounting treatment or the safe harbor for securitizations that satisfy the requirements for sale accounting treatment. The discussion of the FDIC Rule in this prospectus is limited to those two safe harbors.
The requirements imposed by the FDIC Rule include provisions that are required to be contained in the documentation for the securitization. These provisions limit the structural features of the transaction in specified ways, impose obligations on one or more of the Issuing Entity, the Depositor and any other intermediate entities that may be a transferee (which entities are jointly considered to be the “issuing entity” for purposes of the FDIC Rule), require the servicer and BMW Bank to make specified disclosures, provide ongoing reporting on specified items and define specified aspects of the relationships among the parties. In order to satisfy the requirements of the FDIC Rule to include these provisions in the documentation, the Transfer and Servicing Agreements are structured to comply with the FDIC Rule will contain a covenant (the “FDIC Rule Covenant”) that contains the requisite provisions and that obligates the Depositor, the Servicer, BMW Bank and the Issuing Entity, as applicable, to perform each of the specified obligations. See “The Notes—FDIC Rule Covenant” in this prospectus. The failure of the Depositor, the Servicer, BMW Bank and the Issuing Entity to perform its obligations under the FDIC Rule Covenant will not constitute an Event of Default, nor will the failure of the Servicer to perform its obligations under the FDIC Rule Covenant constitute a Servicer Default. However, the Noteholders, the Certificateholders and the Indenture Trustee
will retain the right to exercise any other remedies permitted by the Indenture or applicable law in respect of these breaches.
If the FDIC is appointed as conservator or receiver for BMW Bank, and if BMW Bank is the Seller under the Bank Receivables Purchase Agreement and accounting sale treatment does not apply to the securitization, there are several possible series of events that could occur. First, if BMW Bank is servicing any of the Receivables, the FDIC will succeed to the obligations of BMW Bank and would have the choice of whether or not to apply collections from the transferred assets in accordance with the applicable securitization documents. If the FDIC chooses not to pay or apply the collections, it will be in monetary default, and the Indenture Trustee at the direction of the holders of at least a majority of the aggregate principal amount of the Notes outstanding, the Servicer or the Certificateholders evidencing a majority of the Certificate Percentage Interest will be entitled to deliver a notice and other information required by the FDIC Rule to the FDIC requesting the exercise of contractual rights under the applicable Transfer and Servicing Agreements because of the FDIC’s monetary default. If the FDIC does not cure the monetary default within ten business days of delivery of such notice, then the FDIC will be deemed to have consented to the exercise of those contractual rights, and the Indenture Trustee or the Owner Trustee, as applicable, may exercise any contractual rights such party may have in accordance with the Transfer and Servicing Agreements. In exercising such contractual rights, the Indenture Trustee will act at the written direction of the holders of at least a majority of the aggregate principal amount of the Notes outstanding and the Owner Trustee will act at the written direction of the Certificateholders evidencing a majority of the Certificate Percentage Interest. However, the FDIC, as receiver or conservator, is not required to take any action under the FDIC Rule after a monetary default other than providing consents, waivers and execution of transfer documents as may be reasonably requested in the ordinary course of business in order to facilitate the exercise of such contractual rights. If, however, BMW Bank is not servicing any receivables, then the provisions of the FDIC Rule described in this paragraph would not apply.
Alternatively, regardless of whether BMW Bank is servicing any of the Receivables, if following an insolvency of BMW Bank, the FDIC seeks to exercise its power to repudiate contracts in connection with a transaction for which the safe harbor applicable to transactions that do not satisfy the requirements for accounting sale treatment applies, another series of events could occur. The FDIC Rule gives the FDIC the choice, following repudiation, either to pay damages within ten business days or to permit the exercise of contractual rights as described in the preceding paragraph. The FDIC Rule provides that the damages due on repudiation will be in an amount equal to the par value of the “obligations” outstanding on the date of appointment of the FDIC as conservator or receiver, less any payments of principal received by the investors through the date of repudiation, plus unpaid, accrued interest through the date of repudiation in accordance with the contract documents to the extent actually received through payments on the financial assets received through the date of repudiation. Upon payment of such repudiation damages, the FDIC Rule states that all liens or claims on the financial assets created pursuant to the securitization documents will be released. Also, if the FDIC repudiates a securitization agreement, it will not assert that any interest payments made to investors in accordance with the securitization documents before any such repudiation remain the property of the conservatorship or receivership. The reference in the FDIC Rule to “obligations” appears to assume that the Notes will be secured by Receivables transferred by only a single insured depository institution. In the context where there are multiple sellers, BMW FS believes that, in the event of a repudiation by the FDIC of the Bank Receivables Purchase Agreement, the damages calculation under the FDIC Rule should be at least equal to a pro rata principal amount of the Notes based on the relative principal balance of the Receivables that were sold by BMW Bank to all of the Receivables held by the Issuing Entity at the date of repudiation, plus accrued interest on such principal amount at the interest rate on the Notes accrued to the date of repudiation. BMW FS also believes it could be reasonable for such damages calculation to be equal to the amount of the imputed loan between BMW Bank and the depositor, which would be the purchase price for the sale of the Receivables sold by BMW Bank (equal to par) less amounts received with respect to the Receivables sold by BMW Bank, plus accrued interest through the date of repudiation at the rate of interest at which interest accrues on the Notes. However, these interpretive positions are untested and there can be no assurance that the FDIC will interpret the damages calculation in any particular manner. If the FDIC takes a different, less favorable position as to the calculation of damages, you could suffer a loss on your investment in the Notes. Additionally, there appears to be no authority for interpreting the application of the FDIC Rule where the institution is not the only seller of receivables in a securitization, and the FDIC could further take the position that the FDIC Rule was not meant to apply to transactions with more than one seller. In an event where the Receivables reclaimed by the FDIC through repudiation are less than all Receivables owned by the Issuing Entity we do not believe the FDIC would pay damages equal to the par amount of all of the Notes. As a result, damages received from the FDIC in these
circumstances would result in a partial prepayment of the Notes as described in more detail under “The Notes—Damages Paid by the FDIC” in this prospectus.
If the transaction satisfies the requirements for accounting sale treatment under generally accepted accounting principles and the FDIC Rule applies, the FDIC, as receiver or conservator, could not exercise its statutory authority to disaffirm or repudiate contracts or reclaim, recover or recharacterize as property of BMW Bank or the receivership the transferred financial assets. However, the FDIC could challenge whether the transaction satisfied the requirements for accounting sale treatment or whether the transaction satisfied the requirements to a safe harbor under the FDIC Rule.
One of the requirements of the FDIC Rule is that the agreements for the related transaction require the retention of an economic interest in the credit risk of the securitized assets in accordance with Regulation RR of the Exchange Act. BMW FS and BMW Bank intend to take the position that, solely for purposes of the FDIC Rule, BMW Bank (and not BMW FS) is the “sponsor” with respect to the Receivables transferred by BMW Bank to the Depositor on the Closing Date, and that the applicable disclosure and reporting covenants in the FDIC Rule apply to BMW Bank. BMW FS, as the sponsor under Regulation RR, intends to satisfy its obligation to retain credit risk by causing the Depositor and BMW Bank, its wholly-owned subsidiaries, to retain the Certificates, which they believe will satisfy this requirement of the FDIC Rule.
If any provision of the FDIC Rule is amended, or any interpretive guidance regarding the FDIC Rule is provided by the FDIC or its staff, as a result of which the Issuing Entity determines that an amendment to the FDIC Rule Covenant is necessary or desirable, then the Issuing Entity and the Indenture Trustee will be authorized to amend the FDIC Rule Covenant in accordance with such FDIC Rule amendment or guidance without Noteholder or Certificateholder consent.
As the FDIC Rule, in its current form and without interpretive guidance from the FDIC, is untested, its interpretation remains uncertain including among other things, whether in a transaction with more than one seller, the “sponsor” for purposes of the FDIC Rule may be a different entity from the “sponsor” for purposes of Regulation RR.
This transaction has been structured to comply with the FDIC Rule. Despite that fact, we have structured the transfers of Receivables under the Bank Receivables Purchase Agreement with the intent that they would be characterized as legal true sales. If the transfers are so characterized, then the FDIC likely would not be able to recover the transferred Receivables using its repudiation power even if the transaction does not satisfy all of the terms of the FDIC Rule, although the FDIC may challenge the transfers and to our knowledge this issue has not been tested since the FDIC issued the FDIC Rule. If the FDIC were to successfully assert that the transaction in which the Notes and Certificates were issued did not comply with the FDIC Rule and that the transfer of Receivables under the Bank Receivables Purchase Agreement was not a legal true sale, then the FDIC could repudiate the loan that was deemed by the FDIC to have been made to BMW Bank, secured by the transferred Receivables, with the effect discussed above under “— Certain Matters Relating to Insolvency.”
Other Statutory Powers of the FDIC
Regardless of whether the FDIC Rule applies or the transfers under the transfer agreement are respected as legal true sales, as conservator or receiver for BMW Bank, the FDIC could:
| • | require the Issuing Entity, as assignee of the Depositor, to go through an administrative claims procedure to establish its rights to payments collected on the Receivables; or |
| • | request a stay of proceedings to liquidate claims or otherwise enforce contractual and legal remedies against BMW Bank; or |
| • | invoke the automatic stay to prevent the Indenture Trustee and other transaction parties from exercising their rights, remedies and interests for up to 90 days. |
There are also statutory prohibitions on any attachment or execution being issued by any court upon assets in the possession of the FDIC, as conservator or receiver, and any property in the possession of the FDIC, as conservator or receiver, being subject to levy, attachment, garnishment, foreclosure or sale without the consent of the FDIC.
If the FDIC, as conservator or receiver for BMW Bank, were to take any of the actions described above or certain actions described above under “— FDIC Rule”, payments and/or distributions of principal and interest on the Notes issued by the Issuing Entity could be delayed or reduced.
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, and limitations on, contract terms, as well as collection practices and creditor remedies
. These laws include the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board’s Regulations B and Z,
the Gramm Leach Bliley Act,
the Military Lending Act, the Servicemembers Civil Relief Act, as amended (the “
Relief Act”), and similar state laws protecting servicemembers, the Military Reservist Relief Act of 1991, the Texas Consumer Credit Code, state adoptions of the National Consumer Act and of the Uniform Consumer Credit Code and state motor vehicle retail installment
sales acts, consumer lending laws, unfair or deceptive practices
acts and other similar laws.
Many states have adopted “lemon laws” which provide redress to consumers who purchase a vehicle that remains out of compliance with its manufacturer’s warranty after a specified number of attempts to correct a problem or a specified time period.
A successful claim under a lemon law could result in, among other things, the termination of the related retail installment sale contract and/or the requirement that all or a portion of payments previously paid by the Obligor be refunded. The failure by the applicable originator to comply with these regulations may give rise to liabilities on the part of the Issuing Entity. To the extent a court holds the Issuing Entity liable for violating consumer protection laws, the Issuing Entity could be required to make payments to Obligors on the Receivables. 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 including the Receivables. In addition, motor vehicles sold in the United States are subject to numerous safety and emissions regulations.
Any licensing requirements of the Issuing Entity are governed by state and sometimes local law, and these requirements vary on a jurisdiction-by-jurisdiction basis. For example, the City of New York passed legislation requiring a purchaser of delinquent loans to be licensed as a debt collector. It is not clear what delinquent means under that law. It is possible that, as a result of not being properly licensed under a state or local law, the Issuing Entity could be subject to liability or other adverse consequences.
The 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 in some states, has the effect of subjecting a seller, and specified creditors and their assignees, in a consumer credit transaction 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, if permitted under applicable state law, may include the recovery of attorney’s fees, and the holder of the contract may also be unable to collect any balance remaining due under that contract from the Obligor.
Most of the Receivables will be subject to the requirements of the FTC Rule. Accordingly, the Issuing Entity, as holder of the Receivables, will be subject to any claims or defenses that the purchaser of the applicable financed vehicle may assert against the seller of the related financed vehicle. As to each Obligor, these claims are limited to a maximum liability equal to the amounts paid by the Obligor on the related Receivable. Under most state motor vehicle dealer licensing laws, sellers of motor vehicles are required to be licensed to sell motor vehicles at retail sale. Furthermore, federal odometer regulations promulgated under the Motor Vehicle Information and Cost Savings Act require that all sellers of new and used vehicles furnish a written statement signed by the seller certifying the accuracy of the odometer reading. If the seller
is not in compliance with the FTC Rule,
is not properly licensed or if a written odometer disclosure statement was not provided to the related Obligor, the Obligor may be
able to assert a defense against the seller of the vehicle. If an Obligor were successful in asserting any of those claims or defenses, that claim or defense would constitute a
breach
of
BMW FS’ or BMW Bank’s representations and warranties under the Receivables Purchase Agreement or the Bank Receivables Purchase Agreement, as applicable, and would, if the breach materially and adversely affects the interests of the Issuing Entity or the Noteholders in a Receivable, create an obligation of BMW FS or, if applicable, BMW Bank to repurchase such Receivable unless the breach is cured. We refer you to
“Description of the Transfer and Servicing Agreements—Sale and Assignment of Receivables” in this prospectus.
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 Obligors.
From time to time, BMW FS has been involved in litigation under consumer protection laws. In addition, substantially all of the motor vehicle contracts originated by BMW FS and BMW Bank in California after 1990 (the “California Contracts”) provided that the contract may be rescinded by the related Center if the Center is unable to assign the contract to a lender within ten days of the date of the contract. As of the date of this prospectus, the ten-day rescission period had run in respect of all of the California Contracts in which the rescission provision appears. Although there is authority, which is not binding upon any court, providing that a conditional sale contract containing such a provision does not comply with California law and would render the contract unenforceable, to the Depositor’s and BMW FS’ knowledge, the issue has not been presented before any California court. On the Closing Date, the Depositor will receive an opinion of counsel, subject to facts, assumptions and qualifications specified in the opinion, to the effect that all of the California Contracts are on forms enforceable under California law and applicable federal laws.
The Consumer Financial Protection Bureau (“CFPB”), which was created by the Dodd-Frank Act, is responsible for implementing and enforcing various federal consumer protection laws. The CFPB also supervises certain depository institutions and non-depository institutions offering financial products and services to consumers, including automobile loans and leases. BMW FS and BMW Bank are subject to regulation by the CFPB and BMW FS is also subject to the CFPB’s investigation and enforcement authority. The CFPB has issued public guidance regarding compliance with the fair lending requirements of the Equal Credit Opportunity Act, and its implementing regulation, for automobile lenders that permit automobile dealers to charge the consumer an interest rate that is higher than the rate the lender provides the dealer for a consumer. This increased rate is typically called a “dealer markup.” The CFPB has been conducting fair lending examinations and investigations of automobile lenders and their dealer markup and compensation policies. In addition, we understand that the CFPB has also conducted investigations concerning certain other automobile lending practices, including the sale of extended warranties, credit insurance and other add-on products. If any of these practices were found to violate applicable laws, BMW FS or BMW Bank could be obligated to repurchase from the Issuing Entity any related Receivable that fails to comply with law, if the violation has a material and adverse effect on the interests of the Issuing Entity or the Noteholders in the related Receivable and such violation is not timely cured. In addition, BMW FS, BMW Bank, the Depositor or the Issuing Entity could also possibly be subject to claims by the obligors on those contracts, and any relief granted by a court could potentially adversely affect the Issuing Entity. For additional discussion of how a failure to comply with consumer protection laws may impact the Issuing Entity, the Receivables or your investment in the Notes, see “Risk Factors—Risks Primarily Related to Legal and Regulatory Matters—Receivables that fail to comply with consumer protection laws may be unenforceable, which may result in losses on your investment” in this prospectus.
Each of BMW FS and BMW Bank may also periodically perform reviews of its lending policies and analyses of both dealer-specific and portfolio-wide loan pricing data for potential disparities resulting from dealer markup and compensation policies. Depending upon the results of these reviews and analyses or any regulatory agency actions, BMW FS and BMW Bank may consider taking, or may be required to take, corrective actions, which could include reductions to the interest rates on the applicable Receivables. Corrective actions could be taken
by BMW FS and BMW Bank without the occurrence of any violation of law. If BMW FS, as Servicer, were to voluntarily reduce the interest rate on any Receivable, it may be required under the Sale and Servicing Agreement to repurchase the affected Receivable. See “Description of the Transfer and Servicing Agreements—Servicing Procedures” in this prospectus for a discussion of purchase obligations of the Servicer.
BMW FS and BMW Bank will represent and warrant under the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement, respectively, that each Receivable complies with all requirements of law in all material respects at the time it was originated. Accordingly, if an Obligor has a claim against the Issuing Entity for violation of any law and that claim materially and adversely affects the interests of the Issuing Entity or the Noteholders in a Receivable, that violation would constitute a breach of the representations and warranties of BMW FS or BMW Bank, as applicable, under the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement and would create an obligation of BMW FS or BMW Bank, as applicable, to repurchase such Receivable unless the breach is cured. We refer you to “Description of the Transfer and Servicing Agreements—Sale and Assignment of Receivables” in this prospectus.
In addition to the laws limiting or prohibiting deficiency judgments, numerous other statutory provisions, including federal bankruptcy laws and similar 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, if a borrower becomes a debtor under the federal bankruptcy law, a court may prevent a creditor from repossessing a motor vehicle and, under certain circumstances, 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.
Under the terms of the Relief Act, an Obligor who enters the military service after the origination of that Obligor’s 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 Obligor’s Receivable and is later called to active duty) may not be charged interest and fees above an annual rate of 6% during the period of that Obligor’s active duty status, unless a court orders otherwise upon application of the lender. In addition, some states, including California, allow members of its national guard to apply to a court to delay payments on any contract obligation if called into active service by the Governor.
The Relief Act applies to Obligors who are servicemembers and includes members of the Army, Navy, Air Force, Marines, National Guard, Reserves (when such enlisted person is called to active duty), Space Force, Coast Guard, officers of the National Oceanic and Atmospheric Administration, officers of the U.S. Public Health Service assigned to duty with the Army or Navy and certain other persons as specified in the Relief Act.
Under the Relief Act and similar laws of many states may provide relief to members of the armed services, including members of the Army, Navy, Air Force, Marines, National Guard, Reservists, Space Force, Coast Guard and officers of the National Oceanic and Atmospheric Administration and officers of the U.S. Public Health Service assigned to duty with the military, on active duty, who have entered into an obligation, such as a retail installment sale contract for a motor vehicle, before entering into military service and provide that under some circumstances the lessor may not terminate the retail installment sale contract for breach of the terms of the contract, including nonpayment. In addition, pursuant to these laws, under certain circumstances, residents called into active duty with the reserves can apply to a court to delay payments on retail installment sale contracts, including the Receivables.
Because the Relief Act and similar laws of many states apply to Obligors who enter military service (including reservists who are called to active duty) after origination of the related Receivable, no information can be provided as to the number of Receivables that may be affected by the Relief Act. Recent world events have resulted in certain military operations by the United States, and the United States continues to be on alert for potential terrorist attacks. These military operations may increase the number of Obligors who are in active military service, including persons in reserve status who have been called or will be called to active duty. It is possible that the foregoing could have an effect on the ability of the Servicer to collect the full amount of interest owing on some of the Receivables. In addition, both the Relief Act and the laws of some states, including California, New York and New Jersey, imposes limitations that would impair the ability of the Servicer to repossess the released financed vehicle during the Obligor’s period of active duty status. Thus, if that Receivable goes into default, there may be delays and losses occasioned by the inability to exercise the Issuing Entity’s rights with respect to the Receivable
and the related financed vehicle in a timely fashion. If an Obligor’s obligation to make payments is reduced, adjusted or extended, the Servicer will not be required to advance such amounts. Any resulting shortfalls in interest or principal during a Collection Period, to the extent not covered by amounts payable to the Noteholders from amounts on deposit in the Reserve Account or from coverage provided under any other credit enhancement mechanism, will reduce the amount available for distribution on the Notes and Certificates on the related Payment Date.
Dodd Frank Orderly Liquidation Framework
General. On July 21, 2010, the Dodd-Frank Act was signed into law. Title II of the Dodd-Frank Act, among other things, gives the FDIC authority to act as receiver of bank holding companies, financial companies and their respective subsidiaries in specific situations under the Orderly Liquidation Authority (the “OLA”) as described in more detail below. The OLA provisions were effective on July 22, 2010. The proceedings, standards, powers of the FDIC as receiver and many other substantive provisions of OLA differ from those of the Bankruptcy Code in several respects. In addition, because the FDIC has yet to use OLA in any receivership, it is unclear exactly what impact these provisions will have on any particular company, including BMW FS, the Depositor, the Issuing Entity or any of their respective creditors. On February 21, 2018, the Department of the Treasury proposed a number of changes to the bankruptcy process for financial companies and reform of the FDIC’s OLA authority. It is uncertain whether these proposals or other amendments to OLA will be enacted by statute or regulation, and what effect they would have on BMW FS, the Depositor, the Issuing Entity or any of their respective creditors.
Potential Applicability to BMW FS, the Depositor and the Issuing Entity. There is uncertainty about which companies will be subject to OLA rather than the Bankruptcy Code. For a company to become subject to OLA as a covered financial company, the Secretary of the Treasury (in consultation with the President of the United States) must determine, among other things, that the company is in default or in danger of default, the failure of such company and its resolution under the Bankruptcy Code would have serious adverse effects on financial stability in the United States, no viable private sector alternative is available to prevent the default of the company and an OLA proceeding would avoid or mitigate these adverse effects.
If BMW FS were determined to be a “covered financial company,” the Issuing Entity or the Depositor as “covered subsidiaries” could also potentially be subject to the provisions of OLA as a “covered financial company.” For the Issuing Entity or the Depositor to be subject to receivership under OLA as a covered subsidiary of BMW FS (1) the FDIC would have to be appointed as receiver for BMW FS under OLA as described above, and (2) the FDIC and the Secretary of the Treasury would have to jointly determine that (a) the Issuing Entity or the Depositor is in default or in danger of default, (b) the liquidation of that covered subsidiary would avoid or mitigate serious adverse effects on the financial stability or economic conditions of the United States and (c) such appointment would facilitate the orderly liquidation of BMW FS.
There can be no assurance that the Secretary of the Treasury would not determine that the failure of BMW FS or any potential covered subsidiary thereof would have serious adverse effects on financial stability in the United States. In addition, no assurance can be given that OLA would not apply to BMW FS, the Depositor or the Issuing Entity or, if it were to apply, that the timing and amounts of payments to the Noteholders would not be less favorable than under the Bankruptcy Code.
FDIC’s Repudiation Power Under OLA. If the FDIC were appointed receiver of BMW FS or of a covered subsidiary thereof under OLA, the FDIC would have various powers under OLA, including the power to repudiate any contract to which BMW FS or a covered subsidiary was a party, if the FDIC determined that performance of the contract was burdensome and that repudiation would promote the orderly administration of BMW FS’ or such covered subsidiary’s affairs. In January 2011, the then Acting General Counsel of the FDIC, later appointed as General Counsel (the “FDIC Counsel”) issued an advisory opinion letter clarifying, among other things, its intended application of the FDIC’s repudiation power under OLA. In that advisory opinion, the FDIC Counsel stated that nothing in the Dodd-Frank Act changes the existing law governing the separate existence of separate entities under other applicable law. As a result, the FDIC Counsel was of the opinion that the FDIC as receiver for a covered financial company, which could include BMW FS or its subsidiaries (including the Depositor and the Issuing Entity), cannot repudiate a contract or lease unless it has been appointed as receiver for that entity or the separate existence of that entity may be disregarded under other applicable law. In addition, the FDIC Counsel was of the opinion that until such time as the FDIC Board of Directors adopts a regulation further addressing the application of
Section 210(c) of the Dodd-Frank Act, if the FDIC were to become receiver for a covered financial company, which could include BMW FS or its subsidiaries (including the Depositor and the Issuing Entity), the FDIC will not, in the exercise of its authority under Section 210(c) of the Dodd-Frank Act, reclaim, recover, or recharacterize as property of that covered financial company or the receivership assets transferred by that covered financial company prior to the end of the applicable transition period of a regulation provided that such transfer satisfies the conditions for the exclusion of such assets from the property of the estate of that covered financial company under the Bankruptcy Code. Although this advisory opinion does not bind the FDIC or its Board of Directors, and could be modified or withdrawn in the future, the advisory opinion also states that if further regulations affecting the statutory power to disaffirm or repudiate contracts are implemented the FDIC Counsel will recommend that the FDIC Board of Directors incorporates a transition period of 90 days for any such regulations. Subsequent to the advisory opinion, the FDIC has issued regulations implementing OLA; none of those regulations alters or contradicts the views of FDIC Counsel in the advisory opinion regarding the power of the FDIC to disaffirm or repudiate contracts. To the extent any future regulations or subsequent FDIC actions in an OLA proceeding involving BMW FS or its subsidiaries (including the Depositor or the Issuing Entity), are contrary to this advisory opinion, payment or distributions of principal and interest on the Securities issued by the Issuing Entity could be delayed or reduced.
We will structure the transfers of the Receivables under the Receivables Purchase Agreement, the Bank Receivables Purchase Agreement and the Sale and Servicing Agreement with the intent that they would be treated as legal true sales under applicable state law. If the transfers are so treated, based on the FDIC Counsel’s advisory opinion rendered in January 2011 and other applicable law, BMW FS believes that the FDIC would not be able to recover the Receivables transferred under the Receivables Purchase Agreement, the Bank Receivables Purchase Agreement and the Sale and Servicing Agreement using its repudiation power. However, if those transfers were not respected as legal true sales, then the Depositor under the Receivables Purchase Agreement and the Bank Receivables Purchase Agreement would be treated as having made a loan to BMW FS and BMW Bank, respectively, and the Issuing Entity under the Sale and Servicing Agreement would be treated as having made a loan to the Depositor, in each case secured by the transferred Receivables. The FDIC, as receiver, generally has the power to repudiate secured loans and then recover the collateral after paying damages to the lenders. If the Issuing Entity were placed in receivership under OLA, this repudiation power would extend to the Notes issued by the Issuing Entity. The amount of damages that the FDIC would be required to pay would be limited to “actual direct compensatory damages” determined as of the date of the FDIC’s appointment as receiver. There is no general statutory definition of “actual direct compensatory damages” in this context, but the term does not include damages for lost profits or opportunity. However, under OLA, in the case of any debt for borrowed money, actual direct compensatory damages is no less than the amount lent plus accrued interest plus any accreted original issue discount as of the date the FDIC was appointed receiver and, to the extent that an allowed secured claim is secured by property the value of which is greater than the amount of such claim and any accrued interest through the date of repudiation or disaffirmance, such accrued interest.
Regardless of whether the transfers under the Receivables Purchase Agreement, the Bank Receivables Purchase Agreement and the Sale and Servicing Agreement are respected as legal true sales, as receiver for BMW FS or a covered subsidiary the FDIC could:
| • | require the Issuing Entity, as assignee of the Depositor, to go through an administrative claims procedure to establish its rights to payments collected on the Receivables; or |
| • | if the Issuing Entity were a covered subsidiary, require the Indenture Trustee to go through an administrative claims procedure to establish its rights to payments on the Notes; or |
| • | request a stay of proceedings to liquidate claims or otherwise enforce contractual and legal remedies against BMW FS or a covered subsidiary (including the Issuing Entity); or |
| • | repudiate BMW FS’ ongoing servicing obligations under the Sale and Servicing Agreement, such as its duty to collect and remit payments or otherwise service the Receivables; or |
| • | prior to any such repudiation of the Sale and Servicing Agreement, prevent any of the Indenture Trustee or the Noteholders from appointing a successor Servicer. |
There are also statutory prohibitions on any attachment or execution being issued by any court upon assets in the possession of the FDIC, as receiver, any property in the possession of the FDIC, as receiver, being subject to levy,
attachment, garnishment, foreclosure or sale without the consent of the FDIC, and any person exercising any right or power to terminate, accelerate or declare a default under any contract to which BMW FS or a covered subsidiary (including the Issuing Entity) that is subject to OLA is a party, or to obtain possession of or exercise control over any property of BMW FS or any covered subsidiary or affect any contractual rights of BMW FS or a covered subsidiary (including the Issuing Entity) that is subject to OLA, without the consent of the FDIC for 90 days after appointment of FDIC as receiver. The requirement to obtain the FDIC’s consent before taking these actions relating to a covered company’s contracts or property is comparable to the “automatic stay” in bankruptcy.
If the Issuing Entity were itself to become subject to OLA as a “covered subsidiary”, the FDIC may repudiate the debt of the Issuing Entity. In such an event, the Noteholders would have a secured claim in the receivership of the Issuing Entity for “actual direct compensatory damages” as described above but delays in payments on such Notes would occur and possible reductions in the amount of those payments could occur.
If the FDIC, as receiver for BMW FS, the Depositor or the Issuing Entity, were to take any of the actions described above, payments or distributions of principal and interest on the Securities issued by the Issuing Entity would be delayed and may be reduced.
To the knowledge of the Sponsor and the Depositor, there are no legal proceedings pending, or governmental proceedings contemplated, against the Sponsor, the Depositor, the Servicer, the Sellers or the Issuing Entity that would be material to holders of any Notes.
For a description of any legal proceedings pending, or governmental proceedings contemplated, against the Owner Trustee and the Indenture Trustee that would be material to holders of any Notes, you should refer to “The Owner Trustee and the Indenture Trustee” in this prospectus.
Material U.S. Federal Income Tax Considerations
The following discussion summarizes certain of the material U.S. federal income tax considerations applicable to the purchase, ownership and disposition of the Notes, to the extent it relates to matters of U.S. federal income tax law or legal conclusions, and is based on current provisions of the Code, the Treasury regulations promulgated and proposed thereunder and judicial decisions and published administrative authorities, rulings and pronouncements of the Internal Revenue Service (the
“IRS”), all as in effect on the date hereof. Legislative, judicial or administrative changes or interpretations hereafter enacted or promulgated could alter or modify the analysis and conclusions set forth below, possibly on a retroactive basis. In addition, this summary does not purport to address the U.S. federal income tax considerations applicable to all categories of investors, some of which may be subject to special rules. For example, it does not discuss the tax treatment of Note Owners (as defined below) that are insurance companies, regulated investment companies, dealers in securities, S‑corporations, partnerships or other pass-through entities, banks, thrifts, other financial institutions, broker-dealers, tax-exempt organizations, real estate investment trusts, persons that hold Notes as part of a straddle, hedging or conversion transaction, persons or entities holding an interest in a holder (e.g., as a stockholder, partner, or holder of an interest as a beneficiary), persons subject to the alternative minimum tax, including corporations subject to the corporate alternative minimum tax on financial statement income and accrual method taxpayers subject to special tax accounting rules pursuant to Section 451(b) of the Code as a result of their use of financial statements. This summary is intended as an explanatory discussion of U.S. federal income tax matters affecting investors generally, but does not purport to furnish information in the level of detail or with the attention to an investor’s specific tax circumstances that would be provided by an investor’s own tax advisor. Accordingly, it is suggested that each investor consult its own tax advisor with regard to the tax considerations applicable to it of investing in Notes. 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. As a result, the IRS may disagree with all or a part of the discussion below.
Further, this summary (a) assumes that the Notes will be held by the holders thereof as capital assets as defined in Section 1221 of the Code (generally, property held as investment) and (b) except as indicated (and other than for purposes of the discussion under “—Possible Alternative Treatments of the Notes” below), assumes the Notes are properly characterized as debt for U.S. federal income tax purposes. Further, no information is provided herein with respect to any foreign, state or local tax considerations applicable to the ownership and disposition of the
Notes or any federal alternative minimum tax or estate or gift tax considerations. Except for “—Tax Considerations for Foreign Note Owners” and “—Backup Withholding” below, the following discussion applies only to a U.S. Note Owner (as defined below).
For purposes of this discussion, “Note Owner” means any Noteholder or beneficial owner of the Notes. The term “U.S. Note Owner” means any Note Owner that is for U.S. federal income tax purposes a U.S. Person (as defined herein). “U.S. Person” means (i) a citizen or resident of the United States, (ii) an entity treated for U.S. federal income tax purposes as a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia, (iii) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source or (iv) a trust with respect to which a court in the United States is able to exercise primary authority over its administration and as to which one or more U.S. Persons have the authority to control all of its substantial decisions or that is otherwise eligible to, and has validly elected to be treated as, a U.S. Person. A “Foreign Note Owner” means a person other than a U.S. Note Owner or an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
If a partnership (including for this purpose any entity or arrangement treated as a partnership for U.S. federal income tax purposes) is a Note Owner, the treatment of a partner in the partnership will generally depend upon the status of the partner and upon the activities of the partnership. A Note Owner that is treated as a partnership for U.S. federal income tax purposes and partners in such partnership are encouraged to consult their tax advisors about the U.S. federal income tax considerations of holding and disposing of the Notes.
Prospective investors are urged to consult their own tax advisors with regard to the U.S. federal tax considerations relevant to purchasing, holding and disposing of the Notes in their own particular circumstances, as well as the tax considerations in respect thereof arising under the laws of any state, foreign country or other jurisdiction to which they may be subject.
Tax Characterization of the Issuing Entity
Morgan, Lewis & Bockius LLP, tax counsel to the Depositor (“Tax Counsel”) will deliver its opinion that, although there is no authority directly on point with respect to transactions similar to those contemplated in the Transfer and Servicing Agreements or involving entities with a capital structure similar to the Issuing Entity, under current law, assuming the execution of, and compliance with, the Transfer and Servicing Agreements and subject to the discussion described below, the Issuing Entity will not be characterized as an association or a publicly traded partnership, in either case taxable as a corporation for U.S. federal income tax purposes. This opinion will be based on the assumption that the terms of the Transfer and Servicing Agreements will be complied with. An opinion of counsel, however, is not binding on the IRS or the courts. Thus, no assurance can be given that such a characterization will not be challenged nor, if challenged, will not prevail.
If the Issuing Entity were taxable as a corporation for U.S. federal income tax purposes, it would be subject to corporate income tax on its taxable income. The Issuing Entity’s taxable income would include all its income on the Receivables, possibly reduced by its interest expense on some or all of the classes of Notes. Any imposition of corporate income tax could materially reduce cash available to make payments on the Notes.
The Depositor, BMW Bank and the Servicer and any subsequent beneficial holder of Certificates (“
Certificate Owners”) will agree to treat the Issuing Entity:
| • | if there are multiple Certificate Owners (as determined for U.S. federal income tax purposes), as a partnership for purposes of U.S. federal, state and applicable local income and franchise taxes and any other tax measured in whole or in part by income, with the assets of the partnership being the assets held by the Issuing Entity, the partners of the partnership being the Certificate Owners, and the Notes being debt of the partnership, or |
| • | if there is a single Certificate Owner (as determined for U.S. federal income tax purposes), as an entity disregarded as separate from such Certificate Owner for purposes of U.S. federal, state and applicable local income and franchise taxes and any other tax measured in whole or in part by income, with the assets of the Issuing Entity and the Notes treated as assets and debt of the Certificate Owner, respectively. |
However, the proper characterization of the arrangement involving the Issuing Entity, the Certificates, the Notes, the Depositor, BMW Bank and the Servicer is not clear because there is no authority on transactions closely comparable to the transaction described in this prospectus.
If the Issuing Entity were treated as a partnership for U.S. federal income tax purposes, rules applicable to the audit of partnerships and entities or arrangements treated as partnerships for U.S. federal income tax purposes would apply. Under these rules, unless a partnership elects otherwise, taxes arising from audit adjustments are required to be paid by the partnership rather than by its partners or members. The parties responsible for the tax administration of the Issuing Entity will have the authority to utilize, and intend to utilize, any exceptions and/or elections available under these provisions (including any changes thereto) and Treasury regulations so that the beneficial owners of the Certificates, to the fullest extent possible, rather than the Issuing Entity itself, will be liable for any taxes arising from audit adjustments to the Issuing Entity’s taxable income if the Issuing Entity is treated as a partnership. It is unclear how any such elections may affect the procedural rules available to challenge any audit adjustment that would otherwise be available in the absence of any such elections.
Treatment of the Notes as Debt
Tax Counsel will deliver its opinion that, although there is no authority directly on point with respect to transactions similar to those contemplated in the Transfer and Servicing Agreements, entities with a capital structure similar to the Issuing Entity or instruments similar to the Notes, as of their issuance date, the Notes held by parties unaffiliated with the Issuing Entity for U.S. federal income tax purposes will be characterized as debt for such purposes. The discussion below assumes this characterization of the Notes is correct. The Depositor will agree, and the Note Owners will, by their purchase of Notes, be deemed to have agreed, to treat the Notes as debt for purposes of U.S. federal, state and applicable local income and franchise taxes, and for purposes of any other tax measured in whole or in part by income.
Tax Considerations for U.S. Note Owners
Stated Interest and Original Issue Discount. Stated interest on a Note will generally be includible in a U.S. Note Owner’s gross income for U.S. federal income tax purposes as it accrues or is received in accordance with the U.S. Note Owner’s usual method of accounting for such purposes. If, however, any of the Notes are issued with original issue discount (“OID”), the provisions of Sections 1271 through 1273 and 1275 of the Code and Treasury regulations relating to OID (such regulations the “OID Regulations”) will apply to such Notes. Under these provisions and the OID Regulations, U.S. Note Owners (including cash basis U.S. Note Owners) must include any OID on the Note in income under a constant yield method, resulting in the inclusion of OID in income in advance of the receipt of cash attributable to that income.
A Note will be treated as having been issued with OID to the extent that its “stated redemption price at maturity” exceeds its “issue price” by an amount that equals or exceeds a de minimis amount (0.25 percent of a Note’s stated redemption price at maturity, multiplied by the number of years to maturity, based on the anticipated weighted average life of the Note, determined by using a prepayment assumption and weighing each payment by reference to the number of complete years following issuance until payment is made for each partial principal payment). In determining whether the Notes were issued with OID, the Depositor expects to use a reasonable assumption regarding prepayments with respect to the Receivables (a “Prepayment Assumption”) to determine the weighted average maturity of the Notes. For additional information, investors should refer to “Weighted Average Lives of the Notes” in this prospectus.
The “issue price” of a Note is the first price at which a substantial amount of that class of Notes is sold to the public, excluding sales to bond houses, brokers, or organizations acting as underwriters, placement agents or wholesalers. The “stated redemption price at maturity” of a Note is the total of all payments provided on the Note other than payments of “qualified stated interest.” “Qualified stated interest” is generally interest that is unconditionally payable in cash or other property, at fixed intervals of one year or less during the entire term of the instrument based on a single fixed rate or qualifying variable rate – or certain combinations of fixed and qualifying variable rates. “Unconditionally payable” means that reasonable legal remedies exist to compel timely payment or that the terms of the instrument make the possibility of late payment or non-payment sufficiently remote.
While it is anticipated that the interest formula for the Notes will meet the requirements for qualified stated interest and that any OID on the Notes will not exceed the de minimis amount, it is possible that the Notes will be issued with more than a de minimis amount of OID. U.S. Note Owners generally must report de minimis OID pro rata as principal payments are received on the Note. Any such amount of de minimis OID includible in income is generally treated as gain recognized on the retirement of the Notes.
In the case of a debt instrument (such as a Note) as to which the repayment of principal may be accelerated as a result of the prepayment of other obligations securing the debt instrument, under Section 1272(a)(6) of the Code, the periodic accrual of OID is determined by taking into account (i) a reasonable prepayment assumption (generally, the assumption used to price the debt offering), and (ii) adjustments in the accrual of OID when prepayments do not conform to the prepayment assumption. To date, no Treasury regulations have been promulgated under Section 1276(a)(6) of the Code and it is unclear whether the provisions would be applicable to the Notes in the absence of such regulations or whether use of a reasonable prepayment assumption may be required or permitted without reliance on these rules. If this provision applies to the Notes, the amount of OID that will accrue in any given “accrual period” may either increase or decrease depending upon the actual prepayment rate of the Receivables. In the absence of such regulations (or statutory or other administrative clarification), any information reports or returns to the IRS and the U.S. Note Owners regarding OID, if any, will be based on the Prepayment Assumption, as explained above.
For additional information, investors should refer to “Weighted Average Lives of the Notes” in this prospectus and consult with their own tax advisors regarding the impact of any prepayments of the Receivables and the OID rules if the Notes are issued with OID.
Short-Term Notes. The U.S. Note Owner of a Note that has a fixed maturity date of not more than one year from the issue date of that Note (a “Short-Term Note”) may be subject to special rules. Accrual basis U.S. Note Owners of Short-Term Notes (and some cash basis U.S. Note Owners of Short-Term Notes) are required to report interest income as interest accrues on a straight-line basis or under a constant yield method over the term of each interest accrual period. Other cash basis U.S. Note Owners of a Short-Term Note are 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 U.S. Note Owner 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 a Short-Term Note. A cash basis U.S. Note Owner that is not required to report interest income as it accrues under the foregoing rules may elect to accrue interest income on all nongovernment debt obligations with a term of one year or less, in which case the U.S. Note Owner 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.
Market Discount. If a U.S. Note Owner purchases a Note at a “market discount,” (that is, at a purchase price less than the remaining stated redemption price at maturity of the Note (or in the case of a Note issued with OID, less than its adjusted issue price) which amount exceeds a de minimis amount specified in the Code), and thereafter (a) recognizes gain upon a disposition, or (b) receives payments of principal, the lesser of (i) such gain or principal payment or (ii) the accrued market discount will be taxed as ordinary interest income. Generally, the accrued market discount will be the total market discount on the related Note multiplied by a fraction, the numerator of which is the number of days the U.S. Note Owner held such Note and the denominator of which is the number of days from the date the U.S. Note Owner acquired such Note until its maturity date. The U.S. Note Owner may elect, however, to determine accrued market discount under the constant-yield method. Any such election will apply to all debt instruments acquired by the U.S. Note Owner on or after the first day of the first taxable year to which such election applies.
A U.S. Note Owner that incurs or continues indebtedness to acquire a Note at a market discount also may be required to defer the deduction of all or a portion of the interest on the indebtedness until the corresponding amount of market discount is included in income. A U.S. Note Owner that elects to include market discount in gross income as it accrues as described above is exempt from this rule. The adjusted basis of a Note subject to such election will be increased to reflect market discount included in gross income, thereby reducing any gain or increasing any loss on a subsequent sale or taxable disposition.
Amortizable Bond Premium. In general, if a U.S. Note Owner purchases a Note at a premium (generally, an amount in excess of the amount payable upon the maturity thereof), such U.S. Note Owner will be considered to have purchased such Note with “amortizable bond premium” equal to the amount of such excess. The U.S. Note Owner may elect to amortize such amortizable bond premium as an offset to interest income and not as a separate deduction item as it accrues under a constant-yield method over the remaining term of the Note. The U.S. Note Owner’s tax basis in the Note will be reduced by the amount of the amortized bond premium. Any such election will apply to all debt instruments (other than instruments the interest on which is excludible from gross income) held by the U.S. Note Owner at, or that is acquired subsequent to, the beginning of the first taxable year for which the election applies and is irrevocable without the consent of the IRS. Bond premium on a Note held by a U.S. Note Owner who does not elect to amortize the premium will decrease the gain or increase the loss otherwise recognized on the disposition of the Note.
Acquisition Premium. A U.S. Note Owner that purchases in a secondary market a Note that was originally issued with OID, for an amount that is less than or equal to the sum of all amounts (other than payments of qualified stated interest) payable on the Note after the purchase date but that is in excess of its adjusted issue price (such excess being “acquisition premium”) and that does not make the election described below, is permitted to reduce the daily portions of OID, if any, by a fraction, the numerator of which is the excess of the U.S. Note Owner’s adjusted basis in the Note immediately after its purchase over the adjusted issue price of the Note, and the denominator of which is the excess of the sum of all amounts payable on the Note after the purchase date, other than payments of qualified stated interest, over the Note’s adjusted issue price.
Election. A U.S. Note Owner may elect to include in gross income all interest that accrues on a Note by using a constant yield method. For purposes of the election, the interest includes stated interest, acquisition discount, OID, de minimis OID, market discount, de minimis market discount and unstated interest as adjusted by any amortizable bond premium or acquisition premium. This election will generally apply only to the Note with respect to which it is made and may not be revoked without the consent of the IRS. Potential U.S. Note Owners are encouraged to consult with their own tax advisors regarding the time and manner of making and the scope of the election and the implementation of the constant yield method.
Sale or Other Disposition. If a U.S. Note Owner sells a Note, the U.S. Note Owner will recognize gain or loss in an amount equal to the difference between the amount realized on the sale and the U.S. Note Owner’s adjusted tax basis in the Note. The adjusted tax basis of a Note will equal the U.S. Note Owner’s cost for the Note, increased by any market discount, acquisition discount, OID and gain previously included in income by that U.S. Note Owner with respect to the Note and decreased by the amount of bond premium, if any, previously amortized and by the amount of payments of principal and OID previously received by that U.S. Note Owner with respect to that Note. Any such gain or loss, and any gain or loss recognized on a prepayment of the Notes, 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 only to offset capital gains.
Tax on Net Investment Income. Certain non-corporate U.S. Note Owners will be subject to a 3.8% tax, in addition to regular tax on income and gains, on some or all of their “net investment income,” which generally will include interest, OID and market discount realized on a Note and any net gain recognized upon a disposition of a Note. Non-corporate U.S. Note Owners should consult their tax advisors regarding the applicability of this tax in respect of their Notes.
Benchmark Transition Event. If a Benchmark Transition Event and its related Benchmark Replacement Date have occurred with respect to Notes that have an interest rate that adjusts based on the SOFR Rate or the then-current Benchmark, the U.S. federal income tax consequences of such a replacement of the Benchmark are uncertain. If such a replacement constituted a “significant modification” of such Notes under Treasury regulation section 1.1001-3, the replacement may result in a deemed taxable exchange of the Notes and lead to the realization of gain or loss, as well as other corollary tax consequences. There is no direct IRS tax guidance regarding a possible change in the Benchmark as contemplated herein. Note Owners of Notes that have an interest rate that adjusts based on the SOFR Rate or the then-current Benchmark should consult with their own tax advisors regarding the potential consequences of a Benchmark Transition Event.
Tax Considerations for Foreign Note Owners
Except as described below with respect to backup withholding or FATCA (defined below) interest paid (or accrued) to a Foreign Note Owner generally will be considered “portfolio interest,” and generally will not be subject to United States federal income tax or withholding tax if the interest is not effectively connected with the conduct of a trade or business within the United States by the Foreign Note Owner and:
| • | the Foreign Note Owner is not actually or constructively a “10 percent shareholder” of the Issuing Entity or the Depositor (including a holder of 10% or more of the outstanding Certificates issued by the Issuing Entity) or a “controlled foreign corporation” with respect to which the Issuing Entity or the Depositor is a “related person” within the meaning of the Code; |
| • | the Foreign Note Owner is not a bank receiving interest described in Section 881(c)(3)(A) of the Code; |
| • | the interest is not contingent interest as described in Section 871(h)(4) of the Code; and |
| • | the Foreign Note Owner does not bear any of certain specified relationships to any Certificateholder. |
To qualify for the portfolio interest exemption, the Foreign Note Owner must provide the applicable Owner Trustee or Indenture Trustee or other person who is otherwise required to withhold U.S. tax with respect to the Notes with an appropriate statement, on IRS Form W-8BEN or IRS Form W-8BEN-E or applicable similar or successor forms, signed under penalty of perjury, certifying that the Note Owner is a Foreign Note Owner and providing the Foreign Note Owner’s name and address. Interest paid to a Foreign Note Owner is also not subject to U.S. federal withholding tax if such interest is effectively connected with the conduct of a trade or business within the United States by the Foreign Note Owner and such foreign person submits a properly executed IRS Form W-8ECI (or applicable successor form). If a Note is held through a securities clearing organization or other financial institution, the organization or institution may provide the relevant signed statement to the withholding agent; in that case, however, the Foreign Note Owner must provide the security clearing organization or other financial institution with an IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI or applicable similar or successor form. An IRS Form W-8BEN, IRS Form W-8BEN-E and IRS Form W-8ECI remains in effect for a period beginning on the date the form is signed and ending on the last day of the third succeeding calendar year, absent a change in circumstances causing any information on the form to be incorrect. Under certain circumstances, the IRS Form W-8BEN and IRS Form W-8BEN-E can remain in effect indefinitely. The Foreign Note Owner must notify the person to whom it provided the IRS Form W-8BEN, IRS Form W-8BEN-E, IRS Form W-8ECI or applicable similar or successor form of any changes to the information on the form or applicable similar or successor form within 30 days of that change. If interest paid to a Foreign Note Owner is not considered portfolio interest and is not effectively connected with the conduct of a trade or business within the United States by the Foreign Note Owner, then it will be subject to United States withholding tax at a rate of 30%, unless reduced or eliminated pursuant to an applicable tax treaty. In order to claim the benefit of any applicable tax treaty, the Foreign Note Owner must provide the applicable Owner Trustee or Indenture Trustee or other person who is required to withhold U.S. tax with respect to the Notes with an appropriate statement on IRS Form W-8BEN or IRS Form W-8BEN-E or applicable similar or successor form, signed under penalty of perjury, certifying that the Foreign Note Owner is entitled to benefits under the treaty.
In the case of Notes held by a Foreign Note Owner treated as a partnership for U.S. federal income tax purposes, or by certain nominees, (x) the certification described above must be provided by the partners or beneficiaries rather than by the foreign partnership or nominee and (y) the partnership or nominee itself must provide certain information. A look-through rule would apply in the case of tiered partnerships. Foreign Note Owners are urged to consult their own tax advisors concerning the application of the certification requirements.
Except as described below with respect to backup withholding or FATCA, any capital gain realized on the sale, redemption, retirement or other taxable disposition of a Note by a Foreign Note Owner will be exempt from U.S. federal income and withholding tax, provided that:
| • | the gain is not effectively connected with the conduct of a trade or business in the United States by the Foreign Note Owner; and |
| • | in the case of an individual Foreign Note Owner, the Foreign Note Owner is not present in the United States for 183 days or more during the taxable year of disposition. |
If interest paid to a Foreign Note Owner or gain on the sale, redemption, retirement or other taxable disposition of a Note is effectively connected with the conduct of a trade or business within the United States by the Foreign Note Owner, then although the Foreign Note Owner will be exempt from the withholding of tax previously discussed if an appropriate statement is provided, such Foreign Note Owner generally will be subject to U.S. federal income tax on such interest, including OID, and any gain on a disposition of the Note at applicable graduated federal income tax rates. In addition, if the Foreign Note Owner is a foreign corporation, it may be subject to a branch profits tax equal to 30% of the “effectively connected earnings and profits” within the meaning of the Code for the taxable year, as adjusted for certain items, unless such Foreign Note Owner qualifies for a lower rate under an applicable tax treaty.
In addition to the rules described above regarding the potential imposition of U.S. withholding taxes on payments to non-U.S. persons, withholding taxes could also be imposed under the “Foreign Account Tax Compliance Act” (“FATCA”) regime. Under FATCA, foreign financial institutions (defined broadly and including entities not organized under U.S. law that are primarily in the business of investing or trading in securities such as hedge funds, private equity funds, mutual funds, securitization vehicles and other investment vehicles) must comply with information gathering and reporting rules with respect to their U.S. account holders and investors and enter into agreements pursuant to which such foreign financial institutions must gather and report certain information to the IRS (or, pursuant to an applicable intergovernmental agreement, to their local tax authorities who will report such information to the IRS) and withhold U.S. taxes from certain payments made by them in order to avoid 30% withholding on certain payments of U.S. source income to them. Foreign financial institutions that fail to comply with the FATCA registration and certification requirements will be subject to a 30% withholding tax on payments in respect of the Notes made to them of interest and OID and (subject to the caveat below) gross proceeds from the sale of, or principal payments on, the Notes. Payments of U.S. source interest and OID from the Notes will also be subject to a withholding tax of 30% unless the entity certifies that it does not have any substantial U.S. owners or provides the name, address and tax identification number of each substantial U.S. owner. FATCA withholding will apply regardless of whether the payment would otherwise be exempt from U.S. nonresident withholding tax (e.g., under the portfolio interest exemption) and regardless of whether the foreign financial institution is the beneficial owner of such payment. Notwithstanding the foregoing, the IRS has issued proposed regulations, upon which taxpayers may generally rely until the issuance of final regulations, that exclude principal payments and gross proceeds from the sale or other disposition of the Notes from the application of the withholding tax imposed under FATCA.
Backup withholding of U.S. federal income tax may apply to payments made in respect of a Note to a registered owner who is not an “exempt recipient” (which generally includes 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) and who fails to provide certain identifying information (such as the registered owner’s taxpayer identification number) in the manner required. Each U.S. Note Owner will be required to provide, under penalty of perjury, a certificate on IRS Form W-9 (or applicable successor form) providing the U.S. Note Owner’s name, address, correct federal taxpayer identification number and a statement that the U.S. Note Owner is not subject to backup withholding. Compliance with the identification procedures (as described under “Tax Considerations for Foreign Note Owners”) would establish an exemption from backup withholding for a Foreign Note Owner who is not an exempt recipient.
Should a nonexempt Note Owner fail to provide the required certification, the Issuing Entity will be required to withhold from the amount otherwise payable to the Note Owner, and remit the withheld amount to the IRS. Backup withholding is not an additional tax. The amount withheld would be credited against the Note Owner’s federal income tax liability provided the required information is furnished in a timely manner.
Reportable Transaction Disclosure
In certain circumstances, a
U.S. Person that holds Notes and that disposes of such investment in a transaction resulting in the recognition by such holder of significant losses in excess of certain threshold amounts may be obligated to disclose its participation in such transaction in accordance with regulations issued by the
Treasury Department governing tax shelters and other potentially tax-motivated transactions. Investors should consult their tax advisors concerning any possible disclosure obligation under such regulations with respect to the disposition of such securities.
Possible Alternative Treatments of the Notes
If, contrary to the opinion of Tax Counsel, the IRS successfully asserted that one or more classes of Notes did not represent debt for U.S. federal income tax purposes, such classes of Notes may be treated as equity interests in the Issuing Entity. If so treated, the Issuing Entity might be taxable as a corporation or a publicly traded partnership taxable as a corporation on its taxable income with the adverse consequences described above under “
Tax Characterization of the Issuing Entity” (and the taxable corporation or publicly traded partnership taxable as a corporation would not be able to reduce its taxable income by deductions for interest expense on Notes recharacterized as equity). Alternatively, and most likely in the view of Tax Counsel, the Issuing Entity may be treated as a partnership (including a publicly traded partnership that would not be taxable as a corporation because it would meet specified qualifying income safe harbors, although no assurances can be given that any such qualifying income safe harbors will be met). Nonetheless, treatment of the Notes as equity interests in a partnership or a publicly traded partnership could have adverse tax consequences to some Note Owners. For example, income to some tax-exempt entities (including pension funds) may be “unrelated business taxable income,” income to Foreign Note Owners may be subject to U.S. federal income tax and withholding taxes and cause Foreign Note Owners to be subject to U.S. tax return filing and withholding requirements, and individual Note Owners might be subject to some limitations on their ability to deduct their share of Issuing Entity expenses.
The IRS has adopted Treasury regulations under Section 385 of the Code that in certain circumstances treat an instrument that otherwise would be treated as debt for U.S. federal income tax purposes as equity during periods in which the instrument is held by a member of an “expanded group” that includes the issuer of the instrument. An expanded group is generally a group of corporations or controlled partnerships connected through 80% or greater direct or indirect ownership links.
The Issuing Entity does not believe that these regulations will apply to any of the Notes. However, the regulations are complex and have not yet been applied by the IRS or any court. If the Notes were treated as equity under these rules, they may once again be treated as debt when acquired by a holder that is not a member of an expanded group including the Issuing Entity. Notes treated as newly issued under this rule may have tax characteristics differing from Notes that were not previously treated as equity. The Issuing Entity does not intend to separately track any such Notes.
Potential investors in the Notes should consult with their own tax advisors regarding the possible effect of the Section 385 regulations on them, including without limitation with regard to tax consequences where Notes held by them are treated as having tax characteristics that differ from other Notes.
State and Local Tax Considerations
Potential investors in the Notes should consider the state and local income tax consequences of the purchase, ownership and disposition of the Notes. State and local income tax laws may differ substantially from the corresponding federal law, and this discussion does not purport to describe any aspect of the income tax laws of any state or locality. Therefore, potential holders should consult their own tax advisors with respect to the various state and local tax consequences of an investment in the Notes.
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 individual retirement accounts and Keogh Plans (each a “Benefit Plan” or “Plan”), from engaging in transactions involving “plan assets” with persons that are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to that Benefit Plan, unless there is an applicable exemption. ERISA also imposes duties on persons who are fiduciaries of Benefit Plans subject to ERISA. Under ERISA, any person who exercises any authority or control with respect to the management or disposition of the assets of a Benefit Plan is considered to be a fiduciary of that Benefit Plan (subject to exceptions not here relevant). A violation of these “prohibited transaction” rules may result in an excise tax or other penalties and liabilities under ERISA and the Code for those persons. Certain exemptions from the prohibited transaction rules could be applicable to the acquisition, holding and disposition of the Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary making the decision to acquire the Notes. Potentially available exemptions would include, without limitation, Prohibited Transaction Class Exemption (“PTCE”) 90-1, which exempts certain transactions involving insurance company pooled separate accounts; PTCE 95-60, which exempts certain transactions involving insurance company general accounts; PTCE 91-38, which exempts certain transactions involving bank collective investment funds; PTCE 84-14, which exempts certain transactions effected on behalf of a plan by a “qualified professional asset manager”, and PTCE 96-23, which exempts certain transactions effected on behalf of a plan by an “in-house asset manager.” There is also a statutory exemption that may be available under Section 408(b)(17) of ERISA and Section 4975(d)(20) of the Code to a party in interest that is a service provider to a Plan (or an affiliate of such a service provider) investing in the Notes for adequate consideration, provided such service provider (or affiliate thereof) is not (i) the fiduciary with respect to the Plan’s assets used to acquire the Notes or an affiliate of such fiduciary or (ii) an affiliate of the employer sponsoring the Plan. Adequate consideration means fair market value as determined in good faith by the Plan fiduciary pursuant to regulations to be promulgated by the U.S. Department of Labor (the “DOL”). (These administrative and statutory exemptions are collectively referred to as the “Investor-Based Exemptions”.) Insurance company general accounts should also discuss with their legal counsel the availability of exemptive relief under Section 401(c)(1) of ERISA. A purchaser or transferee of the Notes should be aware, however, that even if the conditions specified in one or more exemptions are met, the scope of the relief provided by the applicable exemption or exemptions might not cover all acts that might be construed as prohibited transactions.
Some transactions involving the Issuing Entity might be deemed to constitute prohibited transactions under ERISA and the Code with respect to a Benefit Plan that acquired Notes if assets of the Issuing Entity were deemed to be assets of the Benefit Plan. Under a regulation issued by the DOL (as modified by Section 3(42) of ERISA, the “Plan Assets Regulation”), the assets of the Issuing Entity 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 Issuing Entity and none of the exceptions contained in the Plan Assets Regulation was applicable. An equity interest is defined under the Plan Assets Regulation as an interest other than an instrument which is treated as indebtedness under applicable local law and which has no substantial equity features. Although there is little guidance on the subject, the Notes should be treated as indebtedness without substantial equity features for purposes of the Plan Assets 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.
However, even if the Notes are treated as debt for purposes of the Plan Assets Regulation, the acquisition, holding or disposition of Notes by or on behalf of a Plan could be considered to give rise to a non-exempt prohibited transaction if the Issuing Entity, the Indenture Trustee, the Owner Trustee, any underwriter or certain of their affiliates is or becomes a party in interest or a disqualified person with respect to a Plan. In that instance, various prohibited transaction exemptions, including the Investor-Based Exemptions could be applicable depending on the type and circumstances of the plan fiduciary making the decision to acquire a Note.
The Issuing Entity, the underwriters, the Owner Trustee, Indenture Trustee, the Depositor or their affiliates may be the sponsor of, or investment advisor or fiduciary with respect to, one or more Plans. Because these parties may receive certain benefits in connection with the sale or holding of the Notes, the acquisition of the Notes using plan assets over which any of these parties or their affiliates has investment authority or renders investment advice might be deemed to be a violation of a provision of Title I of ERISA or Section 4975 of the Code. Accordingly, the Notes may not be acquired using the assets of any Plan if any of the above parties or their affiliates has investment authority or renders investment advice for those assets, or is an employer maintaining or contributing to the Plan, unless an applicable prohibited transaction exemption is available to cover such acquisition, or the acquisition does not otherwise cause or constitute a non-exempt prohibited transaction.
Employee benefit plans that are governmental plans (as defined in Section 3(32) of ERISA) and some church plans (as defined in Section 3(33) of ERISA) are not subject to ERISA requirements nor to Section 4975 of the Code. However, such plans may be subject to state or local laws that impose similar requirements. In addition, governmental plans and church plans that are “qualified” under Section 401(a) of the Code are subject to restrictions with respect to prohibited transactions under Section 503 of the Code, the sanction for violation being loss of “qualified” status.
Each investor using the assets of a Benefit Plan or other plan which acquires the Notes, or to whom the Notes are transferred, will be deemed to have represented that the acquisition, continued holding and disposition of the Notes will not result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code because it will satisfy the requirements of an Investor-Based Exemption or another applicable administrative or statutory exemption, or otherwise will not constitute or result in a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental or church plan, will not cause a violation of any applicable law that is substantially similar to Title I of ERISA or Section 4975 of the Code).
Due to the complexities of the “prohibited transaction” rules and the penalties imposed upon persons involved in prohibited transactions, it is important that the fiduciary of any Benefit Plan considering the acquisition of Notes consult with its tax and/or legal advisors regarding whether the assets of the Issuing Entity would be considered plan assets, the possibility of exemptive relief from the prohibited transaction rules and other issues and their potential consequences.
The sale of Notes to a Benefit Plan or other plans is in no respect a representation that this investment meets all relevant legal requirements with respect to investments by Benefit Plans or plans generally or by a particular Benefit Plan or a plan.
It is a condition to the issuance of the Notes that they receive certain credit ratings from the Rating Agencies. None of the Sponsor, the Depositor, the Servicer, the Sellers, the Administrator, the Indenture Trustee, the Owner Trustee, the Asset Representations Reviewer or any of their affiliates will be required to monitor any changes to the ratings on the Notes.
The Sponsor will pay the Rating Agencies’ fees, which include initial fees in an amount equal to approximately $535,000 and annual surveillance fees in an amount equal to approximately $23,500. None of these fees will be paid out of the collections on the Receivables. Although we do not anticipate that these fees will change while the Notes are outstanding, any changes thereto after the Closing Date will be disclosed in the monthly statements to Noteholders. Neither of the Rating Agencies retain any risk of loss with respect to the Receivables.
Subject to the terms and conditions set forth in an underwriting agreement relating to the Notes, the Depositor has agreed to sell to the underwriters named below, for whom Wells Fargo Securities, LLC is acting as representative, and the underwriters have agreed to purchase, severally but not jointly, the following principal amounts of the Notes.
Underwriter | Class A-1 Notes | | Class A-2a Notes | | Class A-2b Notes | | Class A-3 Notes | | Class A-4 Notes |
| Wells Fargo Securities, LLC | $175,000,000 | | $153,125,000 | | $153,125,000 | | $323,750,000 | | $70,000,000 |
| RBC Capital Markets, LLC | $78,750,000 | | $68,906,000 | | $68,907,000 | | $145,687,000 | | $31,500,000 |
| SMBC Nikko Securities America, Inc. | $78,750,000 | | $68,907,000 | | $68,906,000 | | $145,687,000 | | $31,500,000 |
Barclays Capital Inc. | $8,750,000 | | $7,656,000 | | $7,656,000 | | $16,188,000 | | $3,500,000 |
| HSBC Securities (USA) Inc. | | | | | | | | | |
Total | | | | | | | | | |
The underwriting agreement provides, subject to conditions precedent, that the underwriters will be obligated to purchase all the Notes if any are purchased. The underwriting agreement provides that if there is an event of default by an underwriter, in some circumstances the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
The Depositor has been advised that the underwriters propose initially to offer the Notes to the public at the respective offering prices set forth on the cover hereof and to certain dealers at such prices less a selling concession not to exceed the percentage of the principal amount of the Notes set forth below, and that the underwriters may allow and such dealers may reallow a reallowance discount not to exceed the percentage of the principal amount of
the Notes set forth below. After the initial public offering of the Notes, the public offering prices and concessions referred to in this paragraph may change.
| Selling Concession | Reallowance Discount |
Class A-1 | 0.04200% | 0.02100% |
Class A-2a | 0.09300% | 0.04700% |
Class A-2b | 0.09300% | 0.04700% |
Class A-3 | 0.12900% | 0.06500% |
Class A-4 | 0.16700% | 0.08300% |
The Depositor and BMW FS have jointly and severally 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.
In the ordinary course of their respective businesses, the underwriters and their respective affiliates have engaged and may engage in various financial advisory, investment banking and commercial banking transactions from time to time with BMW FS and its affiliates. The Issuing Entity may, from time to time, invest funds in the Collection Account or the Reserve Account in Eligible Investments acquired from the underwriters.
The Notes are new issues of securities with no established trading market. The Depositor has been advised by the underwriters that they intend to make a market in the Notes as permitted by applicable laws and regulations. The underwriters are not obligated, however, to make a market in the Notes, and any market-making may be discontinued at any time without notice at the sole discretion of the underwriters. Accordingly, no assurance can be given as to the liquidity of, or trading markets for, the Notes of any class.
In connection with the offering of the Notes, the underwriters may engage in overallotment, stabilizing transactions and syndicate covering transactions. Overallotment involves sales in excess of the offering size which creates a short position for the underwriters. Stabilizing transactions involve bids to purchase the Notes in the open market for the purpose of pegging, fixing or maintaining the price of the Notes. Syndicate covering transactions involve purchases of the Notes in the open market after the distribution has been completed in order to cover short positions. Stabilizing transactions and syndicate covering transactions may cause the price of the Notes to be higher than it would otherwise be in the absence of those transactions. If the underwriters engage in stabilizing or syndicate covering transactions, they may discontinue them at any time.
Upon receipt of a request by an investor who has received an electronic prospectus from an underwriter or a request by that investor’s representative within the period during which there is an obligation to deliver a prospectus, BMW FS, the Depositor or the underwriters will promptly deliver, or cause to be delivered, without charge, a paper copy of this prospectus.
Each underwriter has represented and agreed, severally and not jointly, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any EU retail investor in the European Economic Area (the “EEA”). For these purposes:
| (a) | the expression “EU retail investor” means a person who is one (or more) of the following: |
| (i) | a retail client, as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or |
| (ii) | a customer within the meaning of Directive (EU) 2016/97, as amended, where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or |
| (iii) | not a qualified investor as defined in Article 2 of Regulation (EU) 2017/1129, as amended; and |
| (b) | the expression “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes. |
Each underwriter has represented and agreed, severally and not jointly, that:
| (a) | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (as amended, the “FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuing Entity or the Depositor; and |
| (b) | it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom (the “UK”). |
Each underwriter has also represented and agreed, severally and not jointly, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes to any UK retail investor in the UK. For these purposes:
| (a) | the expression “UK retail investor” means a person who is one (or more) of the following: |
| (i) | a retail client, as defined in point (8) of Article 2 of Commission Delegated Regulation (EU) 2017/565 as it forms part of the domestic law of the UK by virtue of the European Union (Withdrawal) Act 2018 (as amended, the “EUWA”), and as amended; or |
| (ii) | a customer within the meaning of the provisions of the FSMA and any rules or regulations made under the FSMA (such rules or regulations, as amended) to implement Directive (EU) 2016/97, where that customer would not qualify as a professional client, as defined in point (8) of Article 2(1) of Regulation (EU) No 600/2014 as it forms part of the domestic law of the UK by virtue of the EUWA, and as amended; or |
| (iii) | not a qualified investor, as defined in Article 2 of Regulation (EU) 2017/1129 as it forms part of the domestic law of the UK by virtue of the EUWA, and as amended; and |
| (b) | the expression “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe for the Notes. |
If any class of Notes has a Final Scheduled Payment Date falling less than one year after the Closing Date, no Notes of such class have been or will be offered in the UK or to any UK person, and no proceeds of such class of Notes will be received in the UK.
Requirements for Certain European and United Kingdom Regulated Investors and Affiliates
Regulation (EU) 2017/2402 of the European Parliament and of the Council of December 12, 2017 (as amended, the “EU Securitization Regulation”) has direct effect in member states of the EU and is expected to be implemented in other countries in the European Economic Area (the “EEA”).
Article 5 of the EU Securitization Regulation places certain conditions on investments in a “securitisation” (as defined in the EU Securitization Regulation) (the “EU Due Diligence Requirements”) by certain types of EU-regulated (or, as applicable, EEA-regulated) investors, including insurance undertakings, reinsurance undertakings, institutions for occupational retirement provision, investment managers and authorized entities appointed by such institutions, alternative investment fund managers that manage and/or market alternative investment funds in the EU (or, as applicable, in the EEA), management companies of undertakings for collective investment in transferable securities (“UCITS”), internally managed UCITS, credit institutions and investment firms, each as described in
more detail in the EU Securitization Regulation. The EU Due Diligence Requirements also apply to investments by certain consolidated affiliates, wherever established or located, of entities that are subject to Regulation (EU) No 575/2013 (as amended) (such affiliates, together with all such institutional investors, “EU Affected Investors”).
The framework for the regulation of certain aspects of securitization in the UK comprising (a) the Securitisation Regulations 2024 (as amended, the “SR 2024”), (b) the Securitisation Sourcebook of the handbook of rules and guidance adopted by the UK Financial Conduct Authority (the “FCA Rules”), (c) the Securitisation Part of the rulebook of published policy of the Prudential Regulation Authority of the Bank of England (the “PRASR”) and (d) relevant provisions of the FSMA (in each case as further amended, supplemented or replaced and, collectively, the “UK Securitization Framework”).
Regulations 32B to 32D (inclusive) of the SR 2024, SECN 4 of the FCA Rules and Article 5 of Chapter 2 of the PRASR, as applicable, place certain conditions on investments in a “securitisation” (as defined in the SR 2024) (the “UK Due Diligence Requirements”) by certain types of UK-regulated investors, including insurance undertakings, reinsurance undertakings, trustees and managers of occupational pension schemes, fund managers of such schemes, AIFMs that have permission under the FSMA in respect of managing AIFs and that market or manage AIFs in the UK, small registered UK AIFMs, UCITS, UCITS management companies, CRR firms and FCA investment firms, each as described in more detail in the SR 2024. The UK Due Diligence Requirements also apply to investments by certain consolidated affiliates, wherever established or located, of entities that are subject to Regulation (EU) No 575/2013, as it forms part of the domestic law of the UK by virtue of the EUWA, and as amended (such affiliates, together with all such institutional investors, “UK Affected Investors”).
The EU Due Diligence Requirements and the UK Due Diligence Requirements provide, among other things, that, prior to investing in a securitization, an EU Affected Investor or a UK Affected Investor, respectively, is required to verify certain matters, including that (a) certain credit-granting requirements are satisfied, (b) the originator, sponsor or original lender (each as defined in the EU Securitization Regulation or the SR 2024, as applicable) retains on an ongoing basis (or, in the case of certain UK Affected Investors, continually retains) a material net economic interest in the securitization which, in any event, will not be less than 5%, in accordance with the EU Securitization Regulation or the UK Securitization Framework, as applicable, and discloses that risk retention, (c) in the case of an EU Affected Investor, the originator, sponsor or securitization special purpose entity (each as defined in the EU Securitization Regulation) has, where applicable, made available the information required by Article 7 of the EU Securitization Regulation in accordance with the frequency and modalities provided for in that Article and (d) in the case of a UK Affected Investor, the originator, sponsor or securitization special purpose entity (each as defined in the SR 2024) has made available sufficient information to enable the institutional investor independently to assess the risks of holding the securitisation position, and has committed to make further information available on an ongoing basis, as appropriate, and including at least the information described in the SR 2024, the FCA Rules or the PRASR, as applicable.
None of the Issuing Entity, the Depositor, the Sponsor, the Sellers, the Servicer, the Administrator, the Indenture Trustee, the Paying Agent, the Owner Trustee, the underwriters, the other parties to the transaction described in this prospectus, nor any of their respective affiliates, will undertake, or intends, to retain a material net economic interest with respect to such transaction in a manner that would satisfy the requirements of the EU Securitization Regulation or the UK Securitization Framework.
In addition, no such person will undertake, or intends, in connection with such transaction, to take any other action or refrain from taking any action prescribed or contemplated in the EU Securitization Regulation or the UK Securitization Framework, or for purposes of, or in connection with, facilitating or enabling compliance by EU Affected Investors with the EU Due Diligence Requirements, by UK Affected Investors with the UK Due Diligence Requirements or by any person with the requirements of any other law or regulation now or hereafter in effect in the EU, any EEA member state or the UK in relation to risk retention, due diligence and monitoring, credit granting standards, transparency or any other conditions with respect to investments in securitization transactions.
The arrangements described under “Credit Risk Retention” in this prospectus have not been structured with the objective of enabling or facilitating compliance by any person with the requirements of the EU Securitization Regulation or the UK Securitization Framework.
Failure by an EU Affected Investor to comply with the EU Due Diligence Requirements or by a UK Affected Investor to comply with the UK Due Diligence Requirements, in either case with respect to an investment in the Notes, may result in the imposition of a penalty regulatory capital charge on that investment or other regulatory sanctions and/or remedial measures being imposed or taken by such investor’s relevant regulatory authority.
Consequently, the Notes may not be a suitable investment for EU Affected Investors or UK Affected Investors. As a result, the price and liquidity of the Notes in the secondary market may be adversely affected.
Prospective investors are responsible for analyzing their own legal and regulatory position and are encouraged to consult with their own investment and legal advisors regarding the suitability of the Notes for investment and the scope, applicability and compliance requirements of the EU Securitization Regulation, the UK Securitization Framework and any applicable existing or future similar regimes in any relevant jurisdictions.
In addition to the legal opinions described in this prospectus, legal matters relating to the Notes and U.S. federal income tax and other matters will be passed upon for the Issuing Entity by Morgan, Lewis & Bockius LLP. Certain legal matters will be passed upon for the underwriters by Sidley Austin LLP. Sidley Austin LLP from time to time renders legal services to BMW FS and certain of its affiliates on other matters.
