As Filed with the Securities and Exchange Commission on March 13, 2003.
Registration No. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES
ACT OF 1933
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BMW FS Securities LLC
(Originator of the Trust described herein and transferor of the
Receivables to the Trust)
Delaware 7515 22-3784653
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
300 Chestnut Ridge Road
Woodcliff Lake, NJ 07677
(201) 307-4000
(Address, including Zip Code, and Telephone Number, including Area Code, of
Principal Executive Offices of BMW FS Securities LLC and BMW Vehicle Owner Trust
2001-A )
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Daniel J. Mette, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8749
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(c) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Amount to Offering Aggregate Registration
Securities to be Registered Be Registered Price Per Unit(2) Offering Price(2) Fee
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Asset-Backed Notes and Certificates.............. 0 100% 0 0
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(1) In addition, pursuant to Rule 429 under the Securities Act of 1933,
when this Registration Statement is declared effective, any securities
that remain unsold under the Registration Statement on Form S-3 (File
No. 333-56802) of the Registrant will be carried forward. As of the
date that this Registration Statement was filed, $522,835,000 of
securities remained unsold under the Registration Statement on Form
S-3 (File No. 333-56802). All SEC filing fees relating to the
Registration Statement on Form S-3 (File No. 333-56802) were previously
paid.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933, as amended,
or until this Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a) may
determine.
Pursuant to Rule 429 under the Securities Act of 1933, when this
Registration Statement is declared effective, each Prospectus which is
a part of this Registration Statement shall relate to any securities
which remain unsold under the Registration Statement on Form S-3 (File
No. 333-56802) of the Registrant.
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PROSPECTUS
BMW Vehicle Owner Trusts
Asset Backed Notes
Asset Backed Certificates
BMW FS Securities LLC,
Depositor
BMW Financial Services NA, LLC,
Servicer
The Trusts:
1. A new trust will be formed to issue each series of securities and a
particular trust may issue multiple series of securities;
2. Each trust will consist of:
o a pool of retail installment sale contracts secured by new or used
motor vehicles; and
o other assets specified in the applicable prospectus supplement.
The Securities:
1. will be asset-backed securities sold periodically in one or more series;
2. will be paid only from the assets of the related trust and any form of
credit enhancement;
3. will be issued as part of a designated series that may include one or more
classes; and
4. will consist of:
o notes (which will be treated as indebtedness of the trust) and/or
o certificates (which will represent an undivided ownership interest in
the trust).
You should review carefully the factors set forth under "Risk Factors" beginning
on page 13 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the securities or determined that this
prospectus or the applicable prospectus supplement is accurate or complete. Any
representation to the contrary is a criminal offense.
The amounts, prices and terms of each offering of securities will be determined
at the time of sale and will be described in a prospectus supplement that will
be attached to this prospectus.
This prospectus may be used to offer and sell any series of securities only if
accompanied by the prospectus supplement for that series.
The date of this prospectus is March [ ], 2003.
1
TABLE OF CONTENTS
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement ....................................6
Summary of Terms...............................................................7
Trust..........................................................................7
Depositor......................................................................7
Servicer.......................................................................7
Trustee........................................................................7
Indenture Trustee..............................................................7
Securities Offered.............................................................7
The Receivables................................................................8
The Trust Property.............................................................9
Credit and Cash Flow Enhancement...............................................9
Servicing Fee.................................................................10
Advances......................................................................10
Optional Purchase.............................................................11
Tax Status....................................................................11
ERISA Considerations..........................................................12
Risk Factors..................................................................13
You must rely for repayment only upon payments from the trust's assets
which may not be sufficient to make full payments on your securities .........13
You may experience reduced returns on your investment resulting from
prepayments, repurchases or early termination of the trust ...................13
Interests of other persons in the receivables and financed vehicles
could be superior to the trust's interest, which may result in reduced
payments on your securities ..................................................14
Receivables that fail to comply with consumer protection laws may be
unenforceable, which may result in losses on your investment .................15
The bankruptcy of BMW Financial Services NA, LLC (servicer) or
BMW FS Securities LLC (depositor) could result in losses or delays
in payments on your securities ...............................................15
Proceeds of the sale of receivables may not be sufficient to pay
your securities in full ......................................................16
Failure to pay principal on your notes will not constitute an event
of default until maturity ....................................................16
Funds held by the servicer that are intended to be used to make
payments on the securities may be exposed to a risk of loss ..................16
If the trust enters into a currency or an interest rate swap, payments
on the securities will be dependent on payments made under the
swap agreement ...............................................................17
2
Termination of a swap agreement and the inability to locate replacement
swap counterparty may cause termination of the trust .........................17
The rating of a third party credit enhancement provider may affect the
ratings of the securities ....................................................18
The calculations for the payments of principal or interest may be based
on an index which may result in payments to you of less principal or
interest than a non- indexed security ........................................18
You may have difficulty selling your securities and/or obtaining your
desired price due to the absence of a secondary market .......................19
Because the securities are in book-entry form, your rights can only be
exercised indirectly .........................................................19
Possible Prepayment Due to Inability to Acquire Subsequent Receivables........20
Formation of the Trusts.......................................................21
Property of the Trusts........................................................21
The Receivables...............................................................22
Use of Proceeds...............................................................24
The Trustee...................................................................24
The Depositor.................................................................24
The Servicer..................................................................24
BMW FS' Financing Program.....................................................25
General.......................................................................25
Underwriting..................................................................25
Dealer Agreements.............................................................27
Servicing.....................................................................27
Physical Damage and Liability Insurance.......................................28
Certified Pre-Owned Program...................................................28
Where can you find more information about your Securities.....................28
Delinquencies, Repossessions and Net Losses...................................29
Weighted Average Life of the Securities.......................................29
Pool Factors and Trading Information..........................................30
The Notes.....................................................................31
General.......................................................................31
Principal and Interest on the Notes...........................................31
The Indenture.................................................................32
The Certificates..............................................................37
General.......................................................................37
Payments of Principal and Interest............................................38
Certain Information Regarding the Securities..................................38
3
Fixed Rate Securities.........................................................39
Floating Rate Securities......................................................39
Indexed Securities............................................................49
Interest Rate Swaps...........................................................50
Variable Funding Note.........................................................50
Pro-Rata Pay/Subordinate Securities...........................................50
Revolving Period..............................................................50
Book-Entry Registration.......................................................50
Definitive Securities.........................................................55
Description of the Transfer and Servicing Agreements..........................56
Sale and Assignment of Receivables............................................56
Accounts......................................................................58
Servicing Procedures..........................................................60
Insurance on Financed Vehicles................................................61
Collections...................................................................61
Advances......................................................................62
Servicing Compensation........................................................63
Yield Supplement Account; Yield Supplement Agreement..........................64
Distributions on the Securities...............................................65
Credit and Cash Flow Enhancement..............................................65
Net Deposits..................................................................67
Statements to Trustees and the Trust..........................................67
Statements to Securityholders.................................................67
Evidence as to Compliance.....................................................69
Certain Matters Regarding the Servicer........................................69
Servicer Default..............................................................70
Rights Upon Servicer Default..................................................70
Waiver of Past Defaults.......................................................71
Amendment.....................................................................71
List of Securityholders.......................................................72
Insolvency Event..............................................................72
Payment of Notes..............................................................72
Termination...................................................................73
Administration Agreement......................................................73
4
Certain Legal Aspects of the Receivables......................................74
General.......................................................................74
Security Interests............................................................74
Repossession..................................................................76
Notice of Sale; Redemption Rights.............................................76
Deficiency Judgments and Excess Proceeds......................................77
Certain Bankruptcy Considerations.............................................77
Consumer Protection Laws......................................................78
Other Limitations.............................................................80
Material Income Tax Consequences..............................................80
Tax Treatment of Owner Trusts.................................................81
Tax Treatment of Grantor Trusts...............................................90
State and Local Tax Considerations............................................97
ERISA Considerations..........................................................97
Underwriting..................................................................99
Legal Opinions................................................................99
Index of Terms...............................................................100
5
Important Notice About Information Presented in this Prospectus
and the Accompanying Prospectus Supplement
We provide information to you about the securities in two separate
documents that progressively provide varying levels of detail:
o This prospectus, which provides general information, some of which may
not apply to a particular series of securities including your series,
and
o The accompanying prospectus supplement, which will describe the
specific terms of the offered securities.
We have started with several introductory sections describing the trust and
the securities in abbreviated form, followed by a more complete description of
the terms. The introductory sections are:
o Summary of Terms--which gives a brief introduction to the securities
to be offered, and
o Risk Factors--which describes briefly some of the risks to investors
of a purchase of the securities.
You can find a listing of the pages where capitalized terms used in this
prospectus are defined under the caption "Index of Terms" beginning on page 102
in this prospectus.
Whenever we use words like "intends," "anticipates" or "expects" or similar
words in this prospectus, we are making a forward-looking statement, or a
projection of what we think will happen in the future. Forward-looking
statements are inherently subject to a variety of circumstances, many of which
are beyond our control and could cause actual results to differ materially from
what we anticipate. Any forward-looking statements in this prospectus speak only
as of the date of this prospectus. We do not assume any responsibility to update
or review any forward-looking statement contained in this prospectus to reflect
any change in our expectation about the subject of that forward-looking
statement or to reflect any change in events, conditions or circumstances on
which we have based any forward-looking statement, except to the extent required
by law.
If the terms of a particular series of securities vary between this
prospectus and the prospectus supplement, you should rely on the information in
the prospectus supplement.
6
Summary of Terms
The following summary highlights selected information from this prospectus and
provides a general overview of relevant terms of the securities. You should read
carefully this entire document and the accompanying prospectus supplement to
understand all of the terms of the offering.
Trust................................. The trust to be formed for each series
of securities. If the trust issues notes
and certificates, it will be formed by a
trust agreement between the seller and
the trustee of the trust. If the trust
issues only certificates, it will be
formed by a pooling and servicing
agreement among the seller, the servicer
and the trustee of the trust.
Depositor............................. BMW FS Securities LLC, a wholly owned,
limited purpose subsidiary of BMW
Financial Services NA, LLC.
Servicer.............................. BMW Financial Services NA, LLC, a wholly
owned subsidiary of BMW of North America
LLC. BMW of North America LLC is the
exclusive distributor of BMW motor
vehicles, BMW motorcycles and BMW parts
and accessories in the United States and
is a wholly owned subsidiary of
Bayerische Motoren Werke
Aktiengesellschaft, a German
corporation.
Trustee............................... The trustee for each series of
securities will be named in the
prospectus supplement for that series.
Indenture Trustee..................... If the trust issues notes, the trustee
for the indenture pursuant to which the
notes will be issued will be named in
the prospectus supplement for that
series.
Securities Offered..................... Notes--A series of securities may
include one or more classes of notes.
Notes of a series will be issued
pursuant to an indenture.
Certificates--Each series of securities
may include one or more classes of
certificates, whether or not a class of
notes is issued as part of the series.
The applicable prospectus supplement
will describe the following:
1. if any notes are issued, the
priority of payments
(a) between the notes and
certificates and
(b) among different classes of
notes; and
2. the priority of payments among
different classes of certificates.
Terms--The terms of each class of notes
and certificates in a series described
in the applicable prospectus supplement
will include the following:
1. the stated principal amount of each
class of notes and the stated
certificate balance of each class
of certificates; and
2. the interest rate (which may be
fixed, variable,
7
adjustable or some combination of
these rates) or method of
determining the interest rate.
A class of notes may differ from other
classes of notes and a class of
certificates may differ from other
classes of certificates in one or more
aspects, including:
1. timing and priority of payments;
2. seniority;
3. allocation of losses;
4. interest rate or formula for
determining the interest rate;
5. amount of interest or principal
payments;
6. whether interest or principal will
be payable to holders of the class
if specified events occur;
7. the right to receive collections
from designated portions of the
receivables owned by the trust; and
8. The ability of holders of a class
to direct the trustee to take
specified remedies.
The Receivables....................... Purchasers of motor vehicles often
finance their purchases by entering into
retail installment sale contracts with
dealers who then resell the contracts to
finance companies such as BMW Financial
Services NA, LLC. These contracts are
referred to as "receivables," and the
underlying vehicles are referred to as
the "financed vehicles." The purchasers
of the financed vehicles are referred to
as the "obligors." The terms of the
contracts must meet specified BMW
Financial Services NA, LLC requirements.
On or before the date the securities of
a series are issued, BMW Financial
Services NA, LLC or BMW Bank of North
America will sell a specified amount of
receivables to BMW FS Securities LLC,
the seller. The seller will then sell
those receivables to the trust. The sale
by the seller to the trust will be
documented under:
1. a pooling and servicing agreement
among the seller, the servicer and
the trustee (if the trust will be
treated as a grantor trust for
federal income tax purposes); or
2. a sale and servicing agreement
among the seller, the servicer and
the trust (if the trust will be
treated other than as a grantor
trust for federal income tax
purposes).
The receivables to be sold by BMW
Financial Services NA, LLC or BMW Bank
of North America will be described in
the applicable prospectus
8
supplement.
The Trust Property.................... The property of each trust:
1. will be described in the applicable
prospectus supplement;
2. will primarily be a pool of
receivables secured by new and used
motor vehicles (which term, for
purposes of this prospectus and
each prospectus supplement, shall
include motorcycles) and amounts
due or collected under the
receivables on or after a specified
cutoff date; and
3. will include assets related to the
receivables including:
o security interests in the
motor vehicles;
o proceeds from claims on
related insurance policies;
o the rights of the seller in
rebates of premiums and other
amounts relating to insurance
policies and other items
financed under the
receivables;
o the rights of the seller in
the agreements identified in
the applicable prospectus
supplement;
o amounts deposited in specified
bank accounts; and
o proceeds from liquidated
assets.
Credit and Cash Flow Enhancement...... The trusts may include features designed
to provide protection from losses on
assets of the trust to one or more
classes of securities. These features
are referred to as "credit enhancement."
Credit enhancement may include any one
or more of the following:
1. subordination of one or more other
classes of securities;
2. one or more reserve funds;
3. over-collateralization;
4. letters of credit, cash collateral
accounts or other credit or
liquidity facilities;
5. surety bonds;
6. guaranteed investment contracts,
swap or other
9
interest rate protections;
7. repurchase obligations;
8. cash deposits; or
9. other agreements, guarantees or
arrangements providing for other
third party payments or other
support.
In addition, the trusts may include
features designed to ensure the timely
payment of amounts owed to
securityholders. These features may
include any one or more of the
following:
1. yield supplement agreements;
2. liquidity facilities;
3. cash deposits; or
4. other agreements or arrangements
providing for other third party
payments or other support.
The specific terms of any credit and
cash flow enhancement applicable to a
trust or to the securities issued by a
trust will be described in detail in the
applicable prospectus supplement.
Servicing Fee......................... BMW Financial Services NA, LLC will act
as servicer for the receivables. In that
capacity, the servicer will handle all
collections, administer defaults and
delinquencies and otherwise service the
receivables. The trust will pay the
servicer a monthly fee equal to a
percentage of the total principal
balance of the receivables at the
beginning of the preceding month
specified in the applicable prospectus
supplement. The servicer may also
receive additional servicing
compensation in the form of investment
earnings, late fees, prepayment fees and
other administrative fees and expenses
or similar charges received by the
servicer during that month.
Advances.............................. The servicer may be obligated to advance
to the trust interest on receivables
that is due but unpaid by the obligor.
In addition, the servicer may be
obligated to advance to the trust
principal of any receivables that are
classified as precomputed receivables
rather than as simple interest
receivables. The servicer will not be
required to make any advance if it
determines that it will not be able to
recover an advance from an obligor. The
trust will reimburse the servicer from
later collections on the receivables for
which it has made advances, or from
collections generally if the servicer
determines that an advance will not be
recoverable with respect to that
receivable.
We refer you to "Description of the
Transfer and
10
Servicing Agreements--Advances" in this
prospectus for more detailed information
on advances and reimbursement of
advances.
Optional Purchase..................... The servicer may purchase all the
receivables in the trust when the
outstanding aggregate principal balance
of the receivables declines to 10% or
less of the original total principal
balance of the receivables as of the
cutoff date (or other level as may be
disclosed in the applicable prospectus
supplement). If the servicer exercises
this option, the notes will be redeemed.
We refer you to "Description of The
Transfer and Servicing Agreements--
Termination" in this prospectus for more
detailed information on the servicer's
optional purchase of securities
Tax Status............................ Grantor Trusts--If a trust is referred
to as a "grantor trust" in the
applicable prospectus supplement,
special tax counsel to the trust will be
required to deliver an opinion that:
1. the trust will be treated as a
grantor trust for federal income
tax purposes; and
2. the trust will not be subject to
federal income tax.
Owner Trusts--If a trust is referred to
as an "owner trust" in the applicable
prospectus supplement, special tax
counsel to the trust will be required to
deliver an opinion for federal income
tax purposes:
1. as to the characterization as debt
of the notes issued by the trust;
and
2. that the trust will not be
characterized as an association (or
a publicly traded partnership)
taxable as a corporation.
If a trust is referred to as an "owner
trust" in the applicable prospectus
supplement:
1. by purchasing a note, you will be
agreeing to treat the note as
indebtedness for tax purposes; and
2. by purchasing a certificate, you
will be agreeing to treat the
trust:
o as a partnership in which you
are a partner; or
o if you are the sole beneficial
owner of the certificates, as
a "disregarded entity," for
federal income tax purposes.
Applicable taxing authorities could
impose alternative tax characterizations
of the trust, the notes and the
certificates.
11
However, these characterizations
generally will not result in material
adverse tax consequences to
securityholders.
We refer you to "Material Income Tax
Consequences" in this prospectus and the
applicable prospectus supplement for
more detailed information on the
application of federal income tax laws.
ERISA Considerations.................. Notes--Notes will generally be eligible
for purchase by employee benefit plans.
Unsubordinated Grantor Trust
Certificates--Certificates of a class
issued by a grantor trust that are not
subordinated to any other class will
generally be eligible for purchase by
employee benefit plans.
Other Certificates--Subordinated classes
of certificates issued by a grantor
trust and certificates issued by owner
trusts will not be eligible for purchase
by an employee benefit plan or
individual retirement account unless the
related prospectus supplement states
otherwise.
We refer you to "ERISA Considerations"
in this prospectus and the applicable
prospectus supplement for more detailed
information regarding the ERISA
eligibility of any class of securities.
12
Risk Factors
You should consider the following risk factors and the risks described in the
section captioned "Risk Factors" in the applicable prospectus supplement in
deciding whether to purchase securities of any class.
You must rely for repayment only The securities represent interests
upon payments from the trust's solely in the trust or indebtedness
assets which may not be sufficient of the trust and will not be
to make full payments on your insured or guaranteed by BMW
securities. Financial Services NA, LLC (the
servicer), BMW FS Securities LLC
(the depositor), or any of their
respective affiliates, or the
related trustee or any other person
or entity other than the trust. The
only source of payment on your
securities are payments received on
the receivables and, if and to the
extent available, any credit or
cash flow enhancement for the
trust, including amounts on deposit
in the reserve fund, if any,
established for that trust. If the
available credit enhancement is
exhausted, your securities will be
paid solely from current
distributions on the receivables.
In limited circumstances, the trust
will also have access to the funds
in the yield supplement account or
have the benefit of
over-collateralization to provide
limited protection against
low-interest receivables.
We refer you to "Description of the
Transfer and Servicing
Agreements--Yield Supplement
Account; Yield Supplement
Agreement" in this prospectus.
You may experience reduced returns You may receive payment of
on your investment resulting from principal on your securities
prepayments, repurchases or early earlier than you expected for the
termination of the trust. reasons set forth below. As a
result, you may not be able to
reinvest the principal paid to you
earlier than you expected at a rate
of return that is equal to or
greater than the rate of return on
your securities. Prepayments on the
receivables by the related obligors
and purchases of the receivables by
the seller and the servicer will
shorten the life of the securities
to an extent that cannot be fully
predicted.
In addition, a trust may contain a
feature known as a prefunding
account from which specified funds
will be used to purchase additional
receivables after the date the
securities are issued. To the
extent all of those funds are not
used by the end of the specified
period to purchase new receivables,
those funds will be used to make
payments on the securities. In that
event, you would receive payments
on your securities earlier than
expected. Also, the seller will be
required to repurchase receivables
from the trust if there is a breach
of a representation or warranty
relating to those receivables that
materially adversely affects those
receivables. If so disclosed in the
related prospectus supplement BMW
Financial Services NA, LLC, as
servicer, will also be required to
purchase receivables from the trust
if it breaches its servicing
obligations with respect to those
receivables. The servicer shall be
permitted to purchase all remaining
receivables from the trust when the
outstanding aggregate principal
balance of the receivables is 10%
or less of the initial aggregate
principal balance of the
receivables as of the related
cutoff date.
13
Further, the receivables included
in the trust may be prepaid, in
full or in part, voluntarily or as
a result of defaults, theft of or
damage to the related vehicles or
for other reasons. The rate of
prepayments on the receivables may
be influenced by a variety of
economic, social and other factors
in addition to those described
above. The servicer has limited
historical experience with respect
to prepayments on receivables. In
addition, the servicer is not aware
of publicly available industry
statistics that detail the
prepayment experience for contracts
similar to the receivables. For
these reasons, the servicer cannot
predict the actual prepayment rates
for the receivables. You will bear
all reinvestment risk resulting
from prepayments on the receivables
and the corresponding acceleration
of payments on the securities.
The final payment of each class of
securities is expected to occur
prior to its scheduled final
payment date because of the
prepayment and purchase
considerations described above. If
sufficient funds are not available
to pay any class of notes in full
on its final scheduled payment
date, an event of default will
occur and final payment of that
class of notes may occur later than
that date.
Interests of other persons in the Another person could acquire an
receivables and financed vehicles interest in a receivable that is
could be superior to the trust's superior to the trust's interest in
interest, which may result in that receivable because the
reduced payments on your receivables will not be segregated
securities. or marked as belonging to the
trust. The seller will cause
financing statements to be filed
with the appropriate governmental
authorities to perfect the trust's
interest in the receivables.
However, the servicer will continue
to hold the receivables. If another
party purchases, or takes a
security interest in, one or more
receivables for new value in the
ordinary course of business and
obtains possession of those
receivables without actual
knowledge of the trust's interest
because of the failure to segregate
or mark those receivables, the new
purchaser, or secured party, will
acquire an interest in those
receivables superior to the
interest of the trust.
Another person could acquire an
interest in a vehicle financed by a
receivable that is superior to the
trust's interest in the vehicle
because of the failure to identify
the trust as the secured party on
the related certificate of title.
While BMW Financial Services NA,
LLC, will assign its security
interest in the financed vehicles
to the depositor, and the depositor
will assign to the trust its
security interests in the financed
vehicles, the servicer will
continue to hold the certificates
in the capacity of an
administrative lienholder of title
or ownership for the vehicles.
However, for administrative
reasons, the servicer will not
endorse or otherwise amend the
certificates of title or ownership
to identify the trust as the new
secured party. Because the trust
will not be identified as the
secured party on any certificates
of title or ownership, the security
interest of the trust in the
vehicles may be defeated through
fraud, forgery, negligence or error
and as a result the trust may not
have a perfected security interest
in the financed
14
vehicles in every state.
The possibility that the trust may
not have a perfected security
interest in the financed vehicles
may affect the trust's ability to
repossess and sell the financed
vehicles or may limit the amount
realized to less than the amount
due by the related obligors.
Therefore, you may be subject to
delays in payment and may incur
losses on your investment in the
securities as a result of defaults
or delinquencies by obligors and
because of depreciation in the
value of the related financed
vehicles. We refer you to "Certain
Legal Aspects of the
Receivables--Security Interests" in
this prospectus.
Receivables that fail to comply Many federal and state consumer
with consumer protection laws may protection laws regulate consumer
be unenforceable, which may result contracts including the
in losses on your investment. receivables. If any of the
receivables do not comply with one
or more of these laws, the servicer
may be prevented from or delayed in
collecting amounts due on the
receivables. If that happens,
payments on the securities could be
delayed or reduced. Each of BMW FS
Securities LLC and BMW Financial
Services NA, LLC will make
representations and warranties
relating to the receivables'
compliance with law and the trust's
ability to enforce the contracts.
If BMW FS Securities LLC or BMW
Financial Services NA, LLC breaches
any of these representations or
warranties, the trust's sole remedy
will be to require BMW FS
Securities LLC to repurchase the
affected receivables. We refer you
to "Certain Legal Aspects of the
Receivables-- Consumer Protection
Laws" in this prospectus.
The bankruptcy of BMW Financial If either BMW Financial Services
Services NA, LLC (servicer) or BMW NA, LLC, the servicer, or BMW FS
FS Securities LLC (depositor) could Securities LLC, the depositor,
result in losses or delays in become subject to bankruptcy
payments on your securities. proceedings, you could experience
losses or delays in the payments on
your securities. BMW Financial
Services NA, LLC will sell the
receivables to BMW FS Securities
LLC, and BMW FS Securities LLC will
in turn transfer the receivables to
the trust. However, if BMW
Financial Services NA, LLC or BMW
FS Securities LLC becomes subject
to a bankruptcy proceeding, the
court in the bankruptcy proceeding
could conclude that BMW Financial
Services NA, LLC or BMW FS
Securities LLC still owns the
receivables by concluding that the
sale to the seller or the trust was
not a "true sale" or, in the case
of a bankruptcy of BMW Financial
Services NA, LLC, that the
depositor should be consolidated
with BMW Financial Services NA, LLC
for bankruptcy purposes. If a court
were to reach this conclusion, you
could experience losses or delays
in payments on your securities as a
result of, among other things:
(1) the "automatic stay," which
prevents secured creditors
from exercising remedies
against a debtor in bankruptcy
without permission from the
court and provisions of the
U.S. Bankruptcy Code that
permit substitution for
collateral in limited
circumstances;
15
(2) tax or government liens on BMW
Financial Services NA, LLC's
or BMW FS Securities LLC's
property (that arose prior to
the transfer of a receivable
to the trust) having a prior
claim on collections before
the collections are used to
make payments on your
securities; and
(3) the trust not having a
perfected security interest in
either one or more of the
financed vehicles securing the
receivables or any cash
collections held by BMW
Financial Services NA, LLC at
the time BMW Financial
Services NA, LLC becomes the
subject of a bankruptcy
proceeding.
The depositor will take steps in
structuring each transaction
described in this prospectus and
the applicable prospectus
supplement to minimize the risk
that a court would consolidate the
depositor with BMW Financial
Services NA, LLC for bankruptcy
purposes or conclude that the sale
of receivables to the seller was
not a "true sale." We refer you to
"Certain Legal Aspects of the
Receivables--Certain Bankruptcy
Considerations" in this prospectus.
Proceeds of the sale of receivables If so directed by the holders of
may not be sufficient to pay your the requisite percentage of
securities in full. outstanding notes of a series,
following an acceleration of the
notes upon an event of default, the
indenture trustee will sell the
receivables owned by the trust only
in limited circumstances. However,
there is no assurance that the
market value of those receivables
will at any time be equal to or
greater than the aggregate
principal amount of the notes or
the sum of the aggregate principal
amount of the notes and the
aggregate principal balance of the
certificates. Therefore, upon an
event of default, there can be no
assurance that sufficient funds
will be available to repay you in
full. This deficiency will be
exacerbated in the case of any
securities where the aggregate
principal balance of the securities
exceeds the aggregate principal
balance of the receivables.
Failure to pay principal on your The amount of principal required to
notes will not constitute an event be paid to the noteholders will
of default until maturity. generally be limited to amounts
available in the collection account
(and the reserve fund or other
forms of credit or cash flow
enhancement, if any). Therefore,
the failure to pay principal of
your notes generally will not
result in the occurrence of an
event of default until the final
scheduled payment date for your
notes. We refer you to "The
Notes--The Indenture--Events of
Default; Rights Upon Event of
Default" in this prospectus.
Funds held by the servicer that are The servicer generally may retain
intended to be used to make all payments and proceeds collected
payments on the securities may be on the receivables during each
exposed to a risk of loss. collection period. The servicer is
generally not required to segregate
those funds from its own accounts
until the funds are deposited in
the collection account on each
payment date. Until any collections
or proceeds are deposited into the
collection account, the servicer
will be able to invest those
amounts for its own benefit at its
own risk. The trust and
securityholders are not entitled to
any amount earned on the funds
16
held by the servicer. If the
servicer does not deposit the funds
in the collection account as
required on any payment date, the
trust may be unable to make the
payments owed on your securities.
If the trust enters into a currency If the trust enters into a currency
or an interest rate swap, payments swap, interest rate swap or a
on the securities will be dependent combined currency and interest rate
on payments made under the swap swap, its ability to protect itself
agreement. from shortfalls in cash flow caused
by currency or interest rate
changes will depend to a large
extent on the terms of the swap
agreement and whether the swap
counterparty performs its
obligations under the swap. If the
trust does not receive the payments
it expects from the swap, the trust
may not have adequate funds to make
all payments to securityholders
when due, if ever.
Termination of a swap agreement and A swap agreement may be terminated
the inability to locate replacement if particular events occur. Most of
swap counterparty may cause these events are generally beyond
termination of the trust. the control of the trust or the
swap counterparty. If an event of
default under swap agreement occurs
and the trustee is not able to
assign the swap agreement to
another party, obtain a swap
agreement on substantially the same
terms or is unable to establish any
other arrangement satisfactory to
the rating agencies, the trustee
may terminate the swap agreement.
In addition, the trust may
terminate and the trustee would
then sell the assets of the trust.
It is impossible to predict how
long it would take to sell the
assets of the trust. Some of the
possible adverse consequences of a
sale of the assets of the trust
are:
1. the proceeds from the sale of
assets under those
circumstances may not be
sufficient to pay all amounts
owed to you;
2. amounts available to pay you
will be further reduced if the
trust is required to make a
termination payment to the
swap counterparty;
3. termination of the swap
agreement may expose the trust
to currency or interest rate
risk, further reducing amounts
available to pay you;
4. the sale may result in
payments to you significantly
earlier than expected; and
5. a significant delay in
arranging a sale of the
trust's assets could result in
a delay in principal payments.
This would, in turn, increase
the weighted average life of
the securities and could
reduce the return on your
securities.
Additional information about
termination of the trust and sale
of the trust's assets, including a
description of how the proceeds of
a sale would be distributed will be
included in the applicable
prospectus supplement. Any swap
agreement involves risk. A trust
will be exposed to this risk should
it use this mechanism. For this
reason,
17
only investors capable of
understanding these risks should
invest in the securities. You are
strongly urged to consult with your
financial advisors before deciding
to invest in the securities if a
swap is involved.
The rating of a third party credit If a trust enters into any third
enhancement provider may affect the party credit enhancement
ratings of the securities. arrangement, the rating agencies
that rate the trust's securities
will consider the provisions of
arrangement and the rating of any
third party credit enhancement
provided. If a rating agency
downgrades the debt rating of any
third party credit provided, it is
also likely to downgrade the rating
of the securities. Any downgrade in
the rating of the securities could
have severe adverse consequences on
their liquidity or market value.
The calculations for the payments The calculation of interest or
of principal or interest may be principal on a series of securities
based on an index which may result may be based on a currency,
in payments to you of less commodity, interest rate or other
principal or interest than a non- index. In this situation, the
indexed security. amount of principal or interest
payable on the securities may be
less than that payable on a
conventional debt security issued
at the same time, including the
possibility that no interest or
principal will be paid. In
addition, if the formula for
calculating the payments on the
securities includes a feature that
multiplies the effect of any change
in the index, changes to the index
could result in even greater
changes in the value of the
securities or the payments to be
made on the securities.
You may not be able to easily trade
these types of securities after you
purchase them. This is referred to
as a "secondary market." It cannot
be predicted whether there will be
a secondary market for these types
of securities or if one develops,
how liquid it would be. The
secondary market for these types of
securities will be affected by a
number of factors that are not
dependent on the performance of the
trust and its assets. These factors
include the complexity and
volatility of any index, the method
of calculating the principal and
interest payments on the
securities, the time remaining to
the maturity of the securities, the
outstanding amount of the
securities and market interest
rates. The value of any index will
depend on a number of interrelated
factors which cannot be controlled
by the trust, including economic,
financial and political events. For
these reasons, you may not be able
to readily sell your securities or
receive the price you expected for
their sale.
In recent years, many indices have
been highly volatile, and the
volatility may continue in the
future. You should review carefully
the historical experience of any
index to which a series of
securities are pegged, but should
not take that historical experience
as a predictor of future
performance of the index during the
term of any security. The credit
ratings assigned to the securities
do not reflect the potential impact
of the factors discussed above, or
what the impact may be on your
securities' market value at any
time. For this reason, only
investors capable of understanding
the risks involved should invest in
18
indexed securities. In addition,
investors whose investment
activities are restricted by law or
subject to regulation may not be
able to purchase these types of
securities. Investors are
responsible for determining whether
they may purchase indexed
securities. You are strongly urged
to consult with your financial
advisors before deciding to invest
in indexed securities.
You may have difficulty selling your The securities are not expected to
securities and/or obtaining your be listed on any securities
desired price due to the absence of a exchange. Therefore, in order to
secondary market. sell your securities, you must
first locate a willing purchaser.
In addition, currently, no
secondary market exists for the
securities. We cannot assure you
that a secondary market will
develop. The underwriters of any
series of securities may make a
secondary market for the securities
by offering to buy the securities
from investors that wish to sell.
However, any underwriters agreeing
to do so will not be obligated to
offer to buy the securities and
they may stop making offers at any
time.
Because the securities are in Because the securities will be
book-entry form, your rights can only issued in book-entry form, you will
be exercised indirectly. be required to hold your interest
in the securities through The
Depository Trust Company in the
United States, or Clearstream
Banking, societe anonyme, or the
Euroclear System in Europe.
Transfers of interests in the
securities within DTC, Clearstream,
Luxembourg or Euroclear must be
made in accordance with the usual
rules and operating procedures of
those systems. So long as the
securities are in book-entry form,
you will not be entitled to receive
a physical note or certificate
representing your interest. The
securities will remain in
book-entry form except in the
limited circumstances described
under the caption "Certain
Information Regarding the
Securities--Book-Entry
Registration." Unless and until the
securities cease to be held in
book-entry form, the trustee will
not recognize you as a
"Securityholder," as that term is
used in the trust agreement. As a
result, you will only be able to
exercise the rights of
securityholders indirectly through
The Depository Trust Company (if in
the United States) and its
participating organizations, or
Clearstream, Luxembourg and
Euroclear (in Europe) and their
participating organizations.
Holding the securities in
book-entry form could also limit
your ability to pledge your
securities to persons or entities
that do not participate in The
Depository Trust Company,
Clearstream, Luxembourg or
Euroclear and to take other actions
that require a physical note or
certificate representing the
securities. Interest and principal
on the securities will be paid by
the trust to The Depository Trust
Company as the record holder of the
securities while they are held in
book-entry form. The Depository
Trust Company will credit payments
received from the trust to the
accounts of its participants which,
in turn, will credit those amounts
to securityholders either directly
or indirectly through indirect
participants. This process may
delay your receipt of principal and
interest payments from the trust.
19
Possible Prepayment Due to If so disclosed in the applicable
Inability to Acquire Subsequent prospectus supplement, a trust may
Receivables agree to buy additional receivables
from the depositor after the
closing date. The number of
receivables that the depositor has
to sell depends on its ability to
acquire additional receivables
which, in turn, is affected by,
among other things, the number of
financed vehicles sold. The number
of financed vehicles sold is
affected by a variety of factors,
including interest rates,
unemployment levels, the rate of
inflation and consumer perception
of economic conditions generally.
If the full amount deposited on the
closing date for the purpose of
purchasing additional receivables
from the depositor cannot be used
for that purpose during the
specified period, all remaining
monies will be applied as a
mandatory prepayment of a
designated class or classes of
securities. We refer you to
"Description of the Transfer and
Servicing Agreements-Distribution-
Payments to Noteholders and
Description of Transfer and
Servicing Agreements-Credit and
Cash Flow Enhancement-Pre-funding
feature."
20
Formation of the Trusts
BMW FS Securities LLC (the "Depositor") will establish each trust (each, a
"Trust") pursuant to a Trust Agreement (as amended and supplemented from time to
time, the "Trust Agreement") or a Pooling and Servicing Agreement (as amended
from time to time, the "Pooling and Servicing Agreement"), as applicable.
The terms of each series of notes or certificates issued by each Trust and
additional information concerning the assets of each Trust and any applicable
credit or cash flow enhancement will be set forth in a supplement to this
prospectus (a "prospectus supplement"). The notes and certificates are
collectively referred to in this prospectus as the "Securities."
Property of the Trusts
The property of each Trust will consist of a pool (each, a "Receivables
Pool") of retail installment sale contracts originated on or after the date
indicated in the applicable prospectus supplement between dealers in BMW
products ("BMW Centers") or other dealers and retail purchasers (the
"Obligors"). These contracts are referred to as the "Receivables" and evidence
the indirect financing made available by BMW Financial Services NA, LLC ("BMW
FS") and BMW Bank of North America ("BMW Bank") to the Obligors. The Receivables
will be secured by new or used motor vehicles (which term for purposes of this
prospectus includes motorcycles) (the "Financed Vehicles") and all principal and
interest payments made on or after the applicable cutoff date (each, a "Cutoff
Date") and other property, all as specified in the applicable prospectus
supplement. "New" vehicles may include "demonstration" vehicles, which are not
titled in some states and may be classified as new vehicles in those states.
Unless otherwise disclosed in the applicable prospectus supplement, the
Receivables will be originated by BMW Centers in accordance with BMW FS'
requirements under agreements with BMW Centers governing the assignment of the
Receivables to BMW FS or BMW Bank, as applicable (the "Dealer Agreements"). BMW
FS or BMW Bank, as applicable will purchase the Receivables of each Receivables
Pool in the ordinary course of business pursuant to the Dealer Agreements. In
some cases, BMW FS will acquire the Receivables from other persons, including
BMW Bank of North America.
On or before the date of the initial issuance of any series of Securities
(each, a "Closing Date"), BMW FS or BMW Bank will sell the Receivables
comprising the related Receivables Pool to the Depositor, and the Depositor will
sell those Receivables to the Trust pursuant to, if the Trust is to be treated
other than as a grantor trust for federal income tax purposes, the related Sale
and Servicing Agreement among the Depositor, the Servicer and the Trust (as
amended and supplemented from time to time, the "Sale and Servicing Agreement")
or, if the Trust is to be treated as a grantor trust for federal income tax
purposes, the related Pooling and Servicing Agreement. BMW FS will to service
the Receivables.
In addition to the Receivables, the property of each Trust will also
include the following:
1. amounts that may be held in separate trust accounts established and
maintained by the Servicer with the Trustee pursuant to the related Sale
and Servicing Agreement or Pooling and Servicing Agreement;
2. security interests in the Financed Vehicles and any related property;
3. the rights to proceeds from claims on physical damage, credit life and
disability insurance policies covering the Financed Vehicles or the
Obligors;
21
4. BMW FS' (or BMW Bank) right to receive payments from Dealers obligated to
repurchase Receivables from BMW FS which do not meet specified
representations made by the BMW Centers ("Dealer Recourse");
5. the Depositor's right under, as applicable, the Sale and Servicing
Agreement, the Pooling and Servicing Agreement, the Purchase Agreement and
the Yield Supplement Agreement, if any;
6. the Depositor's right to realize upon any property, including the right to
receive future net liquidation proceeds, that secured a Receivable; and
7. all proceeds of the foregoing.
Various forms of credit and cash flow enhancement may be used to benefit
holders of the related Securities, including a Reserve Fund. In limited
circumstances, a Trust will also have access to the funds in a Yield Supplement
Account or have the benefit of over-collateralization to provide limited
protection against low-interest receivables.
The Receivables
BMW FS or BMW Bank will purchase the Receivables in the ordinary course of
business in accordance with BMW FS' underwriting standards. The Receivables to
be held by each Trust will be selected from those motor vehicle retail
installment sale contracts in BMW FS' or BMW Bank's portfolio that meet several
criteria. Apart from the criteria specified herein and in the applicable
prospectus supplement, the Depositor will not use selection procedures adverse
to Securityholders when selecting the Receivables from qualifying retail
installment sale contracts. These criteria provide that each Receivable:
1. was originated in the United States and the Obligor is not a federal,
state or local governmental entity;
2. is attributable to the purchase of a new or used BMW motor vehicle and
is secured by that vehicle, light truck or motorcycle; and
3. satisfies the other criteria, if any, set forth in the applicable
prospectus supplement.
Each Receivable will provide for the allocation of payments (each, a
"Scheduled Payment") according to:
o the simple interest method ("Simple Interest Receivables");
o the "actuarial" method ("Actuarial Receivables"); or
o the "sum of periodic balances" or "sum of monthly payments" ("Rule of
78s Receivables" and, together with the Actuarial Receivables, the
"Precomputed Receivables").
Simple Interest Receivables. Payments on Simple Interest Receivables will
be applied first to interest accrued through the date immediately preceding the
date of payment and then to unpaid principal. Accordingly, if an Obligor pays an
installment before its due date, the portion of the payment allocable to
interest for the payment period will be less than if the payment had been made
on the due date, the portion of the payment applied to reduce the principal
balance will be correspondingly greater, and the principal
22
balance will be amortized more rapidly than scheduled. Conversely, if an Obligor
pays an installment after its due date, the portion of the payment allocable to
interest for the payment period will be greater than if the payment had been
made on the due date, the portion of the payment applied to reduce the principal
balance will be correspondingly less, and the principal balance will be
amortized more slowly than scheduled, in which case a larger portion of the
principal balance may be due on the final scheduled payment date. No adjustment
to the scheduled monthly payments is made in the event of early or late
payments, although in the case of late payments the Obligor may be subject to a
late charge.
Actuarial Receivables. An Actuarial Receivable provides for amortization of
the contract over a series of fixed level monthly installments. Each scheduled
payment is deemed to consist of an amount of interest equal to 1/12 of the
stated APR of the Receivable multiplied by the scheduled principal balance of
the Receivable and an amount of principal equal to the remainder of the
Scheduled Payment. No adjustment to the scheduled monthly payments is made in
the event of early or late payments, although in the case of late payments the
Obligor may be subject to a late charge.
Rule of 78s Receivables. A Rule of 78s Receivable provides for the payment
by the Obligor of a specified total amount of payments, payable in monthly
installments on the related due date, which total represents the principal
amount financed and finance charges in an amount calculated on the basis of the
related APR for the term of that Receivable. The rate at which the amount of
finance charges is earned and, correspondingly, the amount of each Scheduled
Payment allocated to reduction of the outstanding principal balance of a Rule of
78s Receivable are calculated in accordance with the Rule of 78s. Under the Rule
of 78s, the portion of each payment allocable to interest is higher during the
early months of the term of a Rule of 78s Receivable and lower during later
months than that under a constant yield method for allocating payments between
interest and principal. Notwithstanding the foregoing, all payments received by
the Servicer on or in respect of the Rule of 78s Receivables will be allocated
pursuant to the related Transfer and Servicing Agreement, as the case may be, on
an actuarial basis. No adjustment is made in the event of early or late
payments, although in the case of late payments the Obligor may be subject to a
late charge.
In the event of a prepayment in full, either voluntarily or by
acceleration, of a Precomputed Receivable, a "rebate" will be made to the
Obligor of that portion of the total amount of payments under the Receivable
allocable to "unearned" interest charges. In the event of the prepayment in
full, either voluntarily or by acceleration, of a Simple Interest Receivable, a
"rebate" will not be made to the Obligor, but the Obligor will be required to
pay interest only to the date immediately preceding the date of prepayment. The
amount of a rebate under a Precomputed Receivable will always be less than or
equal to the remaining scheduled payments of interest that would have been due
under a Simple Interest Receivable for which all remaining payments were made on
schedule. Payments to Securityholders will not be affected by rebates under the
Rule of 78s Receivables because pursuant to the related Transfer and Servicing
Agreement the payments will be determined using the actuarial method.
Unless otherwise provided in the related prospectus supplement, each Trust
will account for the Rule of 78s Receivables as if those Receivables were
Actuarial Receivables. Amounts received upon prepayment in full of a Rule of 78s
Receivable in excess of the then outstanding principal balance of the Receivable
and accrued interest on the Receivable (calculated pursuant to the actuarial
method) will not be paid to the Noteholders or passed through to the
Certificateholders of the applicable series but will be deemed to be an excess
amount and released to the Seller or otherwise applied as set forth in the
related prospectus supplement.
The Receivables generally will provide for level monthly payments that
fully amortize the amount financed over the Receivable's original term to
maturity. Additional information with respect to
23
each Receivables Pool will be set forth in the related prospectus supplement,
including, to the extent appropriate, the composition, the distribution by APR
and by the states of origination, the portion of the Receivables Pool consisting
of Actuarial Receivables and the portion of the Receivables Pool secured by new
and used vehicles.
Use of Proceeds
Each Trust will use the net proceeds from the sale of the Securities of a
given series to purchase Receivables from the Depositor and to fund any related
Reserve Fund or other accounts of the Trust. The Depositor will purchase
Receivables from BMW FS from the net proceeds it receives from any Trust.
The Trustee
The trustee for each Trust (the "Trustee") or the trustee under any
Indenture pursuant to which notes are issued (the "Indenture Trustee") will be
specified in the applicable prospectus supplement. The Trustee's or the
Indenture Trustee's liability in connection with the issuance and sale of the
related Securities is limited solely to the express obligations of that Trustee
or Indenture Trustee set forth in the related Trust Agreement, Pooling and
Servicing Agreement, Sale and Servicing Agreement or Indenture, as applicable. A
Trustee or Indenture Trustee may resign at any time, in which event the
Servicer, or its successor, will be obligated to appoint a successor Trustee or
Indenture Trustee, as applicable. The Administrator of a Trust that is not a
grantor trust may also remove a Trustee or Indenture Trustee that becomes
insolvent or otherwise ceases to be eligible to continue in that capacity under
the related Trust Agreement, Sale and Servicing Agreement or Indenture, as
applicable. The Servicer for a Trust that is a grantor trust may remove a
Trustee that becomes insolvent or otherwise ceases to be eligible to continue in
that capacity under the related Pooling and Servicing Agreement. In those
circumstances, the Servicer or, in the case of a series that includes notes, the
Administrator, as the case may be, will be obligated to appoint a successor
Trustee. Any resignation or removal of a Trustee or Indenture Trustee and
appointment of a successor trustee will not become effective until acceptance of
the appointment by the successor.
The Depositor
BMW FS Securities LLC (the "Depositor"), a wholly owned subsidiary of BMW
FS, was formed on February 27, 2001 in the State of Delaware. The principal
office of the Depositor is located at 300 Chestnut Ridge Road, Woodcliff Lake,
New Jersey 07677 and its telephone number is (201) 307-4000.
The Depositor was organized primarily for the purpose of acquiring retail
installment sale contracts similar to the Receivables and associated rights from
BMW FS and BMW Bank, causing the issuance of securities similar to the
Securities and engaging in related transactions. The Depositor's limited
liability company agreement limit the activities of the Depositor to the
foregoing purposes and to any activities related to, incidental to, and
necessary, convenient or advisable for those purposes.
The Servicer
BMW Financial Services NA, Inc., the predecessor of BMW Financial Services
NA, LLC ("BMW FS"), was incorporated on April 23, 1984 in the State of Delaware
and, on May 1, 2000, was converted into a limited liability company organized
under the laws of the State of Delaware. BMW FS is a wholly owned subsidiary of
BMW of North America, LLC. ("BMW NA"). BMW FS provides retail and wholesale
financing, retail leasing and other financial services to authorized BMW Centers
and their
24
customers throughout the United States. BMW NA is based in Woodcliff Lake, New
Jersey and is engaged in the wholesale distribution of BMW motor vehicles and
motorcycles throughout the United States. BMW NA is an indirectly wholly-owned
subsidiary of Bayerishe Motoren Werke Aktiengesellschaft ("BMW AG"), a German
corporation that is an international manufacturer and distributor of luxury
automobiles, sports utility vehicles, light trucks and motorcycles.
The national executive headquarters of BMW FS are located at 300 Chestnut
Ridge Road, Woodcliff Lake, New Jersey 07677. Its telephone number is: (201)
307-4000. Its Customer Service Center is located at 5515 Parkcenter Circle,
Dublin, Ohio 43017.
BMW FS' Financing Program
General
Each of BMW FS and BMW Bank currently purchases motor vehicle retail
installment sale contracts (the "Motor Vehicle Contracts", or "Contracts")
directly from authorized BMW Centers and other dealers throughout the United
States. The Contracts are originated by BMW Centers and other dealers who
regularly sell those Contracts to BMW FS, and BMW Bank or other finance sources.
BMW FS and BMW Bank purchase Contracts in accordance with its established
underwriting procedures, subject to the terms of its agreement (each, a "Dealer
Agreement") with each BMW Center or other dealer. In some cases BMW FS may
purchase contracts from other originators, such as BMW Bank of North America.
Each Dealer Agreement, among other things, obligates the related BMW Center
or other dealer to repurchase any Contract BMW FS or BMW Bank financed for the
outstanding principal balance of that Contract, if the BMW Center or other
dealer breaches specific representations and warranties as set forth in the
Dealer Agreement. The representations and warranties typically relate to the
origination of the Contract and the security interest in the related Financed
Vehicle and not the creditworthiness of the Obligor under the Contract.
Each of BMW FS and BMW Bank currently purchases Contracts relating to new
and used vehicles manufactured by BMW AG and as well as a small
percentage of non-BMW used vehicles. BMW FS and BMW Bank apply the same
underwriting standards to its purchases of Contracts whether or not the Contract
relates to a vehicle manufactured by BMW AG. See "--Underwriting". In the case
of BMW vehicles, each of BMW FS and BMW Bank in many cases purchases Contracts
with APRs that are lower than those it would otherwise require, pursuant to
incentive finance programs intended to increase new and used BMW vehicle sales.
Set forth below is a description of current underwriting and collection
policies and practices of BMW FS, which also originates Contracts for BMW Bank.
These policies and practices are subject to change from time to time.
Underwriting
Contracts are originated or purchased by BMW FS in accordance with
underwriting procedures that are intended to assess the applicant's ability to
pay the amounts due on the contract and the adequacy of the financed vehicle as
collateral. BMW FS utilizes predetermined credit score cutoffs and approval
authority levels as credit controls.
BMW FS requires applicants to complete an application form providing
various items of financial information, credit and employment history and other
personal information. Applications are accepted for new and used vehicles from
approved retailers via U.S. mail, facsimile, personal delivery or InfoBahn - a
BMW intranet system linking BMW Centers, BMW NA and BMW FS. The application is
reviewed
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for completeness. Independent verification of information in the application
generally is not required. However, BMW FS will seek verification of some
information, including employment, income and/or residence, under some
circumstances, such as discovery of a discrepancy between information in the
application and information in a credit bureau report. For the year ended June
30, 2000, 89.68% of applications were approved, 88.24% of which were funded by
BMW FS.
A credit buyer reviews each application that is not automatically approved.
Credit buyers have credit authority levels of "I" or "II". The credit buyer's
review includes an evaluation of a credit bureau report on the applicant from an
independent credit bureau and the applicant's credit score based on a credit
scoring system or "scorecard" developed for BMW FS. This system, which has been
in use since 1997, calculates a score based on data in a credit application
that, based on past performance of BMW FS' contract portfolio, appear to be
indicative of the degree of likelihood that an applicant will make scheduled
payments to BMW FS.
Upon review of the application, the applicant's credit score and credit
bureau report, an assessment is made regarding the relative degree of credit
risk. BMW FS' guidelines provide that an applicant's credit score will be highly
considered by the credit buyer in determining whether to extend credit. Besides
the credit score, BMW FS also considers the applicant's debt to income to debt
ratio, the applicant's equity in the financed vehicle and other attributes as
part of the decision making process. BMW FS' management sets limits on the
approval of applications scoring below the company's minimum scores. In the case
of a complete application scoring above a certain level of the scoring system,
the application may be subject to an automated credit approval process which
does not require review and approval by a credit buyer. Applicants that score
below a minimum score established by BMW FS management may not be approved by
credit buyers with Level I credit authority. These applicants may be approved by
a credit buyer with Level II credit authority (or in some cases only by the
credit manager) based on the presence of certain factors, including a guarantee
by the BMW Center. A credit buyer with Level I credit authority may not
disapprove without management review applicants that score above the specified
minimum.
In case of a commercial applicant, BMW FS reviews information concerning
bank accounts, credit references and recent financial results of each business
entity. BMW FS requires an individual to guarantee the business' obligations
under the Contract, otherwise it will obtain a Dun and Bradstreet report.
BMW FS generally does not provide financing to applicants with previous
bankruptcies. However, BMW FS' guidelines do permit financing for these
applicants under some circumstances, for example, if the customer has
re-established credit for at least 24 months and has had no 30-day delinquencies
in that period.
The amount of a contract generally will not exceed:
o with respect to a new vehicle, 100% of the manufacturer's suggested
retail price ("MSRP") for the vehicle, or
o with respect to a used vehicle, 100% of the retail price reported for
the vehicle that is stated in the most recent edition of the National
Automotive Dealers Association Used Car Guide or the Kelly Blue Book,
plus in each case options, dealer-installed accessories, various taxes and fees
incurred in connection with the sale and, in some cases, insurance policies,
extended service contracts (up to the greater of five
26
percent of MSRP or $1,500) and other items. The credit manager may approve
contracts up to 105% of the above amounts, and the national credit manager may
approve contracts up to 110% of the above amounts.
Upon the maturity of a lease financing, the customer has the option to
refinance or purchase the financed vehicle from BMW FS. The same underwriting
and credit procedures described above apply to any financing offered to these
obligors. A portion of the Receivables may be secured by used vehicles that
derive from this lease to loan program.
Dealer Agreements
Each BMW Center or other dealer that originated Motor Vehicle Contracts
sold to BMW FS pursuant to a Dealer Agreement has made representations and
warranties with respect to the Motor Vehicle Contracts and the related security
interest. These representations and warranties typically do not relate to the
creditworthiness of the Obligors or the collectibility of the Motor Vehicle
Contracts. Upon breach of any representation or warranty made by a BMW Center,
BMW FS would have a right of recourse against that BMW Center to require it to
repurchase the loan. Generally, the Dealer Agreements do not provide for
recourse against the BMW Center in the event of a default by the Obligor.
Servicing
BMW FS measures delinquency by the number of days elapsed from the date a
payment is due under the Contract (each, a "Due Date"). BMW FS considers a
payment to be past due or delinquent when an obligor fails to make at least 80%
of a scheduled payment by the related Due Date. BMW FS generally begins
collection activities with respect to a delinquent Contract through telephone
contact. An automated system supports BMW FS' collection activities to monitor
delinquencies and to track the contacts with the obligors.
BMW FS assigns collectors to specific Obligors and attempts to contact the
delinquent obligor by telephone or by letter based on the term of delinquency
and the history of the account. Repossession procedures typically begin when a
contract becomes 60 to 90 days delinquent. Repossessions are carried out
pursuant to applicable state law and specific procedures adopted by BMW FS.
BMW FS' deferment policy allows a total of four deferments over the life of
the Contract.
BMW FS' current policy is to generally charge off a Contract on the earlier
of:
o the date on which the proceeds of sale of the financed vehicle are
applied to the Contract balance; and
o the month in which the Contract reaches its 150th day of delinquency.
Any deficiencies remaining after repossession and sale of the related
financed vehicle or after full charge-off of the related Contract are pursued by
BMW FS to the extent practicable and legally permitted. Obligors are contacted,
and when warranted by individual circumstances, repayment schedules are
established and monitored until the deficiencies are either paid in full or
become impractical to pursue.
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Physical Damage and Liability Insurance
Each Contract requires the obligor to obtain physical damage insurance
covering loss or damage to the financed vehicle. The Dealer Agreements include a
requirement that the BMW Centers provide BMW FS with written evidence that
physical damage and liability insurance covers the financed vehicle at least in
the amount required by the Contract at the time the Contract is purchased by BMW
FS. The amounts of insurance required by the Contracts are at least equal to the
amounts required by applicable state law, subject to customary deductibles. BMW
FS tracks the ongoing status of insurance and attempts to cause the obligors to
reinstate the required insurance in the event that it is allowed to lapse;
nevertheless, there can be no assurance that each financed vehicle will continue
to be covered by physical damage insurance for the entire term during which the
related Contract is outstanding. BMW FS does not "force place" insurance.
Certified Pre-Owned Program
Some of the Receivables may be secured by used BMW vehicles that were sold
pursuant to the certified Pre-Owned BMW Vehicle Program ("CPO"). CPO was
established by BMW NA in 1996 to create customer and BMW Center demand for
off-lease used BMW vehicles and to enhance the value of off-lease BMW vehicles.
To qualify for CPO, a vehicle must pass an inspection conducted by the related
BMW Center based on standards set by BMW NA. For CPO vehicles, BMW NA provides a
limited warranty for two years or 50,000 miles (whichever comes first) that
becomes effective upon the expiration of the original four year/50,000 mile
(whichever comes first) new car warranty. Each CPO vehicle also is covered by
the BMW Roadside Assistance Program which is identical to that offered on new
vehicles. CPO is actively marketed by BMW NA through its sales force and is
advertised using both broadcast and print media.
Where can you find more information about your Securities
The Trust--The Trustee will provide to securityholders ("Securityholders")
(which shall be Cede & Co. ("Cede") as the nominee of DTC unless Definitive
Securities are issued under the limited circumstances described in this
prospectus) 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 Securityholders" and "--Evidence as to
Compliance" in this prospectus. Copies of these reports may be obtained at no
charge at the offices specified in the applicable prospectus supplement.
The Depositor--BMW FS Securities LLC, as depositor of the Receivables, has
filed with the SEC a registration statement on Form S-3 under the Securities Act
of 1933 (the "Securities Act") of which this prospectus forms a part. The
registration statement is available for inspection without charge at the public
reference facilities maintained at the principal office of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New York, New
York 10048. You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at (800) SEC-0330. You may obtain copies of
SEC filings at prescribed rates by writing to the Public Reference Section of
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
SEC also 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.
Copies of the operative agreements relating to the Securities will also be
filed with the SEC.
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Delinquencies, Repossessions and Net Losses
Information concerning BMW FS' experience pertaining to delinquencies,
repossessions and net losses on its portfolio of new and used retail motor
vehicle receivables (including receivables previously sold that BMW FS continues
to service) will be set forth in each prospectus supplement. There can be no
assurance that the delinquency, repossession and net loss experience on any
Receivables Pool will be comparable to prior experience or to the information in
any prospectus supplement.
Weighted Average Life of the Securities
The weighted average life of the Securities of any series will generally be
influenced by the rate at which the principal balances of the related
Receivables are paid, which payment may be in the form of scheduled amortization
or prepayments. For this purpose, the term "prepayments" includes prepayments in
full, partial prepayments (including those related to rebates of extended
warranty contract costs and insurance premiums), liquidations due to default as
well as receipts of proceeds from physical damage, credit life and disability
insurance policies and repurchases or purchases by the Depositor or BMW FS, as
the case may be, of particular Receivables for administrative reason or for
breaches of representations and warranties. The term "weighted average life"
means the average amount of time during which each dollar of principal of a
Receivable is outstanding.
All of the Receivables will be prepayable at any time without penalty to
the Obligor. However, partial prepayments on the Precomputed Receivables made by
Obligors will not be paid on the Payment Date following the Collection Period in
which they were received but will be retained and applied towards payments due
in later Collection Periods. If prepayments in full are received on the
Precomputed Receivables or if full or partial prepayments are received on the
Simple Interest Receivables, the actual weighted average life of the Receivables
may be shorter than the scheduled weighted average life of the Receivables set
forth in the related prospectus supplement. The rate of prepayment of motor
vehicle retail installment sale contracts are influenced by a variety of
economic, social and other factors, including the fact that an Obligor generally
may not sell or transfer the Financed Vehicle securing a Receivable without the
consent of the Servicer.
No prediction can be made as to the rate of prepayment on the Receivables
in either stable or changing interest rate environments. BMW FS maintains
limited records of the historical prepayment experience of the motor vehicle
retail installment sale contracts included in its portfolio. However, no
assurance can be given that prepayments on the Receivables will conform to
historical experience and no prediction can be made as to the actual prepayment
experience on the Receivables. The rate of prepayment on the Receivables may
also be influenced by the structure of the related contract. In addition, under
some circumstances, the Depositor or Servicer will be obligated to repurchase
Receivables from a given Trust pursuant to the related Sale and Servicing
Agreement or Pooling and Servicing Agreement as a result of breaches of
particular representations and warranties or covenants. We refer you to
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "--Servicing Procedures." We also refer you to "Description of
the Transfer and Servicing Agreements-- Termination" regarding the Servicer's
option to purchase the Receivables from a given Trust. Any reinvestment risk
resulting from the rate of prepayments of the Receivables and the payment of
prepayments to Securityholders will be borne entirely by the Securityholders. In
addition, early retirement of the Securities may be effected by the exercise of
the option of the Servicer, or any successor to the Servicer, to purchase all of
the Receivables remaining in the Trust when the Pool Balance is 10% or less of
the Pool Balance as of the Cutoff Date.
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In addition, pursuant to agreements between BMW FS and the BMW Centers,
each BMW Center is obligated to repurchase from BMW FS contracts which do not
meet particular representations and warranties made by that BMW Center (these
BMW Center repurchase obligations are referred to in this prospectus as "Dealer
Recourse"). These representations and warranties relate primarily to the
origination of the retail installment sale contracts and the perfection of the
security interests in the related Financed Vehicles, and do not typically relate
to the creditworthiness of the related Obligors or the collectibility of the
contracts. Although the Dealer Agreements with respect to the Receivables will
not be assigned to the Trustee, the related Sale and Servicing Agreement or
Pooling and Servicing Agreement will require that BMW FS deposit any recovery in
respect of any Receivable pursuant to any Dealer Recourse in the related
Collection Account. The sales by the BMW Centers of retail installment sale
contracts to BMW FS do not generally provide for recourse against the BMW
Centers for unpaid amounts in the event of a default by an Obligor thereunder,
other than in connection with the breach of the foregoing representations and
warranties. We refer you to "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables" and "--Servicing Procedures."
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Securities of a given series on
each Payment Date, since the amount of principal payments will depend, in part,
on the amount of principal collected on the related Receivables Pool during the
applicable Collection Period. No prediction can be made as to the actual
prepayment experience on the Receivables, and any reinvestment risks resulting
from a faster or slower rate of prepayment of Receivables will be borne entirely
by the Securityholders of a given series. We refer you to "Risk Factors--You may
experience reduced returns on your investment resulting from prepayments,
repurchases or early termination of the trust" in this prospectus.
The applicable prospectus supplement may set forth additional information
regarding the maturity and prepayment considerations applicable to the
particular Receivables Pool and the related series of Securities.
Pool Factors and Trading Information
The "Note Pool Factor" for each class of notes will be a seven-digit
decimal which the Servicer will compute prior to each payment with respect to
that class of notes. The Note Pool Factor represents the remaining outstanding
principal amount of that class of notes, as of the close of business on the last
day of the applicable Collection Period, as a fraction of the initial
outstanding principal amount of that class of notes. The "Certificate Pool
Factor" for each class of certificates will be a seven-digit decimal which the
Servicer will compute prior to each payment with respect to that class of
certificates indicating the remaining Certificate Balance of that class of
certificates, as of the close of business on the last day of the applicable
Collection Period, as a fraction of the Original Certificate Balance of that
class of certificates. The "Certificate Balance" for any class of certificates
as of any Payment Date will equal the Original Certificate Balance of that
class, as reduced by all amounts distributed on or prior to that Payment Date on
that class of certificates and allocable to principal. The "Original Certificate
Balance" for each class of certificates will be stated in the applicable
prospectus supplement.
Each Note Pool Factor and each Certificate Pool Factor will initially be
1.0000000 and thereafter will decline to reflect reductions in the outstanding
principal amount of the applicable class of notes, or the reduction of the
Certificate Balance of the applicable class of certificates, as the case may be.
A Noteholder's portion of the aggregate outstanding principal amount of the
related class of notes is the product of:
o the original denomination of that Noteholder's note; and
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o the applicable Note Pool Factor.
A Certificateholder's portion of the aggregate outstanding Certificate Balance
for the related class of certificates is the product of:
o the original denomination of that Certificateholder's certificate; and
o the applicable Certificate Pool Factor.
The Securityholders will receive monthly reports concerning payments
received on the Receivables, the Pool Balance, each Certificate Pool Factor or
Note Pool Factor, as applicable, and various other items of information.
The Notes
General
With respect to each Trust that issues notes, one or more classes (each, a
"class") of notes of the related series will be issued pursuant to the terms of
an indenture (the "Indenture"). A form of the Indenture has been filed as an
exhibit to the registration statement of which this prospectus is a part. The
following summary describes the material terms of the Notes and the Indenture.
The summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the notes and the
Indenture.
Each class of notes will initially be represented by one or more notes, in
each case registered in the name of the nominee of DTC, except as set forth
below. Notes will be available for purchase in the denominations specified in
the applicable prospectus supplement in book-entry form only. The Depositor has
been informed by DTC that DTC's nominee will be Cede, unless another nominee is
specified in the applicable prospectus supplement. Accordingly, that nominee is
expected to be the holder of record of the notes (a "Noteholder") of each class.
No Noteholder will be entitled to receive a physical certificate representing a
note until Definitive Notes are issued under the limited circumstances described
in this prospectus or in the applicable prospectus supplement. All references in
this prospectus and in the applicable prospectus supplement to actions by
Noteholders refer to actions taken by DTC upon instructions from its
participating organizations (the "DTC Participants") and all references in this
prospectus and in the applicable prospectus supplement to payments, notices,
reports and statements to Noteholders refer to payments, notices, reports and
statements to DTC or its nominee, as the registered holder of the notes, for
distribution to Noteholders in accordance with DTC's procedures. We refer you to
"Certain Information Regarding the Securities--Book-Entry Registration" and
"--Definitive Securities."
Principal and Interest on the Notes
The applicable prospectus supplement will describe the timing and priority
of payment, seniority, allocations of losses, interest rate (the "Interest
Rate") and amount of or method of determining payments of principal and interest
on each class of notes of a given series. The rights of holders of any class of
notes to receive payments of principal and interest may be senior or subordinate
to the rights of holders of any other class or classes of notes of that series.
Payments of interest on a class of notes will generally be made prior to
payments of principal on the class. A series may include one or more classes of
notes (the "Strip Notes") entitled to either principal payments with
disproportionate, nominal or no interest payments or interest payments with
disproportionate, nominal or no principal payments. Each class of notes may have
a different Interest Rate, which may be a fixed, variable or adjustable Interest
Rate (and
31
which may be zero for some classes of Strip Notes), or any combination of the
foregoing. The applicable prospectus supplement will specify the Interest Rate
for each class of notes of a given series or the method for determining the
Interest Rate. We refer you to "Certain Information Regarding the
Securities--Fixed Rate Securities" and "--Floating Rate Securities." One or more
classes of notes of a series may be redeemable in whole or in part, including as
a result of the Servicer exercising its option to purchase the related
Receivables Pool or other early termination of the related trust.
One or more classes of notes of a given series may have fixed principal
payment schedules, in the manner and to the extent set forth in the applicable
prospectus supplement. Noteholders of those notes would be entitled to receive
as payments of principal on any given Payment Date the amounts set forth on that
schedule with respect to those notes.
To the extent provided in the related prospectus supplement, payments of
interest to Noteholders of two or more classes within a series may have the same
priority. Under some circumstances, on any Payment Date the amount available for
those payments could be less than the amount of interest payable on the notes.
If this is the case, each class of Noteholders will receive its ratable share
(based upon the aggregate amount of interest due to that class of Noteholders)
of the aggregate amount of interest available for payment on the notes. We refer
you to "Description of the Transfer and Servicing Agreements--Distributions on
the Securities" and "--Credit and Cash Flow Enhancement."
If a series of notes includes two or more classes of notes, the sequential
order and priority of payment in respect of principal and interest, and any
schedule or formula or other provisions, of each of those classes will be set
forth in the applicable prospectus supplement. Payments of principal and
interest within any class of notes will be made on a pro rata basis among all
the Noteholders of that class.
The Indenture
Modification of Indenture. If a Trust has issued notes pursuant to an
Indenture, the Trust and the Indenture Trustee may, with the consent of the
holders of a majority of the outstanding notes of the related series (or
relevant class or classes of notes of the series), execute a supplemental
indenture to add provisions to, change in any manner or eliminate any provisions
of, the related Indenture, or modify (except as provided below) in any manner
the rights of the related Noteholders.
Without the consent of the holder of each outstanding affected note, no
supplemental indenture will:
1. change:
o the due date of any installment of principal of or interest on
that note or reduce the principal amount of that note;
o the Interest Rate for that note or the redemption price for that
note;
o provisions of the Indenture relating to the application of
collections on, or proceeds of a sale of, the Trust Estate to
payments of principal and interest on the note; or
o any place of payment where or the coin or currency in which that
note or any interest on that note is payable;
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2. impair the right to institute suit for the enforcement of specified
provisions of the related Indenture regarding payment;
3. reduce the percentage of the aggregate amount of the outstanding notes
of a series of notes, the consent of the holders of which is required
for any supplemental indenture or any waiver of compliance with
specified provisions of the related Indenture or of specified defaults
and their consequences as provided for in that Indenture;
4. modify or alter the provisions of the related Indenture regarding the
voting of notes held by the applicable Trust, any other obligor on
those notes, the Depositor or an affiliate of any of them;
5. reduce the percentage of the aggregate outstanding amount of notes,
the consent of the holders of which is required to direct the related
Indenture Trustee to sell or liquidate the Receivables if the proceeds
of that sale would be insufficient to pay the principal amount of and
accrued but unpaid interest on the outstanding notes of that series;
6. reduce the percentage of the aggregate principal amount of notes
required to amend the sections of the related Indenture that specify
the applicable percentage of aggregate principal amount of the notes
of a series necessary to amend the Indenture or other specified
agreements; or
7. permit the creation of any lien ranking prior to or on a parity with
the lien of the related 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 that Indenture on
any of the collateral or deprive the holder of any note of the
security afforded by the lien of the Indenture.
The Trust and the applicable Indenture Trustee may also enter into
supplemental indentures, without obtaining the consent of the Noteholders of the
related series, for the purpose of, among other things, adding any provisions to
or changing in any manner or eliminating any of the provisions of the related
Indenture or of modifying in any manner the rights of those Noteholders;
provided that that action will not adversely affect in any material respect the
interest of any of those Noteholders.
Events of Default; Rights Upon Event of Default. With respect to the notes
of a given series in the related prospectus supplement, "Events of Default"
under the related Indenture will consist of the occurrence and continuation of
any of the following:
1. a default for five days or more in the payment of any interest on any
of the notes of the class or classes specified in the prospectus
supplement when the same becomes due and payable;
2. a default in the payment of the principal of or any installment of the
principal of any of the notes when the same becomes due and payable;
3. a default in the observance or performance in any material respect of
any covenant or agreement of the applicable Trust made in the related
Indenture and the continuation of the default for a period of 30 days
after notice is given to that Trust by the applicable Indenture
Trustee or to that Trust and the applicable Indenture Trustee by the
holders of at least 25% in principal amount of the notes then
outstanding acting together as a single class;
33
4. any representation or warranty made by the applicable Trust in the
related Indenture or in any certificate delivered pursuant to the
related Indenture or in connection therewith having been incorrect in
a material respect as of the time made, and the breach not having been
cured within 30 days after written notice is given to that Trust by
the applicable Indenture Trustee or to that Trust and the applicable
Indenture Trustee by the holders of at least 25% in principal amount
of the notes then outstanding acting together as a single class;
5. particular events of bankruptcy, insolvency, receivership or
liquidation of the applicable Trust; or
6. other events, if any, set forth in the related prospectus supplement.
However, the amount of principal required to be paid to Noteholders of an
affected series under the related Indenture will generally be limited to amounts
available to be deposited in the Collection Account. Therefore, the failure to
pay any principal on any class of notes generally will not result in the
occurrence of an Event of Default until the final scheduled Payment Date for
that class of notes. The failure to pay interest to holders of a subordinated
class of notes on a particular Payment Date will generally not constitute an
Event of Default. In addition, as described below, 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 Trust, and the Indenture
Trustee may sell the assets of the Trust only after meeting 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 with respect to the
notes of any series, the related Indenture Trustee or holders of a majority in
principal amount of the most senior notes then outstanding (or relevant class or
classes of notes) may declare the notes to be immediately due and payable. This
declaration may, under specified circumstances, be rescinded by the holders of a
majority in principal amount of the most senior notes then outstanding (or
relevant class or classes of notes).
If the notes of any series are due and payable following an Event of
Default on those notes, the related Indenture Trustee may:
o institute proceedings to collect amounts due or foreclose on Trust
property;
o exercise remedies as a secured party;
o sell the assets of the related trust; or
o elect to have the applicable Trust maintain possession of those
Receivables and continue to apply collections on those Receivables as
if there had been no declaration of acceleration.
Unless otherwise specified in the applicable prospectus supplement, however, the
Indenture Trustee is prohibited from selling the assets of the related trust
following an Event of Default (other than a default in the payment of any
principal on any note of a particular series or a default for five days or more
in the payment of any interest on the most senior notes of a particular series),
unless:
o the holders of the notes of the related series then outstanding (or
relevant class or classes of notes) consent to the sale; or
34
o the proceeds of the sale are sufficient to pay in full the principal
of and the accrued interest on all outstanding notes of the related
series at the date of the sale; or
o the Indenture Trustee determines that the proceeds from the sale of
the Trust Estate will not be sufficient on an ongoing basis to make
all payments on the outstanding notes of the related series as those
payments would have become due if the obligations had not been
declared due and payable, and the Indenture Trustee obtains the
consent of the holders of 662/3% of the aggregate outstanding amount
of the most senior notes then of the related series outstanding (or
relevant class or classes of notes).
Subject to the provisions of the applicable Indenture relating to the
duties of the related Indenture Trustee, if an Event of Default occurs and is
continuing with respect to a series of notes, the Indenture Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the holders of the notes, 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 related Indenture, the holders of a majority of the aggregate
principal amount of the most senior notes of the related series then outstanding
(or relevant class or classes of notes of the series) will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the applicable Indenture Trustee, and the holders of at least 51%
of the aggregate principal amount of the most senior notes of the related series
then outstanding (or relevant class or classes of notes) may, in some cases,
waive a default, except a default in the deposit of collections or other
required amounts, any required payment from amounts held in any trust account in
respect of amounts due on the notes, payment of principal or interest or a
default in respect of a covenant or provision of the Indenture which cannot be
modified without the waiver or consent of all the holders of the outstanding
notes of the related series.
Unless otherwise specified in the related prospectus supplement, no holder
of a note of any series will have the right to institute any proceeding with
respect to the related Indenture, unless:
1. the holder of a note or notes previously has given to the applicable
Indenture Trustee written notice of a continuing Event of Default;
2. the Event of Default arises from the Servicer's failure to remit
payments when due or the holders of not less than 25% of the aggregate
principal amount of the most senior notes of the related series then
outstanding (or relevant class or classes of notes) have requested in
writing that the Indenture Trustee institute the proceeding in its own
name as Indenture Trustee;
3. the holder or holders of notes have offered the Indenture Trustee
reasonable indemnity;
4. the Indenture Trustee has for 60 days failed to institute a
proceeding; and
5. no direction inconsistent with such written request has been given to
the Indenture Trustee during such 60 day period by the holders of a
majority of the aggregate principal amount of the most senior notes of
the related series then outstanding (or relevant class or classes of
notes).
In addition, each Indenture Trustee and the related Noteholders, by
accepting the related notes, will covenant that they will not at any time
institute against the applicable Trust any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Trustee in its individual capacity, nor any holder of a certificate
representing an ownership interest in that Trust nor any of their respective
owners, beneficiaries, agents, officers, directors, employees, successors or
assigns will,
35
in the absence of an express agreement to the contrary, be personally liable for
the payment of the principal of or interest on the related notes or for the
agreements of that Trust contained in the applicable Indenture.
Particular Covenants. Each Indenture will provide that the related Trust
may not consolidate with or merge into any other entity, unless, among other
things,
1. the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States or any state;
2. that entity expressly assumes the Trust's obligation to make due and
punctual payments upon the notes of the related series and the
performance or observance of every agreement and covenant of the Trust
under the Indenture;
3. no Event of Default shall have occurred and be continuing immediately
after the merger or consolidation;
4. each rating agency delivers a letter to the Indenture Trustee to the
effect that the consideration or merger will not result in a
qualification, reduction or withdrawal of its then current rating on
any class of notes;
5. that Trust has received an opinion of counsel to the effect that the
consolidation or merger would have no material adverse tax consequence
to the Trust or to any related Noteholder or Certificateholder;
6. the parties take any action necessary to maintain the lien and
security interest created by the Indenture; and
7. 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.
Each Trust will not, among other things,
o except as expressly permitted by the applicable Indenture, the
applicable Transfer and Servicing Agreements or other specified
documents with respect to that Trust (collectively, the "Related
Documents"), sell, transfer, exchange or otherwise dispose of any of
the assets of the Trust unless directed to do so by the Indenture
Trustee;
o claim any credit on or make any deduction from the principal of and
interest payable on the notes of the related series (other than
amounts withheld under 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 Trust;
o except as expressly permitted by the Related Documents, dissolve or
liquidate in whole or in part;
36
o permit the validity or effectiveness of the related 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;
o permit any lien or other encumbrance to be created on or extend to or
otherwise arise upon or burden the assets of the Trust or any part of
the Trust, or any interest in the assets of the Trust or the proceeds
of those assets; or
o assume or incur any indebtedness other than the related notes or as
expressly permitted by the related Indenture or the Related Documents.
No Trust may engage in any activity other than as specified in this
prospectus or in the applicable prospectus supplement.
Annual Compliance Statement. Each Trust will be required to file annually
with the related Indenture Trustee a written statement as to the fulfillment of
its obligations under the related Indenture.
Indenture Trustee's Annual Report. The Indenture Trustee for each Trust
will be required to mail each year to all related Noteholders a brief report
relating to its eligibility and qualification to continue as Indenture Trustee
under the related Indenture, any amounts advanced by it under the Indenture, the
amount, interest rate and maturity date of specified indebtedness owing by the
Trust to the applicable 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 related notes and that has not been previously
reported.
Satisfaction and Discharge of Indenture. An Indenture will be discharged
with respect to the collateral securing the related notes upon the delivery to
the related Indenture Trustee for cancellation of all of those notes or, with
specified limitations, upon deposit with the Indenture Trustee of funds
sufficient for the payment in full of all the notes.
The Certificates
General
With respect to each Trust that issues certificates, one or more classes
(each, a "class") of certificates of the related series will be issued pursuant
to the terms of a Trust Agreement or a Pooling and Servicing Agreement, a form
of each of which has been filed as an exhibit to the Registration Statement of
which this prospectus forms a part. The following summary describes the material
terms of the certificates and the Trust Agreement or the Pooling and Servicing
Agreement, as applicable. The summary does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the certificates and the Trust Agreement or Pooling and Servicing Agreement,
as applicable.
Except for the certificates, if any, of a given series purchased by the
Depositor, each class of certificates will initially be represented by one or
more certificates registered in the name of the nominee for DTC, except as set
forth below. Except for the certificates, if any, of a given series purchased by
the Depositor, the certificates will be available for purchase in the
denominations specified in the applicable prospectus supplement in book-entry
form only. The Depositor has been informed by DTC that DTC's nominee will be
Cede, unless another nominee is specified in the applicable prospectus
supplement. Accordingly, that nominee is expected to be the holder of record of
the certificates (a "Certificateholder")
37
of any series that are not purchased by the Depositor. No Certificateholder
(other than a Trust) will be entitled to receive a physical certificate
representing a certificate until Definitive Certificates are issued under the
limited circumstances described in this prospectus or in the applicable
prospectus supplement. All references in this prospectus and in the applicable
prospectus supplement to actions by Certificateholders refer to actions taken by
DTC upon instructions from DTC Participants and all references in this
prospectus and in the applicable prospectus supplement to distributions,
notices, reports and statements to Certificateholders refer to distributions,
notices, reports and statements given, made or sent to DTC or its nominee, as
the case may be, as the registered holder of the certificates, for distribution
to Certificateholders in accordance with DTC's procedures with respect to the
certificates. We refer you to "Certain Information Regarding the
Securities--Book-Entry Registration" and "-- Definitive Securities." Any
certificates of a given series owned by the Depositor or its affiliates will be
entitled to equal and proportionate benefits under the applicable Trust
Agreement, except that those certificates will be deemed not to be outstanding
for the purpose of determining whether the requisite percentage of
Certificateholders have given any request, demand, authorization, direction,
notice, consent or other action under the Related Documents (other than the
commencement by the related Trust of a voluntary proceeding in bankruptcy as
described under "Description of the Transfer and Servicing
Agreements--Insolvency Event").
Payments of Principal and Interest
The timing and priority of payments, seniority, allocations of losses, pass
through rate (the "Pass Through Rate") and amount of or method of determining
payments with respect to principal and interest of each class of certificates
will be described in the applicable prospectus supplement. Payments of interest
on those certificates will be made on the dates specified in the applicable
prospectus supplement (each, a "Payment Date"). To the extent provided in the
applicable prospectus supplement, a series may include one or more classes of
certificates (the "Strip Certificates") entitled to either payments in respect
of principal with disproportionate, nominal or no interest payments or interest
payments with disproportionate, nominal or no payments in respect of principal.
Each class of certificates may have a different Pass Through Rate, which may be
a fixed, variable or adjustable Pass Through Rate (and which may be zero for
some classes of Strip Certificates) or any combination of the foregoing. The
applicable prospectus supplement will specify the Pass Through Rate for each
class of certificates of a given series or the method for determining the Pass
Through Rate. We also refer you to "Certain Information Regarding the
Securities--Fixed Rate Securities" and "--Floating Rate Securities." Payments in
respect of the certificates of a given series that includes notes may be
subordinate to payments in respect of the notes of that series as more fully
described in the applicable prospectus supplement. The rights of holders of any
class of certificates to receive payments of principal and interest may also be
senior or subordinate to the rights of holders of any other class or classes of
certificates of that series as more fully described in the applicable prospectus
supplement. Payments in respect of principal of and interest on any class of
certificates will be made on a pro rata basis among all the Certificateholders
of that class.
In the case of a series of certificates that includes two or more classes
of certificates, the timing, sequential order, priority of payment or amount of
payments in respect of interest and principal, and any schedule or formula or
applicable other provisions, of each class shall be as set forth in the
applicable prospectus supplement.
If and as provided in the applicable prospectus supplement, amounts
remaining on deposit in the Collection Account after all required payments to
the related Securityholders have been made may be released to the Depositor, BMW
FS or one or more third party credit or liquidity enhancement providers.
38
Certain Information Regarding the Securities
Fixed Rate Securities
Any class of Securities (other than some classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Securities") or at a variable or adjustable rate per annum ("Floating Rate
Securities"), as more fully described below and in the applicable prospectus
supplement. Each class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass Through Rate, as the case may be,
specified in the applicable prospectus supplement. Interest on each class of
Fixed Rate Securities will be computed on the basis of a 360-day year consisting
of twelve 30-day months or other day count basis as is specified in the
applicable prospectus supplement. We refer you to "The Notes--Principal and
Interest on the Notes" and "The Certificates-- Payments of Principal and
Interest."
Floating Rate Securities
Interest Rate Basis. Each class of Floating Rate Securities will bear
interest during each applicable Interest Period at a rate per annum determined
by reference to an interest rate basis (the "Base Rate"), plus or minus the
Spread, if any, or multiplied by the Spread Multiplier, if any, in each case as
specified in the applicable prospectus supplement. The "Spread" is the number of
basis points to be added to or subtracted from the related Base Rate applicable
to the Floating Rate Securities. The "Spread Multiplier" is the percentage of
the related Base Rate applicable to the Floating Rate Securities by which that
Base Rate will be multiplied to determine the applicable interest rate on those
Floating Rate Securities. The applicable prospectus supplement may designate one
of the following Base Rates as applicable to a particular Floating Rate
Security:
o LIBOR (a "LIBOR Security");
o the Commercial Paper Rate (a "Commercial Paper Rate Security");
o the Treasury Rate (a "Treasury Rate Security");
o the Federal Funds Rate (a "Federal Funds Rate Security");
o the CD Rate (a "CD Rate Security"); or
o any other Base Rate that is set forth in the applicable prospectus
supplement.
"Business Day" as used in this prospectus means, unless otherwise specified
in the applicable prospectus supplement:
1. for United States dollar denominated Securities for which LIBOR is not an
applicable Interest Rate Basis:
o any day other than a Saturday or Sunday, that is neither a legal
holiday nor a day on which commercial banks are authorized or required
by law, regulation or executive order to close in The City of New York
(a "New York Business Day");
2. or United States dollar denominated Securities for which LIBOR is an
applicable Interest Rate Basis:
39
o a day that is both (1) a day on which commercial banks are open for
business, including dealings in the designated Index Currency (as
defined below) in London (a "London Business Day") and (2) a New York
Business Day;
3. for non-United States dollar denominated Securities (other than Securities
denominated in euro) for which LIBOR is not an applicable Interest Rate
Basis:
o a day that is both (1) a day other than a day on which commercial
banks are authorized or required by law, regulation or executive order
to close in the Principal Financial Center (as defined below) of the
country issuing the Specified Currency (as defined below) (a
"Principal Financial Center Business Day") and (2) a New York Business
Day;
4. for non-United States dollar denominated Securities (other than Securities
denominated in euro) for which LIBOR is an applicable Interest Rate Basis:
o a day that is all of (1) a Principal Financial Center Business Day;
(2) a New York Business Day; and (3) a London Business Day;
5. for euro denominated Securities for which LIBOR is not an applicable
Interest Rate Basis:
o a day that is both (1) a day on which the Trans-European Automated
Real-time Gross Settlement Express Transfer (TARGET) System is open (a
"TARGET Business Day") and (2) a New York Business Day;
6. for euro denominated Securities for which LIBOR is an applicable Interest
Rate Basis:
o a day that is all of (1) a TARGET Business Day; (2) a New York
Business Day; and (3) a London Business Day.
"Principal Financial Center" means, unless otherwise specified in the
applicable prospectus supplement:
o the capital city of the country issuing the Specified Currency except
that with respect to United States dollars, Australian dollars,
Canadian dollars, Deutsche marks, Dutch guilders, South African rand
and Swiss francs, the Principal Financial Center will be The City of
New York, Sydney and Melbourne, Toronto, Frankfurt, Amsterdam,
Johannesburg and Zurich, respectively; or
o the capital city of the country to which the Index Currency relates,
except that with respect to United States dollars, Canadian dollars,
Deutsche marks, Dutch guilders, Portuguese escudos, South African rand
and Swiss francs, the Principal Financial Center will be the City of
New York, Toronto, Frankfurt, Amersterdam, London, Johannesburg and
Zurich, respectively.
"Specified Currency" means the currency in which a particular Security is
denominated (or, if the currency is no longer legal tender for the payment of
public and private debts, any other currency of the relevant country which is
then legal tender for the payment of pubic and private debts).
"Index Currency" means the currency specified in the applicable prospectus
supplement as the currency for which LIBOR will be calculated. If no currency is
specified in the applicable prospectus supplement, the Index Currency will be
United States dollars.
40
Interest Reset Dates. Each applicable prospectus supplement will specify
whether the rate of interest on the related Floating Rate Securities will be
reset daily, weekly, monthly, quarterly, semiannually, annually or some other
specified period (each, an "Interest Reset Period") and the dates on which that
Interest Rate will be reset (each, an "Interest Reset Date"). Unless otherwise
specified in the applicable prospectus supplement, the Interest Reset Date will
be, in the case of Floating Rate Securities which reset:
(1) daily, each Business Day;
(2) weekly, the Wednesday of each week (with the exception of weekly reset
Treasury Rate Securities which will reset the Tuesday of each week
except as described below);
(3) monthly, the third Wednesday of each month;
(4) quarterly, the third Wednesday of March, June, September and December
of each year;
(5) semiannually, the third Wednesday of the two months specified in the
applicable prospectus supplement;
(6) annually, the third Wednesday of the month specified in the applicable
prospectus supplement; or
(7) any other Interest Reset Date set forth in the applicable prospectus
supplement.
Unless otherwise specified in the related prospectus supplement, if any
Interest Reset Date for any Floating Rate Security would otherwise be a day that
is not a Business Day, the applicable Interest Reset Date will be postponed to
the next succeeding day that is a Business Day, except that in the case of a
Floating Rate Security as to which LIBOR is an applicable Base Rate, if that
Business Day falls in the next succeeding calendar month, that Interest Reset
Date will be the immediately preceding Business Day. In addition, in the case of
a Floating Rate Security for which the Treasury Rate is an applicable Interest
Rate Basis, if the Interest Determination Date would otherwise fall on an
Interest Reset Date, then the applicable Interest Reset Date will be postponed
to the next succeeding Business Day.
Except as set forth above or in the applicable prospectus supplement, the
interest rate in effect on each date will be:
o if the date is an Interest Reset Date, the interest rate determined on
the related Interest Determination Date, as defined below, immediately
preceding that Interest Reset Date, or
o if the day is not an Interest Reset Date, the interest rate determined
on the related Interest Determination Date immediately preceding the
most recent Interest Reset Date.
Interest Payments. The interest Payment Dates will be specified in the
applicable prospectus supplement. Unless otherwise specified in the related
prospectus supplement, if any Payment Date for a Floating Rate Security (other
than the final Payment Date) would otherwise be a day that is not a Business
Day, that Payment Date will be the next succeeding day that is a Business Day
except that in the case of a Floating Rate Security as to which LIBOR is the
applicable Base Rate, if the Business Day falls in the next succeeding calendar
month, the applicable Payment Date will be the immediately preceding Business
Day. If the final Payment Date of a Floating Rate Security falls on a day that
is not a Business Day, the payment of principal, premium, if any, and interest
will be made on the next succeeding
41
Business Day, and no interest on that payment shall accrue for the period from
and after that scheduled Payment Date.
Floating Rate Securities may accrue interest on an "Actual/360" basis, an
"Actual/Actual" basis, or a "30/360" basis, in each case as specified in the
applicable prospectus supplement. For Floating Rate Securities calculated on an
Actual/360 basis and Actual/Actual basis, accrued interest for each Interest
Period will be calculated by multiplying:
(1) the face amount of the Floating Rate Security;
(2) the applicable interest rate; and
(3) the actual number of days in the related Interest Period, and dividing
the resulting product by 360 or 365, as applicable (or, with respect
to an Actual/Actual basis Floating Rate Security, if any portion of
the related Interest Period falls in a leap year, the product of (1)
and (2) above will be multiplied by the sum of (x) the actual number
of days in that portion of that Interest Period falling in a leap year
divided by 366 and (y) the actual number of days in that portion of
that Interest Period falling in a non-leap year divided by 365).
For Floating Rate Securities calculated on a 30/360 basis, accrued interest
for an Interest Period will be computed on the basis of a 360-day year
consisting of twelve 30-day months, irrespective of how many days are actually
in that Interest Period. With respect to any Floating Rate Security that accrues
interest on a 30/360 basis, if any Payment Date, including the related final
Payment Date, falls on a day that is not a Business Day, the related payment of
principal or interest will be made on the next succeeding Business Day as if
made on the date that payment was due, and no interest will accrue on the amount
so payable for the period from and after that Payment Date.
The "Interest Period" with respect to any class of Floating Rate Securities
will be set forth in the applicable prospectus supplement.
Interest Determination Dates. The interest rate applicable to each Interest
Reset Period beginning on the Interest Reset Date with respect to that Interest
Reset Period will be the rate determined on the applicable "Interest
Determination Date," as follows unless otherwise specified in the applicable
prospectus supplement:
o The Interest Determination Date for the CD Rate, the Commercial Paper
Rate and the Federal Funds Rate will be the second Business Day
preceding each Interest Reset Date for the related Floating Rate
Security;
o The Interest Determination Date for LIBOR will be the second London
Banking Day preceding each Interest Reset Date;
o The Interest Determination Date for the Treasury Rate will be the day
in the week in which the related Interest Reset Date falls on which
day Treasury Bills, as defined below, are normally auctioned. Treasury
Bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on
the following Tuesday, except that the auction may be held on the
preceding Friday; provided, however, that if an auction is held on the
Friday of the week preceding the related Interest Reset Date, the
related Interest Determination Date will be that preceding Friday; and
provided further,
42
that if an auction falls on any Interest Reset Date, then the related
Interest Reset Date will instead be the first Business Day following
that auction.
As used in this prospectus, "London Banking Day" means any day on which
commercial banks are open for business (including dealings in designated Index
Currency) in London.
Maximum and Minimum Interest Rates. As specified in the applicable
prospectus supplement, Floating Rate Securities of a given class may also have
either or both of the following (in each case expressed as a rate per annum):
o a maximum limitation, or ceiling, on the rate at which interest may
accrue during any Interest Period, which may be an available funds cap
rate; and
o a minimum limitation, or floor, on the rate at which interest may
accrue during any Interest Period.
In addition to any maximum interest rate that may be applicable to any class of
Floating Rate Securities, the interest rate applicable to any class of Floating
Rate Securities will in no event be higher than the maximum rate permitted by
applicable law, as the same may be modified by United States law of general
application.
Calculation Agent. If so disclosed in the related prospectus supplement, a
Trust with respect to which a class of Floating Rate Securities will be issued
will appoint, and enter into agreements with, a calculation agent (each, a
"Calculation Agent") to calculate Interest Rates on each class of Floating Rate
Securities. The applicable prospectus supplement will set forth the identity of
the Calculation Agent for each class of Floating Rate Securities of a given
series, which may be the related Trustee or Indenture Trustee with respect to
that series. All determinations of interest by the Calculation Agent shall, in
the absence of manifest error, be conclusive for all purposes and binding on the
holders of Floating Rate Securities of a given class. All percentages resulting
from any calculation on Floating Rate Securities will be rounded to the nearest
one hundred-thousandth of a percentage point, with five one millionths of a
percentage point rounded upwards (e.g., 9.876545% (or .09876545) would be
rounded to 9.87655% (or .0987655)), and all dollar amounts used in or resulting
from that calculation on Floating Rate Securities will be rounded to the nearest
cent (with one-half cent being rounded upwards).
Calculation Date. Unless specified otherwise in the applicable prospectus
supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date, will be the earlier of:
o the tenth calendar day after the applicable Interest Determination
Date, or, if that day is not a Business Day, the next succeeding
Business Day, or
o the Business Day preceding the applicable Interest Payment Date or
final scheduled Payment Date, as the case may be.
Index Maturity means the period to maturity of the instrument or obligation
with respect to which the Base Rate will be calculated.
CD Rate Securities. Each CD Rate Security will bear interest at the rates
calculated with reference to the CD Rate and the Spread or Spread Multiplier, if
any, specified in that CD Rate Security and in the applicable prospectus
supplement.
43
Unless otherwise specified in the applicable prospectus supplement, "CD
Rate" means the rate on the applicable Interest Determination Date for
negotiable United States dollar certificates of deposit having the Index
Maturity designated in the applicable prospectus supplement as published in
H.15(519) (as defined below) under the heading "CDs (secondary market)."
The following procedures will be followed if the CD Rate cannot be
determined as described above:
(1) If the rate referred to above is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the CD Rate on the
applicable Interest Determination Date will be the rate for negotiable
United States dollar certificates of deposit of the Index Maturity
designated in the applicable prospectus supplement as published in H.15
Daily Update (as defined below), or other recognized electronic source used
for the purpose of displaying the applicable rate, under the heading "CDs
(secondary market)."
(2) If the rate referred to in clause (1) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, then the CD Rate
for the applicable Interest Determination Date will be the rate calculated
by the Calculation Agent as the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on the applicable
Interest Determination Date of three leading nonbank dealers in negotiable
United States dollar certificates of deposit in The City of New York
selected by the Calculation Agent for negotiable United States dollar
certificates of deposit of major United States money market banks for
negotiable certificates of deposit with a remaining maturity closest to the
Index Maturity designated in the applicable prospectus supplement in an
amount that is representative for a single transaction in that market at
that time.
(3) If the dealers selected by the Calculation Agent are not quoting as set
forth in clause (2) above, the CD Rate on the applicable Interest
Determination Date will be the rate in effect on the applicable Interest
Determination Date.
"H.15(519)" means the weekly statistical release designated as H.15(519) or
any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve System
at http://www.bog.frb.fed.us/releases/ h15/update, or any successor site or
publication.
Commercial Paper Rate Securities. Each Commercial Paper Rate Security will
bear interest at the rates calculated with reference to the Commercial Paper
Rate and the Spread or Spread Multiplier, if any, specified in that Commercial
Paper Rate Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement,
"Commercial Paper Rate" means the Money Market Yield (as defined below) on the
applicable Interest Determination Date of the rate for commercial paper having
the Index Maturity specified in the applicable prospectus supplement, as
published in H.15(519) under the heading "Commercial Paper--Nonfinancial."
The following procedures will be followed if the Commercial Paper Rate
cannot be determined as described above:
44
(1) If the rate referred to above is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the Commercial Paper Rate will
be the Money Market Yield on the applicable Interest Determination Date of
the rate for commercial paper having the Index Maturity specified in the
applicable prospectus supplement published in H.15 Daily Update, or other
recognized electronic source for the purpose of displaying the applicable
rate under the heading "Commercial Paper--Nonfinancial."
(2) If by 3:00 P.M. New York City time, on the related Calculation Date, the
Commercial Paper Rate is not yet published in either H.15(519) or H.15
Daily Update, then the Commercial Paper Rate for the applicable Interest
Determination Date will be calculated by the Calculation Agent as the Money
Market Yield of the arithmetic mean of the offered rates at approximately
11:00 A.M., New York City time, on the applicable Interest Determination
Date of three leading dealers of United States commercial paper in The City
of New York selected by the Calculation Agent for commercial paper having
the Index Maturity specified in the applicable prospectus supplement placed
for industrial issuers whose bond rating is "Aa" or the equivalent, by a
nationally recognized securities rating organization.
(3) If the dealers selected by the Calculation Agent are not quoting as
mentioned in clause (2) above, the Commercial Paper Rate determined on the
applicable Interest Determination Date will be the rate in effect on the
applicable Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage rounded
upwards to the nearest one hundred-thousandth of a percentage point) calculated
in accordance with the following formula:
D x 360
Money Market Yield = -------------- x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the Interest Period for which interest is being calculated.
Federal Funds Rate Securities. Each Federal Funds Rate Security will bear
interest at the rates calculated with reference to the Federal Funds Rate and
the Spread or Spread Multiplier, if any, specified in that Federal Funds Rate
Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, "Federal
Funds Rate" means the rate on the applicable Interest Determination Date for
United States dollar federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)" as displayed on Bridge Telerate, Inc. or any
successor service on page 120 or any other page as may replace the applicable
page on the service ("Telerate Page 120").
The following procedures will be followed if the Federal Funds Rate cannot
be determined as described above:
(1) If the rate referred above does not appear on Telerate Page 120 or is not
published prior to 3:00 P.M., New York City time, on the related
Calculation Date, the Federal Funds Rate for the applicable Interest
Determination Date will be the rate on the applicable Interest
Determination Date for United States dollar federal funds published in H.15
Daily Update, or other recognized electronic source for the purpose of
displaying the applicable rate under the heading "Federal Funds
(Effective)."
45
(2) If the Federal Funds Rate is not so published by 3:00 P.M., New York City
time, on the related Calculation Date, the Federal Funds Rate for the
applicable Interest Determination Date will be calculated by the
Calculation Agent as the arithmetic mean of the rates for the last
transaction in overnight United States dollar federal funds arranged by
three leading brokers of United States dollar federal funds transactions in
The City of New York selected by the Calculation Agent before 9:00 A.M.,
New York City time, on the applicable Interest Determination Date
(3) If brokers so selected by the Calculation Agent are not quoting as
mentioned in clause (2) above, the Federal Funds Rate for the applicable
Interest Determination Date will be the Federal Funds Rate in effect on the
applicable Interest Determination Date.
LIBOR Securities. Each LIBOR Security will bear interest at the rates
calculated with reference to LIBOR and the Spread or Spread Multiplier, if any,
specified in that LIBOR Security and in the applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement, "LIBOR"
means:
1. if "LIBOR Telerate" is specified in the applicable prospectus
supplement, or if neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable prospectus supplement as the method for
calculating LIBOR, LIBOR will be the rate for deposits in the Index
Currency having the Index Maturity designated in the applicable
prospectus supplement, commencing on the second London Banking Day
immediately following the applicable Interest Determination Date that
appears on the Designated LIBOR Page specified in the applicable
prospectus supplement as of 11:00 A.M. London time, on the applicable
Interest Determination Date, or
2. If "LIBOR Reuters" is specified in the applicable prospectus
supplement, LIBOR will be the arithmetic mean of the offered rates for
deposits in the Index Currency having the Index Maturity designated in
the applicable prospectus supplement, commencing on the second London
Banking Day immediately following the applicable Interest
Determination Date, that appear on the Designated LIBOR Page specified
in the applicable prospectus supplement as of 11:00 A.M. London time
on the applicable Interest Determination Date, if at least two offered
rates appear (except as provided in the following sentence). If the
Designated LIBOR Page by its terms provides for only a single rate,
then the single rate will be used.
The following procedures will be followed if LIBOR cannot be determined as
described above:
1. With respect to an Interest Determination Date on which fewer than two
offered rates appear, or no rate appears, as the case may be, on the
applicable Designated LIBOR Page, LIBOR for the applicable Interest
Determination Date will be the rate calculated by the Calculation
Agent as the arithmetic mean of at least two quotations obtained by
the Calculation Agent after requesting the principal London offices of
each of four major reference banks in the London interbank market, as
selected by the Calculation Agent, to provide the Calculation Agent
with their offered quotations for deposits in the Index Currency for
the period of the Index Maturity designated in the applicable
prospectus supplement, commencing on the second London Banking Day
immediately following the applicable Interest Determination Date, to
prime banks in the London interbank market at approximately 11:00
A.M., London time, on the applicable Interest Determination Date and
in a principal amount that is representative for a single transaction
in the applicable
46
Index Currency in that market at that time. If at least two quotations
are provided, LIBOR determined on the applicable Interest
Determination Date will be the arithmetic mean of those quotations.
2. If fewer than two quotations referred to in clause (1) above are
provided, LIBOR determined on the applicable Interest Determination
Date will be rate calculated by the Calculation Agent as the
arithmetic mean of the rates quoted at approximately 11:00 A.M. (or
another time specified in the applicable prospectus supplement), in
the applicable Principal Financial Center, on the applicable Interest
Determination Date, by three major banks, in that Principal Financial
Center selected by the Calculation Agent for loans in the Index
Currency to leading European banks, having the Index Maturity
designated in the applicable prospectus supplement and in a principal
amount that is representative for a single transaction in the Index
Currency in that market at that time.
3. If the banks so selected by the Calculation Agent are not quoting as
mentioned in clause (2) above, LIBOR for the applicable Interest
Determination Date will be LIBOR in effect on the applicable Interest
Determination Date.
"Designated LIBOR Page" means either:
o if "LIBOR Telerate" is designated in the applicable prospectus
supplement or neither "LIBOR Reuters" nor "LIBOR Telerate" is
specified in the applicable prospectus supplement as the method for
calculating LIBOR, the display on Bridge Telerate, Inc., or any
successor service on the page designated in the applicable prospectus
supplement or any page as may replace the designated page on that
service for the purpose of displaying the London interbank rates of
major banks for the applicable Index Currency.
o if "LIBOR Reuters" is designated in the applicable prospectus
supplement, the display on Reuters Monitor Money Rates Service or any
successor service on the page designated in the applicable prospectus
supplement or any page that may replace that designated page on that
service for the purpose of displaying London interbank rates of major
banks for the applicable Index Currency, or
Treasury Rate Securities. Each Treasury Rate Security will bear interest
calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, if any, specified in the Treasury Rate Security and in the
applicable prospectus supplement.
Unless otherwise provided in the applicable prospectus supplement,
"Treasury Rate" means the rate from the auction held on the applicable Interest
Determination Date ("Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable
prospectus supplement, under the heading "INVESTMENT RATE" on the display on
Bridge Telerate, Inc., or any successor service on page 56 or any other page as
may replace page 56 of that service ("Telerate Page 56") or page 57 or any other
page as may replace page 57 of that service ("Telerate Page 57").
The following procedures will be followed if the Treasury Rate cannot be
determined as described above:
1. If the rate described above is not so published by 3:00 P.M., New York
City time, on the related Calculation Date, the Treasury Rate for the
applicable Interest Determination Date
47
will be the Bond Equivalent Yield (as defined below) of the rate for
the applicable Treasury Bills as published in H.15 Daily Update, or
other recognized electronic source used for the purpose of displaying
the applicable rate, under the caption "U.S. Government Securities/
Treasury Bills/Auction High."
2. If the rate described in clause (1) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the
Treasury Rate for the applicable Interest Determination Date will be
the Bond Equivalent Yield of the auction rate of the applicable
Treasury Bills announced by the United States Department of the
Treasury.
3. If the rate described in clause (2) above is not announced by the
United States Department of the Treasury, or if the Auction is not
held, the Treasury Rate for the applicable Interest Determination Date
will be the Bond Equivalent Yield of the rate on the applicable
Interest Determination Date of Treasury Bills having the Index
Maturity specified in the applicable prospectus supplement published
in H.15(519) under the caption "U.S. Government Securities/Treasury
Bills/ Secondary Market."
4. If the rate described in clause (3) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the
Treasury Rate for the applicable Interest Determination Date will be
the rate on the applicable Interest Determination Date of the
applicable Treasury Bills as published in H.15 Daily Update, or other
recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "U.S. Government Securities/
Treasury Bills/ Secondary Market."
5. If the rate described in clause (4) above is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the
Treasury Rate for the applicable Interest Determination Date will be
the rate for the applicable Interest Determination Date calculated by
the Calculation Agent as the Bond Equivalent Yield of the arithmetic
mean of the secondary market bid rates, as of approximately 3:30 P.M.,
New York City time, on the applicable Interest Determination Date, of
three primary United States government securities dealers, selected by
the Calculation Agent, for the issue of Treasury Bills with a
remaining maturity closest to the Index Maturity specified in the
applicable prospectus supplement.
6. If the dealers selected by the Calculation Agent are not quoting as
described in clause(s) above, the Treasury Rate for the applicable
Interest Determination Date will be the rate in effect on the
applicable Interest Determination Date.
"Bond Equivalent Yield" means a yield calculated in accordance with the
following formula and expressed as a percentage:
D x N
Bond Market Yield = ------------- x 100
360 - (D x M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on a
bank discount basis, "N" refers to 365 or 366, as the case may be, and "M"
refers to the actual number of days in the interest period for which interest is
being calculated.
48
Indexed Securities
To the extent specified in any prospectus supplement, any class of
Securities of a given series may consist of Securities ("Indexed Securities") in
which the principal amount payable on the final scheduled Payment Date for that
class (the "Indexed Principal Amount") and/or the interest payable on any
Payment Date is determined by reference to a measure (the "Index") which will be
related to:
o the exchange rates of one or more currencies;
o the price or prices of specified commodities;
o specified stocks, which may be based on U.S. or foreign stocks, on
specified dates specified in the applicable prospectus supplement; or
o another price, interest rate, exchange rate or other financial index
or indices as are described in the applicable prospectus supplement.
Holders of Indexed Securities may receive a principal amount on the related
final scheduled Payment Date that is greater than or less than the face amount
of the Indexed Securities depending upon the relative value on the related final
scheduled Payment Date of the specified indexed item. The applicable prospectus
supplement will also contain information as to the method for determining the
principal amount payable on the related final scheduled Payment Date, if any,
and, where applicable, historical information with respect to the specific
indexed item or items and special tax considerations associated with investment
in Indexed Securities. Notwithstanding anything to the contrary in this
prospectus, for purposes of determining the rights of a holder of a Security
indexed as to principal in respect of voting for or against amendments to the
related Trust Agreement, Indenture, or other related agreements, as the case may
be, and modifications and the waiver of rights under those agreements, the
principal amount of that Indexed Security shall be deemed to be the face amount
of that Indexed Security upon issuance less any payments allocated to principal
of that Indexed Security.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and that third
party either suspends the calculation or announcement of that Index or changes
the basis upon which that Index is calculated (other than changes consistent
with policies in effect at the time that Indexed Security was issued and
permitted changes described in the applicable prospectus supplement), then that
Index shall be calculated for purposes of that Indexed Security by an
independent calculation agent named in the applicable prospectus supplement on
the same basis, and subject to the same conditions and controls, as applied to
the original third party. If for any reason that Index cannot be calculated on
the same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of that Indexed Security
shall be calculated in the manner set forth in the applicable prospectus
supplement. Any determination of that independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
The applicable prospectus supplement will describe whether the principal
amount of the related Indexed Security, if any, that would be payable upon
redemption or repayment prior to the applicable final scheduled Payment Date
will be the face amount of that Indexed Security, the Indexed Principal Amount
of that Indexed Security at the time of redemption or repayment or another
amount described in that prospectus supplement.
49
Interest Rate Swaps
The Trust may also include a derivative arrangement for the payment of
interest on the Securities of a series or any class of Securities. A derivative
arrangement may include a guaranteed rate agreement, a maturity liquidity
facility, a tax protection agreement, an interest rate cap or floor agreement,
an interest rate or currency swap agreement or any other similar arrangement.
The type of derivative arrangement, if any, for a series of Securities or class
of Securities will be described in the applicable prospectus supplement.
Variable Funding Note
The applicable prospectus supplement for a Trust may provide that the Trust
issue one or more series of Securities having particular maturity dates and at
the same time the Trust may issue amortizing floating notes, known as "variable
funding notes," which relate to those particular maturity dates. These
Securities may have a balance that may either decrease based on the amortization
of the related Receivables or increase based on principal collections used to
purchase additional Receivables.
Interest Rate Flexibility for a Variable Funding Note. The prospectus
supplement may provide that the Securities issued in connection with a variable
funding note may have different rates of interest which may be fixed or
floating. The related prospectus supplement will specify the interest rate for
each series or class of Securities and the method, if any, for determining
subsequent changes to the interest rate.
Pro-Rata Pay/Subordinate Securities
The applicable prospectus supplement for a Trust may provide that one or
more classes of Securities will be payable on an interest only or principal only
basis. In addition, the Securities may include two or more classes that differ
as to timing, sequential order, priority of payment, interest rate or amount of
distributions of principal or interest or both. Distributions of principal or
interest or both on any class of Securities may be made upon the occurrence of
specified events, in accordance with a schedule or formula, or on the basis of
collections from designated assets of the Trust. A series may include one or
more classes of Securities, as to which accrued interest will not be distributed
but rather will be added to the principal or specified balance of the Security
on each Payment Date.
Revolving Period
The applicable prospectus supplement for a Trust may provide that all or a
portion of the principal collected on the Receivables may be applied by the
Trustee to the acquisition of subsequent Receivables during a specified period
rather than used to distribute payments of principal to Securityholders during
that period. These Securities would then possess an interest only period, also
commonly referred to as a "Revolving Period," which will be followed by an
"amortization period," during which principal would be paid. Any interest only
or Revolving Period may terminate prior to the end of the specified period and
result in earlier than expected principal repayment of the Securities.
Book-Entry Registration
Each class of Securities offered by this prospectus will be represented by
one or more certificates registered in the name of Cede, as nominee of The
Depository Trust Company ("DTC"). Securityholders may hold beneficial interests
in Securities through DTC (in the United States) or Clearstream Banking, societe
anonyme (formerly Cedelbank, referred to herein as "Clearstream, Luxembourg") or
the Euroclear
50
System ("Euroclear") (in Europe or Asia) directly if they are participants of
those systems, or indirectly through organizations which are participants in
those systems.
No Securityholder will be entitled to receive a certificate representing
that person's interest in the Securities, except as set forth below. Unless and
until Securities of a class are issued in fully registered certificated form
("Definitive Securities") under the limited circumstances described below, all
references in this prospectus to actions by Noteholders, Certificateholders or
Securityholders shall refer to actions taken by DTC upon instructions from DTC
Participants, and all references in this prospectus to distributions, notices,
reports and statements to Noteholders, Certificateholders or Securityholders
shall refer to distributions, notices, reports and statements to Cede, as the
registered holder of the Securities, for distribution to Securityholders in
accordance with DTC procedures. Therefore, it is anticipated that the only
Noteholder, Certificateholder or Securityholder will be Cede, as nominee of DTC.
Securityholders will not be recognized by the related Trustee as Noteholders,
Certificateholders or Securityholders as those terms will be used in the
relevant agreements, and Securityholders will only be permitted to exercise the
rights of holders of Securities of the related class indirectly through DTC and
DTC Participants, as further described below.
Clearstream, Luxembourg and Euroclear will hold omnibus positions on behalf
of their participants (referred to herein as "Clearstream, Luxembourg
Participants" and "Euroclear Participants," respectively) through customers'
securities accounts in their respective names on the books of their respective
depositaries (collectively, the "Depositaries") which in turn will hold those
positions in customers' securities accounts in the Depositaries' names on the
books of DTC.
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between Clearstream, Luxembourg Participants and Euroclear
Participants will occur in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream,
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with DTC rules on behalf of the relevant European
international clearing system by its Depositary. However, each of these
cross-market transactions will require delivery of instructions to the relevant
European international clearing system by the counterparty in that system in
accordance with its rules and procedures and within its established deadlines.
The relevant European international clearing system will, if the transaction
meets its settlement requirements, deliver instructions to its Depositary to
take action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Clearstream,
Luxembourg Participants and Euroclear Participants may not deliver instructions
directly to the Depositaries.
Because of time-zone differences, credits of securities received in
Clearstream, Luxembourg or Euroclear as a result of a transaction with a DTC
Participant will be made during subsequent securities settlement processing and
dated the business day following the DTC settlement date. Those credits or any
transactions in those securities settled during that processing will be reported
to the relevant Euroclear Participant or Clearstream, Luxembourg Participant on
that business day. Cash received in Clearstream, Luxembourg or Euroclear as a
result of sales of Securities by or through a Clearstream, Luxembourg
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
Clearstream, Luxembourg or Euroclear cash account only as of the business day
following settlement in DTC.
51
DTC is a limited purpose trust company organized under the laws of the
State of New York, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to Section 17A of the Exchange Act of 1934. DTC was
created to hold securities for its participating members ("DTC Participants")
and to facilitate the clearance and settlement of securities transactions
between DTC Participants through electronic book-entries, thereby eliminating
the need for physical movement of certificates. DTC Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
which may include underwriters, agents or dealers with respect to the Securities
of any class or series. Indirect access to the DTC system also is available to
others including banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a DTC Participant, either directly or
indirectly (the "Indirect DTC Participants"). The rules applicable to DTC and
DTC Participants are on file with the SEC.
Securityholders that are not DTC Participants or Indirect DTC Participants
but desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Securities may do so only through DTC Participants and Indirect
DTC Participants. DTC Participants will receive a credit for the Securities on
DTC's records. The ownership interest of each Securityholder will in turn be
recorded on respective records of the DTC Participants and Indirect DTC
Participants. Securityholders will not receive written confirmation from DTC of
their purchase, but Securityholders are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the DTC Participant or Indirect DTC
Participant through which the Securityholder entered into the transaction.
Transfers of ownership interests in the Securities of any class will be
accomplished by entries made on the books of DTC Participants acting on behalf
of Securityholders.
To facilitate subsequent transfers, all Securities deposited by DTC
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Securities with DTC and their registration in the name of Cede
will effect no change in beneficial ownership. DTC will have no knowledge of the
actual Securityholders and its records will reflect only the identity of the DTC
Participants to whose accounts those Securities are credited, which may or may
not be the Securityholders. DTC Participants and Indirect DTC Participants will
remain responsible for keeping account of their holdings on behalf of their
customers. While the Securities of a series are held in book-entry form,
Securityholders will not have access to the list of Securityholders of that
series, which may impede the ability of Securityholders to communicate with each
other.
Conveyance of notices and other communications by DTC to DTC Participants,
by DTC Participants to Indirect DTC Participants and by DTC Participants and
Indirect DTC Participants to Securityholders will be governed by arrangements
among them, subject to any statutory or regulatory requirements that may be in
effect from time to time.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among DTC
Participants on whose behalf it acts with respect to the Securities and is
required to receive and transmit payments of principal of and interest on the
Securities. DTC Participants and Indirect DTC Participants with which
Securityholders have accounts with respect to the Securities similarly are
required to make book-entry transfers and receive and transmit those payments on
behalf of their respective Securityholders.
DTC's practice is to credit DTC Participants' accounts on each Payment Date
in accordance with their respective holdings shown on its records, unless DTC
has reason to believe that it will not receive payment on that Payment Date.
Payments by DTC Participants and Indirect DTC Participants to Securityholders
will be governed by standing instructions and customary practices, as is the
case with
52
securities held for the accounts of customers in bearer form or registered in
"street name," and will be the responsibility of that DTC Participant and not of
DTC, the related Indenture Trustee or Trustee (or any paying agent appointed by
the Indenture Trustee or Trustee), the Depositor or the Servicer, subject to any
statutory or regulatory requirements that may be in effect from time to time.
Payment of principal of and interest on each class of Securities to DTC will be
the responsibility of the related Indenture Trustee or Trustee (or any paying
agent), disbursement of those payments to DTC Participants will be the
responsibility of DTC and disbursement of those payments to the related
Securityholders will be the responsibility of DTC Participants and Indirect DTC
Participants. DTC will forward those payments to its DTC Participants which
thereafter will forward them to Indirect DTC Participants or Securityholders.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and some other banks, a Securityholder may
be limited in its ability to pledge Securities to persons or entities that do
not participate in the DTC system, or otherwise take actions with respect to
those Securities due to the lack of a physical certificate for those Securities.
DTC has advised the Depositor that it will take any action permitted to be
taken by a Securityholder only at the direction of one or more DTC Participants
to whose account with DTC the Securities are credited. Additionally, DTC has
advised the Depositor that it will take those actions with respect to specified
percentages of the Securityholders' interest only at the direction of and on
behalf of DTC Participants whose holdings include undivided interests that
satisfy those specified percentages. DTC may take conflicting actions with
respect to other undivided interests to the extent that those actions are taken
on behalf of DTC Participants whose holdings include those undivided interests.
Neither DTC nor Cede will consent or vote with respect to the Securities.
Under its usual procedures, DTC will mail an "Omnibus Proxy" to the related
Indenture Trustee or Trustee as soon as possible after any applicable record
date for that consent or vote. The Omnibus Proxy will assign Cede's consenting
or voting rights to those DTC Participants to whose accounts the related
Securities are credited on that record date (which record date will be
identified in a listing attached to the Omnibus Proxy).
Clearstream Banking, societe anonyme, 67 Bd Grande-Duchesse Charlotte,
L-2967 Luxembourg, was incorporated in 1970 as "Cedel S.A.," a company with
limited liability under Luxembourg law (a societe anonyme). Cedel S.A.
subsequently changed its name to Cedelbank. On 10 January 2000, Cedelbank's
parent company, Cedel International, societe anonyme ("CI") merged its clearing,
settlement and custody business with that of Deutsche Borse Clearing AG
("DBC"). The merger involved the transfer by CI of substantially all of its
assets and liabilities (including its shares in CB) to a new Luxembourg company,
New Cedel International, societe anonyme ("New CI"), which is 50% owned by CI
and 50% owned by DBC's parent company Deutsche Borse AG. The shareholders
of these two entities are banks, securities dealers and financial institutions.
Cedel International currently has 92 shareholders, including U.S. financial
institutions or their subsidiaries. No single entity may own more than 5 percent
of Cedel International's stock.
Further to the merger, the Board of Directors of New Cedel International
decided to re-name the companies in the group in order to give them a cohesive
brand name. The new brand name that was chosen is "Clearstream." With effect
from 14 January 2000 New CI has been renamed "Clearstream International, societe
anonyme." On 18 January 2000, Cedelbank was renamed "Clearstream Banking,
societe anonyme," and Cedel Global Services was renamed "Clearstream Services,
societe anonyme."
On 17 January 2000 DBC was renamed "Clearstream Banking AG." This means
that there are now two entities in the corporate group headed by Clearstream
International which share the name
53
"Clearstream Banking," the entity previously named "Cedelbank" and the entity
previously named "Deutsche B orse Clearing AG."
Clearstream, Luxembourg holds securities for its customers and facilitates
the clearance and settlement of securities transactions between Clearstream,
Luxembourg customers through electronic book-entry changes in accounts of
Clearstream, Luxembourg customers, thereby eliminating the need for physical
movement of certificates. Transactions may be settled by Clearstream, Luxembourg
in any of 36 currencies, including United States dollars. Clearstream,
Luxembourg provides to its customers, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream, Luxembourg also
deals with domestic securities markets in over 30 countries through established
depository and custodial relationships. Clearstream, Luxembourg is registered as
a bank in Luxembourg, and is subject to regulation by the Commission de
Surveillance du Secteur Financier, "CSSF," which supervises Luxembourg banks.
Clearstream, Luxembourg's customers are world-wide financial institutions
including underwriters, securities brokers and dealers, banks, trust companies
and clearing corporations. Clearstream, Luxembourg's U.S. customers are limited
to securities brokers and dealers, and banks. Currently, Clearstream, Luxembourg
has approximately 2,000 customers located in over 80 countries, including all
major European countries, Canada, and the United States. Indirect access to
Clearstream, Luxembourg is available to other institutions that clear through or
maintain a custodial relationship with an account holder of Clearstream,
Luxembourg. Clearstream, Luxembourg has established an electronic bridge with
Morgan Guaranty Trust Company of New York as the Operator of the Euroclear
System in Brussels to facilitate settlement of trades between Clearstream,
Luxembourg and Euroclear.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System and to clear and settle transactions between Euroclear
Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may now be settled in any of 27 currencies, including United States
dollars. The Euroclear System includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. The Euroclear System is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office (the "Euroclear
Operator" or "Euroclear"), under contract with Euroclear Clearance System S.C.,
a Belgian cooperative corporation (the "Cooperative"). All operations are
conducted by the Euroclear Operator, and all Euroclear securities clearance
accounts and Euroclear cash accounts are accounts with the Euroclear Operator,
not the Cooperative. The Cooperative establishes policy for the Euroclear System
on behalf of Euroclear Participants. Euroclear Participants include banks
(including central banks), securities brokers and dealers and other professional
financial intermediaries and may include any underwriters, agents or dealers
with respect to any class or series of Securities offered by this prospectus.
Indirect access to the Euroclear System is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. Therefore, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawals of
securities
54
and cash from the Euroclear System and receipts of payments with respect to
securities in the Euroclear System. All securities in the Euroclear System are
held on a fungible basis without attribution of specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants, and has no record
of or relationship with persons holding through Euroclear Participants.
Payments with respect to Securities held through Clearstream, Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream, Luxembourg
Participants or Euroclear Participants in accordance with the relevant system's
rules and procedures, to the extent received by its Depositary. Those payments
will be subject to tax withholding in accordance with relevant United States tax
laws and regulations. We refer you to "Material Income Tax Consequences."
Clearstream, Luxembourg or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Securityholder on behalf of a
Clearstream, Luxembourg Participant or Euroclear Participant only in accordance
with its relevant rules and procedures and subject to its Depositary's ability
to effect those actions on its behalf through DTC.
Although DTC, Clearstream, Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Securities among DTC
Participants, Clearstream Luxembourg Participants and Euroclear Participants,
they are under no obligation to perform or continue to perform those procedures
and those procedures may be discontinued at any time.
Definitive Securities
The notes, if any, and the certificates of a given series will be issued in
fully registered, certificated form ("Definitive Notes" and "Definitive
Certificates," respectively, and collectively referred to in this prospectus as
"Definitive Securities") to Noteholders or Certificateholders or their
respective nominees, rather than to DTC or its nominee, only if:
1. DTC is no longer willing or able to discharge properly its
responsibilities as depository with respect to those Securities and
the Depositor, the Administrator or the Trustee is unable to locate a
qualified successor (and if it is the Depositor or the Administrator
that has made that determination, the Depositor or that Administrator
so notifies the applicable Trustee in writing);
2. the Depositor or the Administrator or the Trustee, as applicable, at
its option, elects to terminate the book-entry system through DTC; or
3. after the occurrence of an Event of Default or a Servicer Default with
respect to those Securities, holders representing at least a majority
of the outstanding principal amount of the notes or the certificates,
as the case may be, of that series, acting together as a single class,
advise the applicable Trustee through DTC in writing that the
continuation of a book-entry system through DTC (or its successor)
with respect to those notes or certificates is no longer in the best
interests of the holders of those Securities.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee or Indenture Trustee will be required to
notify all applicable Securityholders of a given series through DTC Participants
of the availability of Definitive Securities. Upon surrender by DTC of the
Definitive Certificates representing the corresponding Securities and receipt of
instructions for re-registration, the applicable Trustee or Indenture Trustee
will reissue those Securities as Definitive Securities to those Securityholders.
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Payments of principal of, and interest on, the Definitive Securities will
thereafter be made by the applicable Trustee or Indenture Trustee in accordance
with the procedures set forth in the related Indenture or the related Trust
Agreement or Pooling and Servicing Agreement, as applicable, directly to holders
of Definitive Securities in whose names the Definitive Securities were
registered at the close of business on the applicable record date specified for
those Securities in the applicable prospectus supplement. Those payments will be
made by check mailed to the address of that holder as it appears on the register
maintained by the applicable Trustee or Indenture Trustee. The final payment on
any Definitive Security, however, will be made only upon presentation and
surrender of that Definitive Security at the office or agency specified in the
notice of final payment to the applicable Securityholders. The applicable
Trustee or the Indenture Trustee will provide notice to the applicable
Securityholders not less than 15 nor more than 30 days prior to the date on
which final payment is expected to occur.
Definitive Securities will be transferable and exchangeable at the offices
of the applicable Trustee or of a registrar named in a notice delivered to
holders of Definitive Securities. No service charge will be imposed for any
registration of transfer or exchange, but the applicable Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
Description of the Transfer and Servicing Agreements
The following summary describes the material terms of each Sale and
Servicing Agreement or Pooling and Servicing Agreement pursuant to which a Trust
will purchase Receivables from the Depositor and the Servicer will agree to
service those Receivables, each Trust Agreement (or in the case of a grantor
trust, the Pooling and Servicing Agreement) pursuant to which a Trust will be
created and certificates will be issued and each Administration Agreement
pursuant to which BMW FS will undertake specified administrative duties with
respect to a Trust that issues notes (collectively, the "Transfer and Servicing
Agreements"). Forms of the Transfer and Servicing Agreements have been filed as
exhibits to the registration statement of which this prospectus forms a part.
The provisions of any of the Transfer and Servicing Agreements may differ from
those described in this prospectus and, if so, will be described in the
applicable prospectus supplement. This summary 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.
Sale and Assignment of Receivables
On or prior to the closing date specified with respect to any given Trust
in the applicable prospectus supplement (the "Closing Date"), BMW FS or BMW Bank
will sell and assign to the Depositor, without recourse, pursuant to a Purchase
Agreement (the "Purchase Agreement"), its entire interest in the Receivables
comprising the related Receivables Pool, including the security interests in the
Financed Vehicles. On the Closing Date, the Depositor will transfer and assign
to the applicable Trustee on behalf of the Trust, without recourse, pursuant to
a Sale and Servicing Agreement or a Pooling and Servicing Agreement, as
applicable, its entire interest in the Receivables comprising the related
Receivables Pool, including its security interests in the related Financed
Vehicles. Each Receivable will be identified in a schedule appearing as an
exhibit to the related Sale and Servicing Agreement or Pooling and Servicing
Agreement (a "Schedule of Receivables"), but the existence and characteristics
of the related Receivables will not be verified by the related Trustee. The
applicable Trustee will, concurrently with the transfer and assignment, on
behalf of the Trust, execute and deliver the related notes and/or certificates.
The net proceeds received from the sale of the certificates and the notes of a
given series will be applied to the purchase of the related Receivables from the
Depositor and, to the extent specified in the applicable prospectus supplement,
to make any required initial deposit into the Reserve Fund and the Yield
Supplement Account, if any.
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Unless otherwise provided in the related prospectus supplement, BMW FS, (or
BMW Bank, as applicable) pursuant to a Purchase Agreement, and the Depositor,
pursuant to a Sale and Servicing Agreement or a Pooling and Servicing Agreement,
will represent and warrant, among other things, that:
1. the information provided in the related Schedule of Receivables is
true and correct in all material respects;
2. at the time of origination of each Receivable, the related Obligor on
each Receivable is required to maintain physical damage insurance
covering the Financed Vehicle in accordance with BMW FS' (or BMW
Bank's) normal requirements;
3. as of the applicable Closing Date, each of those Receivables is or
will be secured by a first priority perfected security interest in
favor of BMW FS (or BMW Bank, as applicable) in the Financed Vehicle;
4. to the best of its knowledge, as of the applicable Closing Date, the
related Receivables are free and clear of all security interests,
liens, charges and encumbrances and no offsets, defenses or
counterclaims have been asserted or threatened;
5. each related Receivable, at the time it was originated, complied and,
as of the applicable Closing Date, complies in all material respects
with applicable federal and state laws, including, consumer credit,
truth-in-lending, equal credit opportunity and disclosure laws; and
6. any other representations and warranties that may be set forth in the
applicable prospectus supplement are true and correct in all material
respects.
Unless otherwise provided for in the related prospectus supplement, as of
the last day of the second (or, if the Depositor so elects, the first)
Collection Period following the discovery by or notice to the Depositor of a
breach of any representation or warranty of the Depositor that materially and
adversely affects the interests of the related Securityholders in any
Receivable, the Depositor, unless the breach is cured, will repurchase that
Receivable (a "Warranty Receivable") from that Trust and, pursuant to the
related Purchase Agreement, BMW FS (or BMW Bank, as applicable) will purchase
that Warranty Receivable from the Depositor, at a price equal to the Warranty
Purchase Payment for that Receivable. Unless otherwise specified in the related
prospectus supplement, the "Warranty Purchase Payment"for
1. a Precomputed Receivable will be equal to:
(a) the sum of:
(i) all remaining Scheduled Payments;
(ii) all past due Scheduled Payments for which an Advance has
not been made;
(iii) all outstanding Advances made by the Servicer in respect of
the Precomputed Receivable; and
(iv) an amount equal to any reimbursements of outstanding
Advances made to the Servicer with respect to the
Precomputed Receivable from collections made on or in
respect of other Receivables, minus
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(b) the sum of:
(i) of all Payments Ahead in respect to that Warranty
Receivable held by the Servicer or on deposit in the
Payahead Account;
(ii) the rebate, calculated on an actuarial basis, that would be
payable to the Obligor on the Precomputed Receivable were
the Obligor to prepay the Precomputed Receivable in full on
that day (a "Rebate"); and
(iii) any proceeds of the liquidation of the Precomputed
Receivable previously received (to the extent applied to
reduce the Principal Balance of the Precomputed Receivable)
and
2. a Simple Interest Receivable, will be equal to its unpaid principal
balance, plus interest on that Receivable at a rate equal to the APR
to the last day of the Collection Period relating to the repurchase.
This repurchase obligation will constitute the sole remedy available to the
Securityholders or the Trust for any uncured breach by the Depositor. The
obligation of the Depositor to repurchase a Receivable will not be conditioned
on performance by BMW FS of its obligation to purchase that Receivable from the
Depositor pursuant to the related Purchase Agreement.
Pursuant to each Sale and Servicing Agreement or Pooling and Servicing
Agreement, the Depositor and each Trust will designate the Servicer as custodian
to maintain possession as that Trust's agent of the related retail installment
sale contracts and any other documents relating to the Receivables. To assure
uniform quality in servicing both the Receivables and the Servicer's own
portfolio of motor vehicle retail installment sale contracts, as well as to
facilitate servicing and reduce administrative costs, the documents evidencing
the Receivables will not be physically segregated from other motor vehicle
retail installment sale contracts of the Servicer, or those which the Servicer
services for others, or marked to reflect the transfer to the related Trust as
long as BMW FS is servicing the Receivables. However, Uniform Commercial Code
("UCC") financing statements reflecting the sale and assignment of the
Receivables by BMW FS (or BMW Bank, as applicable) to the Depositor and by the
Depositor to the applicable Trust will be filed, and the respective accounting
records and computer files of BMW FS (or BMW Bank, as applicable) and the
Depositor will reflect that sale and assignment. Because the Receivables will
remain in the Servicer's possession and will not be stamped or otherwise marked
to reflect the assignment to the Trustee, if a subsequent purchaser were able to
take physical possession of the Receivables without knowledge of the assignment,
the Trust's interest in the Receivables could be defeated. In addition, in some
cases, the Trustee's security interest in collections that have been received by
the Servicer but not yet remitted to the related Collection Account could be
defeated. We refer you to "Certain Legal Aspects of the Receivables--Security
Interests" in this prospectus.
Accounts
With respect to each Trust that issues notes, the Servicer will establish
and maintain with the related Trustee or Indenture Trustee one or more accounts
(each, a "Collection Account"), in the name of the Trustee or Indenture Trustee
on behalf of the related Securityholders, into which payments made on or with
respect to the related Receivables and amounts released from any Yield
Supplement Account, Reserve Fund or other form of credit enhancement will be
deposited for payment to the related Securityholders. With respect to each Trust
that does not issue notes, the Servicer will also establish and
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maintain a Collection Account and any other Account in the name of the related
Trustee on behalf of the related Certificateholders.
If so provided in the related prospectus supplement, the Servicer will
establish for each series of Securities an additional account (the "Payahead
Account"), in the name of the related Trustee or, if that Trust issues notes,
the Indenture Trustee, into which, to the extent required by the Sale and
Servicing Agreement or Pooling and Servicing Agreement, early payments by or on
behalf of Obligors on Precomputed Receivables ("Payments Ahead") will be
deposited until the time as the related payment becomes due. Until that time as
Payments Ahead are transferred from the Payahead Account to a Collection
Account, they will not constitute collected interest or collected principal and
will not be available for payment to the applicable Noteholders or
Certificateholders. The Payahead Account will initially be maintained with the
applicable Indenture Trustee or Trustee.
Any other accounts to be established with respect to a Trust, including any
Yield Supplement Account or any Reserve Fund, will be described in the
applicable prospectus supplement.
For any series of Securities, funds in the related Collection Account, any
Yield Supplement Account, the Reserve Fund and other accounts that may be
identified in the applicable prospectus supplement (collectively, the
"Accounts") will be invested as provided in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement in Eligible Investments. "Eligible
Investments" are generally limited to investments acceptable to the rating
agencies rating the Securities as being consistent with the rating of those
Securities, including obligations of the Servicer and its affiliates, to the
extent consistent with that rating. Except as described below or in the related
prospectus supplement, Eligible Investments are limited to obligations or
securities that mature on or before the next Payment Date for that series.
However, to the extent permitted by the rating agencies, funds in any Account,
except the Collection Account, may be invested in obligations or securities that
will not mature prior to the next Payment Date with respect to those
certificates or notes and will not be sold to meet any shortfalls. Thus, the
amount of cash in any Reserve Fund or the Yield Supplement Account at any time
may be less than the balance of the Reserve Fund or the Yield Supplement
Account, as the case may be. If the amount required to be withdrawn from any
Reserve Fund or the Yield Supplement Account to cover shortfalls in collections
on the related Receivables (as provided in the applicable prospectus supplement)
exceeds the amount of cash in the Reserve Fund or the Yield Supplement Account,
as the case may be, a temporary shortfall in the amounts paid to the related
Noteholders or Certificateholders could result, which could, in turn, increase
the average life of the notes or the certificates of that series. Investment
earnings on funds deposited in the Accounts, net of losses and investment
expenses, shall be released to the Servicer or the Depositor on each Payment
Date and shall be the property of the Servicer or the Depositor, as the case may
be.
For each Trust, the Accounts will be maintained with the related Indenture
Trustee or the Trustee so long as it is an "Eligible Institution," which is a
depository institution or trust company,
1. the short-term unsecured debt obligations of which have a rating of
"P-1" by Moody's Investors Service, Inc. ("Moody's") and a rating of
"A-1+" by Standard & Poor's Ratings Services, a division of The McGraw
Hill Companies, Inc. ("Standard & Poor's") (the "Required Deposit
Rating"); or
2. having corporate trust powers and organized under the laws of the
United States, any State, the District of Columbia or the Commonwealth
of Puerto Rico which has a long-term deposit rating from Moody's of at
least "Baa3" or Standard & Poor's of at least "BBB-" (or a lower
rating as either rating agency shall approve in writing).
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If the related Indenture Trustee or the Trustee, as the case may be, ceases
to be an Eligible Institution, then the Servicer shall, with the assistance of
the Indenture Trustee or the Trustee as may be necessary, cause each Account to
be moved to an Eligible Institution.
Servicing Procedures
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and will, consistent with the
related Sale and Servicing Agreement or Pooling and Servicing Agreement, follow
the collection procedures it follows with respect to comparable motor vehicle
retail installment sale contracts it services for itself and others.
The Servicer will be authorized to grant, in some circumstances, rebates,
adjustments or extensions with respect to a Receivable. However, if any
modification of a Receivable extends the maturity of a Receivable beyond the
final scheduled maturity date set forth in the applicable prospectus supplement
(the "Final Scheduled Maturity Date") 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 related agreement (including the provisions in the
immediately two preceding paragraphs) and except as permitted by the Servicer's
credit and collection policies:
1. it will not release any Financed Vehicle from the security interest
granted in the related Receivable;
2. it will do nothing to impair the rights of the Securityholders in the
Receivables;
3. it will not alter the APR of any Receivable;
4. it will not modify the number of payments under a Receivable or the
maturity of a Receivable beyond the Final Scheduled Maturity Date
unless it is making advances corresponding to reduction in Scheduled
Payments as described above; and
5. it will not alter the amount financed under a Receivable.
The Servicer or the Trustee shall inform the other party and the Indenture
Trustee promptly upon the discovery of any breach by the Servicer of the above
obligations that would materially and adversely affect any Receivable. 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
any Receivable materially and adversely affected by the breach (an
"Administrative Receivable") from the Trust at a price equal to the
Administrative Purchase Payment for that Receivable or at another price as set
forth in the related prospectus supplement. The "Administrative Purchase
Payment"
1. for a Precomputed Receivable, will be equal to:
(a) the sum of:
(i) all remaining Scheduled Payments (plus any applicable yield
maintenance payments);
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(ii) an amount equal to any reimbursements of Advances made by
the Servicer with respect to the Precomputed Receivable
from collections on or in respect of other Receivables; and
(iii) all past due Scheduled Payments for which an Advance has
not been made, minus;
(b) all Payments Ahead in respect of the Precomputed Receivable held
by the Servicer or on deposit in the Payahead Account;
2. for a Simple Interest Receivable, will be equal to its unpaid
Principal Balance, plus interest on that Receivable at a rate equal to
the sum of the Interest Rate or Pass Through Rate specified in the
related Sale and Servicing Agreement or Pooling and Servicing
Agreement and the Servicing Fee Rate to the last day of the Collection
Period relating to that purchase.
Upon the purchase of any Administrative Receivable, the Servicer will for all
purposes of the related Sale and Servicing Agreement or the Pooling and
Servicing Agreement, as applicable, 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 Certificateholders or the Trustee for any uncured breach by the Servicer.
If the Servicer determines that eventual payment in full of a Receivable is
unlikely, the Servicer will follow its normal 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."
Insurance on Financed Vehicles
Each Receivable requires the related Obligor to maintain specific levels
and types of insurance coverage to protect the Financed Vehicle against losses.
BMW FS requires evidence of insurance coverage by the Obligors at the time of
origination of the Receivables, but performs no verification of continued
coverage after origination. BMW FS will not be obligated to make payments to the
Trust for any loss as to which third party insurance has not been maintained,
except to the extent of its obligations under the related Purchase Agreement.
Since the Obligors may select their own insurers to provide the requisite
coverage, the specific terms of their policies may vary. BMW FS will not be
required to monitor the maintenance of insurance. A failure by an Obligor to
maintain physical damage insurance will constitute a default under the related
Receivable. We refer you to "The Receivables--Underwriting of Motor Vehicle
Loans." In the event that the Obligor fails to maintain any required insurance
and this failure results in a shortfall in amounts to be distributed to
Noteholders which is not covered by amounts on deposit in the Reserve Fund or by
subordination of payments on the certificates to the extent described in this
prospectus, the Securityholders could suffer a loss on their investment.
Collections
With respect to each Trust, the Servicer will deposit all payments on
Receivables received from Obligors and all proceeds of Receivables collected
during the collection period specified in the applicable prospectus supplement
(each, a "Collection Period") into the Collection Account not later than two
Business Days after receipt. However, if each condition to making monthly
deposits as may be required by the related Sale and Servicing Agreement or
Pooling and Servicing Agreement (including, the
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satisfaction of specified ratings criteria by the Servicer and the absence of
any Servicer Default) is satisfied, the Servicer may retain these amounts until
the Business Day immediately preceding the related Payment Date. 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 in some circumstances described in the related Sale
and Servicing Agreement or Pooling and Servicing Agreement, pending deposit into
the Collection Account, collections may be employed by the Servicer at its own
risk and for its own benefit and will not be segregated from its own funds.
The Servicer or the Depositor, as the case may be, will remit the aggregate
Warranty Purchase Payments and Administrative Purchase Payments of Receivables
to be purchased from the Trust, if any, to the Collection Account on the
Business Day immediately preceding the related Payment Date.
If the Servicer were unable to remit the funds as described above,
Securityholders might incur a loss. To the extent set forth in the applicable
prospectus supplement, the Servicer may, in order to satisfy the requirements
described above, obtain a letter of credit or other security for the benefit of
the related Trust to secure timely remittances of collections on the related
Receivables and payment of the aggregate Warranty Purchase Payments and
Administrative Purchase Payments with respect to Receivables required to be
repurchased by the Depositor or the Servicer, as applicable.
Collections on or in respect of a Receivable made during a Collection
Period (including Warranty Purchase Payments and Administrative Purchase
Payments) which are not late fees, extension fees or other similar fees or
charges will be applied first to any outstanding Advances made by the Servicer
with respect to the Receivable, and then to the related Scheduled Payment. Any
collections on or in respect of a Receivable remaining after those applications
will be considered an "Excess Payment." Excess Payments constituting a
prepayment in full of Precomputed Receivables and any Excess Payments relating
to Simple Interest Receivables will be applied as a prepayment in respect of the
Receivable (each, a "Prepayment"). All other Excess Payments in respect of
Precomputed Receivables will be held by the Servicer (or if the Servicer has not
satisfied particular requirements, deposited in the Payahead Account), as a
Payment Ahead.
Advances
Unless otherwise provided in the related prospectus supplement, if the
Scheduled Payment due on a Precomputed Receivable (other than an Administrative
Receivable or a Warranty Receivable) is not received in full by the end of the
month in which it is due, whether as the result of any extension granted to the
Obligor or otherwise, the amount of Payments Ahead, if any, not previously
applied with respect to the Precomputed Receivable, shall be applied by the
Servicer to the extent of the shortfall and the Payments Ahead shall be reduced
accordingly. If any shortfall remains, the Servicer will make an advance to the
Trust in an amount equal to the shortfall (each, a "Precomputed Advance"). The
Servicer will not be obligated to make a Precomputed Advance to the extent that
it determines, in its sole discretion, that the Precomputed Advance will not be
recovered from subsequent collections on or in respect of the related
Precomputed Receivable. All Precomputed Advances shall be reimbursable to the
Servicer, without interest, if and when a payment relating to a Receivable with
respect to which a Precomputed Advance has previously been made is subsequently
received (other than from Administrative Purchase Payments). Upon the
determination by the Servicer that reimbursement from the preceding source is
unlikely, it will be entitled to recover unreimbursed Precomputed Advances from
collections on or in respect of other Precomputed Receivables.
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In addition, if the Scheduled Payment on a Simple Interest Receivable,
other than an Administrative Receivable or a Warranty Receivable, is not
received in full by the end of the month in which it is due, the Servicer shall,
subject to the limitations set forth below, advance to the Trust in an amount
with respect to the Simple Interest Receivable equal to the product of the
Principal Balance of the Simple Interest Receivable as of the first day of the
related Collection Period and one-twelfth of its APR minus the amount of
interest actually received on the Simple Interest Receivable during the related
Collection Period (each, a "Simple Interest Advance," and together with the
Precomputed Advances, the "Advances"). If a calculation results in a negative
number, an amount equal to that negative amount shall be paid to the Servicer in
reimbursement of outstanding Simple Interest Advances. In addition, in the event
that a Simple Interest Receivable becomes a liquidated Receivable, the amount of
accrued and unpaid interest on that Receivable (but not including interest for
the current Collection Period) shall, up to the amount of all outstanding Simple
Interest Advances in respect of that Receivable, be withdrawn from the related
Collection Account and paid to the Servicer in reimbursement of the outstanding
Simple Interest Advances. No advances of principal will be made with respect to
Simple Interest Receivables. The Servicer will not be obligated to make a Simple
Interest Advance, other than in respect of an interest shortfall arising from
the prepayment of a Simple Interest Receivable, to the extent that it
determines, in its sole discretion, that Simple Interest Advance will not be
recovered from subsequent collections on or in respect of the related Simple
Interest Receivable.
The Servicer will make all Advances by depositing into the related
Collection Account an amount equal to the aggregate of the Precomputed Advances
and Simple Interest Advances due in respect of a Collection Period on the
Business Day immediately preceding the related Payment Date.
Servicing Compensation
Unless otherwise provided in the applicable prospectus supplement, the
Servicer will be entitled to receive a basic servicing fee for each Collection
Period in an amount equal to a specified percent per annum (as set forth in the
applicable prospectus supplement, the "Servicing Fee Rate") of the Pool Balance
as of the first day of the related Collection Period (the "Base Servicing Fee").
The Base Servicing Fee (together with any portion of the Base 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 the applicable prospectus
supplement. However, the Base Servicing Fee will be paid prior to the payment of
available amounts to the Noteholders or the Certificateholders of the given
series.
Unless otherwise provided in the applicable prospectus supplement, the
Servicer will also be entitled to collect and retain any late fees, prepayment
charges and other administrative fees or similar charges allowed by applicable
law with respect to the related Receivables and any interest earned during a
Collection Period from the investment of monies in the Collection Account as
additional servicing compensation (the "Supplemental Servicing Fee" and,
together with the Base Servicing Fee, the "Total 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 normal practices and procedures.
In addition, the Servicer will be entitled to reimbursement from any given Trust
for specified liabilities. The Servicer will be paid the Base Servicing Fee for
each Collection Period on the Payment Date related to that Collection Period
prior to the payment of interest on any class of notes or certificates. However,
if each rating agency for a series of notes or certificates confirms that it
will not reduce the rating of any class of notes or certificates in that series,
as the case may be, the Base Servicing Fee in respect of a Collection Period
(together with any portion of the Base Servicing Fee that remains unpaid from
the prior Payment Dates) will be paid at the beginning of that Collection Period
out of collections of interest on the related Receivables.
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The Total 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 policing the collateral. The Total
Servicing Fee also will compensate the Servicer for administering the particular
Receivables Pool, including making Advances, accounting for collections and
furnishing monthly statements to the related Trustee and Indenture Trustee with
respect to payments. The Total Servicing Fee also will reimburse the Servicer
for specified taxes, the fees of the related Trustee and Indenture Trustee, if
any, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the applicable Receivables Pool.
The "Pool Balance" will equal the aggregate Principal Balance of the
Receivables. The "Principal Balance" of a Receivable as of any date will equal
the original principal balance of the Receivable minus the sum of:
(i) in the case of a Precomputed Receivable, that portion of all
Scheduled Payments due on or prior to that date allocable to
principal, computed in accordance with the actuarial method;
(ii) in the case of a Simple Interest Receivable, that portion of
all Scheduled Payments actually received on or prior to that
date allocable to principal;
(iii) any Warranty Purchase Payment or Administrative Purchase
Payment with respect to the Receivable allocable to principal
(to the extent not included in clauses (i) and (ii) above);
and
(iv) any Prepayments or other payments applied to reduce the unpaid
principal balance of the Receivable (to the extent not
included in clauses (i) and (ii) above).
Yield Supplement Account; Yield Supplement Agreement
Yield Supplement Account. A "Yield Supplement Account" may be established
with respect to any class or series of Securities. The terms relating to any
Yield Supplement Account will be set forth in the applicable prospectus
supplement. Each Yield Supplement Account will be designed to hold funds to be
applied by the related Trustee or, if that Trust issues notes, the related
Indenture Trustee, to provide payments to Securityholders in respect of
Receivables that have APRs less than the sum of the Pass Through Rate or
Interest Rate specified in the applicable prospectus supplement plus the
Servicing Fee Rate specified in the applicable prospectus supplement (the
"Required Rate"). Unless otherwise specified in the applicable prospectus
supplement, each Yield Supplement Account will be maintained with the same
entity with which the related Collection Account is maintained and will be
created on the related Closing Date with an initial deposit in an amount and by
the Depositor or other person specified in the applicable prospectus supplement.
On each Payment Date, the related Trustee or Indenture Trustee will
transfer to the Collection Account from monies on deposit in the Yield
Supplement Account an amount specified in the applicable prospectus supplement
(the "Yield Supplement Deposit") in respect of the Receivables having APRs less
than the Required Rate for that Payment Date. Unless otherwise specified in the
applicable prospectus
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supplement, amounts on deposit on any Payment Date in the Yield Supplement
Account in excess of the "Required Yield Supplement Amount" specified in the
applicable prospectus supplement, after giving effect to all payments to be made
on that Payment Date, will be released to the Depositor. The Depositor or other
person specified in the applicable prospectus supplement will not have any
obligation after the related Closing Date to deposit any amounts into the Yield
Supplement Account after the related Closing Date even if the amount on deposit
in that account is less than the Required Yield Supplement Amount for any
Payment Date. Monies on deposit in the Yield Supplement Account may be invested
in Eligible Investments under the circumstances and in the manner described in
the related Pooling and Servicing Agreement or Trust Agreement.
Distributions on the Securities
With respect to each series of Securities, beginning on the Payment Date
specified in the applicable prospectus supplement, payments of principal of and
interest (or, where applicable, of principal or interest only) on each class of
those Securities entitled to payments of principal and interest will be made by
the applicable Indenture Trustee to the Noteholders and by the applicable
Trustee to the Certificateholders of that series. The timing, calculation,
allocation, order, source, priorities of and requirements for all payments to
each class of Noteholders and all payments to each class of Certificateholders
of that series will be set forth in the applicable prospectus supplement.
With respect to each Trust, on each Payment Date, collections on the
related Receivables will be withdrawn from the related Collection Account and
will be paid to the Noteholders and/or Certificateholders to the extent provided
in the applicable prospectus supplement. Credit enhancement, such as a Reserve
Fund, may be available to cover any shortfalls in the amount available for
payment to the Securityholders on that date to the extent specified in the
applicable prospectus supplement. As more fully described in the applicable
prospectus supplement,
1. payments of principal of a class of Securities of a given series will
be subordinate to payments of interest on that class;
2. payments in respect of one or more classes of certificates of that
series may be subordinate to payments in respect of notes, if any, of
that series or other classes of certificates of that series; and
3. payments in respect of one or more classes of notes of that series may
be subordinated to payments in respect of other classes of notes of
that series.
Credit and Cash Flow Enhancement
The amounts and types of credit and cash flow enhancement arrangements and
the applicable provider, with respect to each class of Securities of a given
series, if any, will be set forth in the applicable prospectus supplement. If
and to the extent provided in the applicable prospectus supplement, credit and
cash flow enhancement may be in the form of subordination of one or more classes
of Securities, Reserve Funds, over-collateralization to cover either or both
credit risk or yield enhancement, letters of credit, credit or liquidity
facilities, surety bonds, guaranteed investment contracts, swaps or other
interest rate protection agreements, repurchase obligations, yield supplement
agreements, other agreements with respect to third party payments or other
support, cash deposits or other arrangements that may be described in the
applicable prospectus supplement or any combination of the foregoing. If
specified in the applicable prospectus supplement, credit or cash flow
enhancement for a class of
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Securities may cover one or more other classes of Securities of the same series,
and credit or cash flow enhancement for a series of Securities may cover one or
more other series of Securities.
The presence of a Reserve Fund and other forms of credit enhancement for
the benefit of any class or series of Securities is intended to enhance the
likelihood of receipt by the Securityholders of that class or series of the full
amount of principal and interest due on those Securities and to decrease the
likelihood that that Securityholders will experience losses. Credit or cash flow
enhancement for a class or series of Securities will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal of and interest on those Securities. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, Securityholders of any class or series will bear their allocable
share of deficiencies, as described in the applicable prospectus supplement. In
addition, if a form of credit enhancement covers more than one class or series
of Securities, Securityholders of any of that class or series will be subject to
the risk that that credit enhancement will be exhausted by the claims of
Securityholders of other classes or series.
Reserve Fund. If provided in the applicable prospectus supplement, pursuant
to the related Sale and Servicing Agreement or Pooling and Servicing Agreement,
the Depositor or a third party will establish for a series or class of
Securities an account, as specified in the applicable prospectus supplement,
which may be designated as a "Reserve Fund" (the "Reserve Fund"), which will be
maintained with the related Trustee or Indenture Trustee, as applicable. Unless
otherwise specified in the prospectus supplement, the Reserve Fund will be
funded by an initial deposit by the Depositor or a third party on the Closing
Date in the amount set forth in the applicable prospectus supplement (the
"Reserve Fund Initial Deposit"). To the extent provided in the applicable
prospectus supplement, the amount on deposit in the Reserve Fund will be
increased on each Payment Date thereafter up to the Specified Reserve Fund
Balance (as defined in the applicable prospectus supplement) by the deposit in
the Reserve Fund of the amount of collections on the related Receivables
remaining on each Payment Date after all specified payments on that date are
made. The applicable prospectus supplement will describe the circumstances and
manner under which payments may be made out of the Reserve Fund, either to
holders of the Securities covered by that prospectus supplement or to the
Depositor or a third party. Monies on deposit in the Reserve Fund may be
invested in Eligible Investments under the circumstances and in the manner
described in the related Sale and Servicing Agreement or the Pooling and
Servicing Agreement.
Surety Bond. The prospectus supplement may provide that the Trust enter
into agreements with an insurer for the purpose of guaranteeing payments of
principal and/or interest on the Securities. If, on the date so specified in the
prospectus supplement, the amount on deposit in the Collection Account after
giving effect to all amounts deposited to or payable from a Payahead Account, a
prefunding account or a capitalized interest agreement with respect to the
related Payment Date, is less than the sum of the Base Servicing Fee, and
amounts due to Securityholders on the related Payment Date, the Trustee by
delivering a notice to the insurer shall demand payment under the surety bond in
an amount equal to the deficiency. The applicable prospectus supplement will
describe the circumstances and manner under which payments may be made under the
surety bond, either to Securityholders, or the Trustee or the Indenture Trustee,
as the case may be.
Pre-funding feature. A Trust may enter into an agreement with the
Depositor, in which the Depositor may sell additional Receivables to the Trust
after the Closing Date. The transfer of Receivables to the Trust after the
Closing Date is known as a pre-funding feature. Any subsequent Receivables will
be required to conform to the requirements described in the related prospectus
supplement. If a pre-funding feature is used, the Trustee or the Indenture
Trustee will be required to deposit all or a portion of the proceeds of the sale
of the Securities of the series in a segregated account. The subsequent
Receivables will be transferred to the Trust in exchange for money released from
that
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segregated account. Any transfer of Receivables must occur within a specified
period, not to exceed one year. If a Trust elects federal income tax treatment
as a grantor trust, the pre-funding period will be limited to three months. If
all of the monies originally deposited in the segregated account are not used by
the end of the specified period, all remaining monies will be applied as a
mandatory prepayment of a designated class or classes of Securities.
Cash Collateral Account. The prospectus supplement may provide that upon
the occurrence of an event of default by the Servicer, a segregated cash
collateral account may be established as security for the Servicer's obligations
under the Sale and Servicing Agreement or the Pool and Servicing Agreement, as
the case may be.
Net Deposits
As an administrative convenience, as long as specified conditions are
satisfied, the Servicer will be permitted to make the deposit of collections,
aggregate Advances and Administrative Purchase Payments for any Trust 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 Trustee, any Indenture Trustee, the Noteholders, if any, and
the Certificateholders with respect to each Trust as if all deposits, payments
and transfers were made individually. With respect to any Trust that issues both
certificates and notes, if the related Payment Dates are not the same for all
classes of Securities, all distributions, deposits or other remittances made on
a Payment Date will be treated as having been distributed, deposited or remitted
on the same Payment Date for the applicable Collection Period for purposes of
determining other amounts required to be distributed, deposited or otherwise
remitted on a Payment Date.
Statements to Trustees and the Trust
On or prior to each Payment Date (each, a "Determination Date" to be
specified in the applicable prospectus supplement), the Servicer will provide to
the applicable Indenture Trustee, if any, and the applicable Trustee a statement
setting forth with respect to a series of Securities substantially the same
information that is required to be provided in the periodic reports provided to
Securityholders of that series described under "--Statements to Securityholders"
below.
Statements to Securityholders
With respect to each series of Securities that includes notes, on or prior
to each Payment Date, the Servicer will prepare and provide to the related
Indenture Trustee a statement to be delivered to the related Noteholders on that
Payment Date. In addition, on or prior to each Payment Date, the Servicer will
prepare and provide to the related Trustee of each Trust, a statement to be
delivered to the Certificateholders. Each statement to be delivered to
Securityholders will include (to the extent applicable) the following
information (and any other information so specified in the applicable prospectus
supplement) as to the notes of that series and as to the certificates of that
series with respect to that Payment Date:
1. the amount of the payment allocable to the principal amount of each
class of those notes and to the Certificate Balance of each class of
those certificates;
2. the amount of the payment allocable to interest on each class of
Securities of that series;
3. the amount of the distribution allocable to the Yield Supplement
Deposit, if any;
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4. the Pool Balance as of the close of business on the last day of the
related Collection Period after giving effect to payments allocated to
principal reported under clause (1) above;
5. the amount of the total Servicing Fee paid to the Servicer with
respect to the related Collection Period;
6. the Interest Rate or Pass Through Rate for the Interest Period
relating to the succeeding Payment Date for any class of notes or
certificates of that series with variable or adjustable rates;
7. the Noteholders' Interest Carryover Shortfall, the Noteholders'
Principal Carryover Shortfall, the Certificateholders' Interest
Carryover Shortfall and the Certificateholders' Principal Carryover
Shortfall (each as defined in the applicable prospectus supplement),
if any, in each case as applicable to each class of Securities;
8. the Note Pool Factor for each class of those notes, and the
Certificate Balance and the Certificate Pool Factor for each class of
those certificates, each after giving effect to all payments reported
under clause (1) above on that date;
9. the amount of non-recoverable Advances on that Payment Date;
10. the balance of any related Reserve Fund on that date, after giving
effect to changes to the related Reserve Fund on that date and the
amount of those changes;
11. the amount of Trust fees and expenses;
12. the Available Amounts, as that term is defined in the prospectus
supplement;
13. the amount available under the Servicer's letter of credit, surety
bond or insurance policy (the "Servicer Letter of Credit") as provided
in the Sale and Servicing Agreement, if any, and the amount as a
percentage of the Pool Balance as of the last day of that Collection
Period; and
14. payments to and from third party credit enhancement providers, if any.
Each amount set forth in subclauses (1), (2), (5) and (7) above will be
expressed in the aggregate and as a dollar amount per $1,000 of the original
principal amount of each class of notes or the Original Certificate Balance of
each class of certificates, as the case may be.
Copies of the statements may be obtained by the Securityholders by
delivering a request in writing addressed to the applicable Trustee at its
address set forth in the applicable prospectus supplement.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of each Trust, the applicable Trustee
will mail to each person who at any time during that calendar year has been a
Securityholder with respect to that Trust and received any payment a statement
containing information for the purposes of that Securityholder's preparation of
federal income tax returns. We refer you to "Material Income Tax Consequences."
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Evidence as to Compliance
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that a firm of independent public accountants will furnish to the
related Trust and Indenture Trustee or Trustee, as applicable, 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
applicable Closing Date, which may be longer than twelve months) with specified
standards relating to the servicing of the applicable Receivables.
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
also provide for delivery to the related Trust and Indenture Trustee or Trustee,
as applicable, substantially simultaneously with the delivery of those
accountants' statement referred to above, of a certificate signed by an officer
of the Servicer stating that the Servicer has fulfilled its obligations under
the Sale and Servicing Agreement or Pooling and Servicing Agreement, as
applicable, throughout the preceding twelve months (or, in the case of the first
certificate, from the Closing Date) in all material respects or, if there has
been a default in the fulfillment of any obligation, describing each default.
The Servicer has agreed to give each Indenture Trustee and each Trustee notice
of specified Servicer Defaults under the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, as applicable.
Copies of the statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Trustee.
Certain Matters Regarding the Servicer
Each Sale and Servicing Agreement and Pooling and Servicing Agreement will
provide that BMW FS may not resign from its obligations and duties as Servicer
under those documents, 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 related Indenture Trustee or Trustee, as applicable,
or a successor servicer has assumed BMW FS' servicing obligations and duties
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement.
Each Sale and Servicing Agreement and Pooling 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 related Trust or the
related Noteholders or Certificateholders for taking any action or for
refraining from taking any action pursuant to the related Sale and Servicing
Agreement or Pooling 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 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, each Sale and Servicing Agreement and Pooling 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 related Sale and Servicing Agreement or
Pooling and Servicing Agreement and that, in its opinion, may cause it to incur
any expense or liability. The Servicer may, however, undertake any reasonable
action that it may deem necessary or desirable in respect of the related Sale
and Servicing Agreement or Pooling and Servicing Agreement, the rights and
duties of the parties to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and the interests of the Securityholders under the
applicable agreement. 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.
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Under the circumstances specified in each Sale and Servicing Agreement and
Pooling and Servicing Agreement, any entity into which the Servicer may be
merged or consolidated, or any entity resulting from any merger or consolidation
to which the Servicer is a party, or any entity succeeding to all or
substantially all of the business of the Servicer will be the successor of the
Servicer under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement.
Servicer Default
Except as otherwise provided in the related prospectus supplement,
"Servicer Default" under each Sale and Servicing Agreement and Pooling and
Servicing Agreement will consist of the following:
1. any failure by the Servicer to deposit in or credit to any Account any
required payment or make the required payments from any Account 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 from the Trustee or the Indenture Trustee, as
applicable or from not less than 25% of the voting interests of the
most senior class of Securities then outstanding;
2. any failure by the Servicer to duly observe or perform in any material
respect any other covenants or agreements in the Sale and Servicing
Agreement or the Pooling and Servicing Agreement, which failure
materially and adversely affects the rights of the Securityholders,
and which failure continues unremedied for 90 days after written
notice of that failure is given as described in clause 1 above; and
3. the occurrence of events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings with
respect to the Servicer indicating its insolvency, reorganization
pursuant to bankruptcy proceedings or inability to pay its obligations
(any of these events with respect to the Servicer being an "Insolvency
Event").
Rights Upon Servicer Default
In the case of any Trust that has issued notes, unless otherwise provided
in the related prospectus supplement, so long as a Servicer Default under a Sale
and Servicing Agreement remains unremedied, the related Indenture Trustee or
holders of notes of the related series evidencing not less than 25% of the
principal amount of the most senior class of notes then outstanding may
terminate all the rights and obligations of the Servicer under the Sale and
Servicing Agreement, and at that time the Indenture Trustee or a successor
servicer appointed by the Indenture Trustee 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.
In the case of any Trust that has not issued notes, or the notes have been
discharged in accordance with their terms, unless otherwise provided in the
related prospectus supplement, as long as a Servicer Default under the related
Sale and Servicing Agreement or Pool and Servicing Agreement remains unremedied,
the related Trustee or holders of certificates of the related series evidencing
not less than 25% of the principal amount of the certificates then outstanding
(but excluding for purposes of that calculation and action all certificates held
by the Depositor, the Servicer or any of their affiliates), acting together as a
single class, may terminate all the rights and obligations of the Servicer under
the related Sale and Servicing Agreement or Pooling and Servicing Agreement, and
at that time the Trustee or a successor servicer appointed by the Trustee 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
similar compensation arrangements.
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However, if a bankruptcy trustee or similar official has been appointed for
the Servicer, and no Servicer Default other than the appointment of a bankruptcy
trustee or similar official has occurred, that bankruptcy trustee or official
may have the power to prevent that Indenture Trustee, those Noteholders, that
Trustee or those Certificateholders, as applicable, from effecting a transfer of
servicing as described above. If that Indenture Trustee or Trustee is unwilling
or unable to so act, it may appoint, or 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 related Indenture Trustee or the Trustee, or any person
appointed as successor servicer, will be the successor in all respects to the
predecessor Servicer under the related Sale and Servicing Agreement or Pooling
and Servicing Agreement and all references in the related Sale and Servicing
Agreement or Pooling and Servicing Agreement to the Servicer shall apply to that
successor servicer. The related Indenture Trustee or Trustee may make
arrangements for compensation to be paid, but the compensation for the successor
servicer may not be greater than the Base Servicing Fee under the related Sale
and Servicing Agreement or Pooling and Servicing Agreement. 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.
Waiver of Past Defaults
With respect to each Trust that has issued notes, unless otherwise provided
in the applicable prospectus supplement:
o the holders of not less than a majority of the most senior class of
Securities then outstanding; or
o in the case of any Servicer Default that does not adversely affect the
related Indenture Trustee or the related Noteholders, the holders of
certificates of that series (or relevant class or classes of
certificates of the series) evidencing a majority of the aggregate
Certificate Balance of those certificates then outstanding (but
excluding for purposes of calculation and action all certificates held
by the Depositor, the Servicer or any of their affiliates),
may, on behalf of all those Noteholders or Certificateholders, waive any default
by the Servicer in the performance of its obligations under the related Sale and
Servicing Agreement and its consequences, except a Servicer Default in making
any required deposits to the related Collection Account in accordance with that
Sale and Servicing Agreement. With respect to each Trust that has not issued
notes, holders of certificates of that series evidencing a majority of the
aggregate Certificate Balance of those certificates then outstanding (or
relevant class or classes of certificates but excluding for purposes of
calculation and action all certificates held by the Depositor, the Servicer or
any of their affiliates), may, on behalf of all those Certificateholders, waive
any default by the Servicer in the performance of its obligations under the
related Pooling and Servicing Agreement, except a Servicer Default in making any
required deposits to the related Account in accordance with the related Pooling
and Servicing Agreement. No waiver will impair those Noteholders' or
Certificateholders' rights with respect to subsequent defaults.
Amendment
Unless otherwise provided in the related prospectus supplement, each of the
Transfer and Servicing Agreements may be amended by the parties to that Transfer
and Servicing Agreement, without the consent of the related Noteholders or
Certificateholders, for the purpose of adding any provisions to or
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changing in any manner or eliminating any of the provisions of that Transfer
Agreement and Servicing Agreement or of modifying in any manner the rights of
the Securityholders thereunder; provided, that any amendment will not, as
evidenced by an opinion of counsel, adversely affect in any material respect the
interests of the Securityholder; provided, however, that the amendment shall be
deemed not to materially and adversely affect the interests of any
Securityholder, and no opinion shall be required, if the Rating Agencies confirm
that the amendment will not result in the withdrawal, qualification or reduction
of the then current ratings of the Securities.
Each of the Transfer and Servicing Agreements 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 Note Balance and the
Certificateholders evidencing a majority of the Certificate Balance, 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 Securityholders; provided, that the amendment may
not:
o 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 Securityholders; or
o reduce the aforesaid percentage of the notes or certificates that is
required to consent to the amendment, without the consent of the
holders of all of the outstanding notes or certificates, as
applicable.
List of Securityholders
Three or more holders of the certificates of any class in a series or one
or more holders of those certificates of that class evidencing not less than 51%
of the Certificate Balance of those certificates may, by written request to the
related Trustee, obtain access to the list of all Certificateholders maintained
by that Trustee for the purpose of communicating with other Certificateholders
with respect to their rights under the related Trust Agreement or Pooling and
Servicing Agreement or under those certificates.
No Transfer and Servicing Agreement will provide for the holding of annual
or other meetings of Securityholders.
Insolvency Event
Each Trust Agreement will provide that the related Trustee does not have
the power to commence a voluntary proceeding in bankruptcy with respect to the
related Trust without the unanimous prior approval of all Certificateholders
(including the Depositor) of that Trust and the delivery to that Trustee by each
Certificateholder (including the Depositor) of a certificate certifying that
that Certificateholder reasonably believes that that Trust is insolvent.
Payment of Notes
Upon the payment in full of all outstanding notes of a given series and the
satisfaction and discharge of the related Indenture, the related Trustee will
succeed to all the rights of the Indenture Trustee, and the Certificateholders
of that series will succeed to all the rights of the Noteholders of that series,
under the related Sale and Servicing Agreement, except as otherwise provided in
the Sale and Servicing Agreement.
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Termination
The respective obligations of the Depositor, the Servicer, BMW FS (so long
as BMW FS has rights or obligations under the related Transfer and Servicing
Agreement), the related Trustee and the related Indenture Trustee, as the case
may be, pursuant to a Transfer and Servicing Agreement will terminate upon the
earlier of:
o the maturity or other liquidation of the last Receivable and the
disposition of any amounts received upon liquidation of any remaining
Receivables;
o the payment to Securityholders of all amounts required to be paid to
them pursuant to the related agreement; or
o the purchase by the Servicer of all of the Receivables as of the end
of any Collection Period after the Pool Balance is reduced to 10% or
less of the sum of the Pool Balance as of the related Cutoff Date and
the amount on deposit in the pre-funding account on the Closing Date
pursuant to the terms of the Sale and Servicing Agreement.
The Trustee will give written notice of termination to each Securityholder
of record. The final distribution to any Securityholder will be made only upon
surrender and cancellation of that holder's Security at any office or agency of
the Trustee specified in the notice of termination. Any funds remaining in the
Trust, after the Trustee has taken measures to locate a Securityholder set forth
in the related Transfer and Servicing Agreement and those measures have failed,
will be distributed, subject to applicable law, to the Depositor.
Upon termination of any Trust, the assets of that Trust will be liquidated
and the proceeds from any liquidation, and amounts held in related Accounts,
will be applied to pay the notes and the certificates of the related series in
full, to the extent of amounts available.
As more fully described in the applicable prospectus supplement, any
outstanding notes of the related series will be redeemed concurrently with any
of the events specified above and the subsequent payment to the related
Certificateholders of all amounts required to be paid to them pursuant to the
applicable Trust Agreement or Pooling and Servicing Agreement will effect early
retirement of the certificates of that series.
Administration Agreement
BMW FS, in its capacity as administrator (the "Administrator"), will enter
into an agreement (as amended and supplemented from time to time, an
"Administration Agreement") with each Trust that issues notes and the related
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in that Administration Agreement, to provide the notices and to perform
other administrative obligations required by the related Indenture. Unless
provided for in the applicable prospectus supplement, the Administrator shall
not be paid a separate fee for the performance of its duties as Administrator.
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Certain Legal Aspects of the Receivables
General
The transfer of the Receivables to the applicable 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 Servicer and the Depositor will take the action described below to
perfect the rights of the applicable Trustee in the Receivables. If another
party purchases (including the taking of a security interest in) the Receivables
for new value in the ordinary course of its business, without actual knowledge
of the Trust's interest, and takes possession of the Receivables, that purchaser
would acquire an interest in the Receivables superior to the interest of the
Trust.
Security Interests
General. In states in which 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.
All retail installment sale contracts acquired by BMW FS from BMW Centers
name BMW FS as obligee or assignee and as the secured party. BMW FS 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 and obtaining possession of that certificate of
title. Because BMW FS continues to service the contracts as Servicer under the
Sale and Servicing Agreement or the Pooling and Servicing Agreement, as
applicable, the Obligors on the contracts will not be notified of the sale from
BMW FS to the Depositor or the sale from the Depositor to the related Trust.
Perfection. Pursuant to the related Purchase Agreement, BMW FS will sell
and assign its security interest in the Financed Vehicles to the Depositor and,
with respect to each Trust, pursuant to the related Sale and Servicing Agreement
or Pooling and Servicing Agreement, as applicable, the Depositor will assign its
security interest in the Financed Vehicles to that Trust. However, because of
the administrative burden and expense, none of BMW FS, the Depositor or the
related Trustee will amend any certificate of title to identify that Trust as
the new secured party on that certificate of title relating to a Financed
Vehicle. However, UCC financing statements with respect to the transfer to the
Depositor of BMW FS' security interest in the Financed Vehicles and the transfer
to the Trustee of the Depositor'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
that Trust pursuant to the related Sale and Servicing Agreement or Pooling and
Servicing Agreement. We refer you to "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables."
In most states, an assignment such as that under each Purchase Agreement or
each Sale and Servicing Agreement or Pooling 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 Trust, because the Trust
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will not be listed as lienholder on the certificates of title, the security
interest of that Trust in the vehicle could be defeated through fraud or
negligence. 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' lien on the certificates of title will be
sufficient to protect that Trust against the rights of subsequent purchasers of
a Financed Vehicle or subsequent lenders who take a security interest in a
Financed Vehicle. In each Purchase Agreement, BMW FS will represent and warrant,
and in each Sale and Servicing Agreement or Pooling 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 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.
To the extent that failure has a material and adverse effect on the Trust's
interest in the related Receivables, however, it would constitute a breach of
the warranties of BMW FS under the related Purchase Agreement or the Depositor
under the related Sale and Servicing Agreement or Pooling and Servicing
Agreement. Accordingly, pursuant to the related Sale and Servicing Agreement or
Pooling and Servicing Agreement, the Depositor would be required to repurchase
the related Receivable from the Trust and, pursuant to the related Purchase
Agreement, BMW FS would be required to purchase that Receivable from the
Depositor, in each case unless the breach was cured. Pursuant to each Sale and
Servicing Agreement and Pooling and Servicing Agreement, the Depositor will
assign to the related Trust its rights to cause BMW FS to purchase that
Receivable under the related Purchase Agreement. We refer you to "Description of
the Transfer and Servicing Agreements--Sale and Assignment of Receivables" and
"Risk Factors--Interests of other persons in the receivables and financed
vehicles could be superior to the trust's interest, which may result in reduced
payments on your securities."
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 installment sales contract 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. 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 each Sale and Servicing Agreement
and Pooling 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 Trust's interest in the Receivable.
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Priority of Liens Arising by Operation of Law. Under the laws of most
states (including California), liens for repairs performed on a motor vehicle
and liens for unpaid taxes take priority over even a perfected security interest
in a Financed Vehicle. The Code also grants priority to specified federal tax
liens over the 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
will represent and warrant to the Depositor in each Purchase Agreement, and the
Depositor will represent and warrant to the Trust in each Sale and Servicing
Agreement and Pooling and Servicing Agreement, that, as of the related 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 Trustee,
any Indenture Trustee, any Noteholders or any Certificateholders in respect of a
given Trust if a lien arises or confiscation occurs that would not give rise to
the Depositor's repurchase obligation under the related Sale and Servicing
Agreement or Pooling and Servicing Agreement or BMW FS' repurchase obligation
under the related Purchase Agreement.
Repossession
In the event of default by an obligor, the holder of the related retail
installment sale contract has all the remedies of a secured party under the UCC,
except where specifically limited by other state laws. Among the UCC remedies,
the secured party has the right to perform 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 is voluntarily
surrendered, self-help repossession is the method employed by BMW FS 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. 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 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 the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. 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. 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.
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Deficiency Judgments and Excess Proceeds
The proceeds of resale of 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, courts have held that when a sale is not
"commercially reasonable," the secured party loses its right to a 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. 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 of a repossessed
vehicle and payment of all expenses and indebtedness, there is a surplus of
funds. In that case, the UCC requires the creditor to remit the surplus to any
holder of a subordinate lien with respect to that vehicle or if no lienholder
exists, the UCC requires the creditor 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 BMW FS, under the United
States Bankruptcy Code or similar applicable state laws (collectively,
"Insolvency Laws"), will result in consolidation of the assets and liabilities
of the Depositor with those of BMW FS. These steps include the creation of the
Depositor as a wholly owned, limited purpose subsidiary pursuant to articles of
incorporation and bylaws containing limitations, including restrictions on the
nature of the Depositor'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 its directors. In addition, to the extent that the Depositor
granted a security interest in the Receivables to the Trust, and that interest
was validly perfected before the bankruptcy or insolvency of BMW FS and was not
taken or granted in contemplation of insolvency or with the intent to hinder,
delay or defraud BMW FS or its creditors, that security interest should not be
subject to avoidance, and payments to the Trust with respect to the Receivables
should not be subject to recovery by a creditor or trustee in bankruptcy of BMW
FS.
However, delays in payments on the Securities and possible reductions in
the amount of those payments could occur if:
(A) a court were to conclude that the assets and liabilities of the
Depositor should be consolidated with those of BMW FS in the event of
the application of applicable Insolvency Laws to BMW FS;
(B) a filing were made under any Insolvency Law by or against the
Depositor; or
(C) an attempt were to be made to litigate any of the foregoing issues.
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On each 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 United States
Bankruptcy Code at a time when BMW FS was insolvent, the property of the
Depositor would not properly be substantively consolidated with the property of
the estate of BMW FS. Among other things, that opinion will assume that each of
the Depositor and BMW FS 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 Depositor and BMW FS 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 Depositor should be consolidated with those of BMW
FS.
BMW FS will warrant in each Purchase Agreement that the sale of the related
Receivables by it to the Depositor is a valid sale. Notwithstanding the
foregoing, if BMW FS were to become a debtor in a bankruptcy case, a court could
take the position that the sale of Receivables to the Depositor should instead
be treated as a pledge of those Receivables to secure a borrowing of BMW FS. If
a court were to reach this conclusion, or a filing were made under any
Insolvency Law by or against the Depositor, or if an attempt were made to
litigate any of the foregoing issues, delays in payments on the certificates
(and possible reductions in the amount of payments) could occur. In addition, if
the transfer of Receivables to the Depositor is treated as a pledge instead of a
sale, a tax or government lien on the property of BMW FS arising before the
transfer of a Receivable to the Depositor may have priority over the Depositor'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 Trust
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 Depositor.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Soldiers' and Sailors' Civil Relief Act of 1940, 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 and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts including the Receivables.
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
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by the obligor under the contract, and the holder of the contract may also be
unable to collect any balance remaining due under that contract from the
obligor. The FTC Rule is generally duplicated by the Uniform Consumer Credit
Code, other state statutes or the common law in certain states.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of 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 properly licensed or if a written odometer disclosure statement
was not provided to the purchaser of the related Financed Vehicle, an 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 the Depositor's representations and
warranties under the related Sale and Servicing Agreement or Pooling and
Servicing Agreement and a breach of BMW FS' warranties under the related
Purchase Agreement and would, if the breach materially and adversely affects the
Receivable or the interests of the Securityholders, create an obligation of the
Depositor and BMW FS, respectively, to repurchase the Receivable unless the
breach is cured. We refer you to "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables."
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
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 in California after 1990 (the "California Contracts")
provided that the contract may be rescinded by the related BMW Center if the BMW
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 to the effect that all of the California Contracts
are enforceable under California law and applicable federal laws.
BMW FS and the Depositor will represent and warrant under each Purchase
Agreement and each Sale and Servicing Agreement and Pooling and Servicing
Agreement, as applicable, that each Receivable complies with all requirements of
law in all material respects. Accordingly, if an Obligor has a claim against a
Trust for violation of any law and that claim materially and adversely affects
that Trust's interest in a Receivable, that violation would constitute a breach
of the representations and warranties of BMW FS under the Purchase Agreement and
the Depositor under the related Sale and Servicing Agreement or
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Pooling and Servicing Agreement and would create an obligation of BMW FS and the
Depositor to repurchase the Receivable unless the breach is cured. We refer you
to "Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables."
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossessing a motor vehicle and, as part of the rehabilitation
plan, 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 Soldiers' and Sailors' Relief Act of 1940 (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 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 extend payments on any contract obligation if called into active service by
the Governor for a period exceeding 7 days. 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 Trust's rights with respect to the
Receivable and the related Financed Vehicle in a timely fashion.
Any shortfall pursuant to either of the two preceding paragraphs, to the
extent not covered by amounts payable to the Securityholders from amounts on
deposit in the related Reserve Fund or from coverage provided under any other
credit enhancement mechanism, could result in losses to the Securityholders.
Material Income Tax Consequences
The following is a discussion of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the notes and the
certificates of any series, to the extent it relates to matters of law or legal
conclusions. This discussion represents the opinion of tax counsel to the Trust,
subject to the qualifications set forth in this prospectus. The summary does not
purport to deal with federal income tax consequences 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 Noteholders or
Certificateholders that are insurance companies, regulated investment companies,
dealers in securities, S-corporations, banks, thrifts, other financial
institutions, broker-dealers, tax-exempt organizations, real estate investment
trusts and persons that hold certificates or notes as part of a straddle,
hedging or conversion transaction or to a person or entity holding an interest
in a holder. Moreover, there are no cases or Internal Revenue Service ("IRS")
rulings on similar transactions involving both debt and equity interests issued
by a trust with terms similar to those of the notes and the certificates. As a
result, the IRS may disagree with all or a part of the
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discussion below. It is suggested that prospective investors consult their own
tax advisors in determining the federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the notes and
the certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated under the Code and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. No ruling on any of the
issues discussed below will be sought from the IRS. For purposes of the
following summary, references to the Trust, the notes, the certificates and
related terms, parties and documents shall be deemed to refer to each Trust and
the notes, certificates and related terms, parties and documents applicable to
that Trust. The federal income tax consequences to Certificateholders will vary
depending on whether the Trust is treated as a partnership (or a "disregarded
entity," in the event that there is a single beneficial owner of the
Certificates) or a grantor trust under the Code. The prospectus supplement for
each series of certificates will specify, and each trust will receive an opinion
of Tax Counsel regarding:
o whether the Trust will be treated as a partnership, or a disregarded
entity, or a grantor trust; and
o the tax characterization of the notes and certificates.
An opinion of Tax Counsel, however, is not binding on the IRS or the courts.
Tax Treatment of Owner Trusts
Tax Characterization of the Trust
The following general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the notes and the
certificates of a Trust referred to as an "owner trust" in the applicable
prospectus supplement (an "Owner Trust"), subject to the qualifications set
forth in this prospectus. These statements are intended as an explanatory
discussion of the related federal income tax matters affecting investors
generally, but do 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 consequences to
it of investing in notes or certificates.
Tax Counsel will deliver its opinion that an Owner Trust will not be an
association or publicly traded partnership taxable as a corporation for federal
income tax purposes. This opinion will be based on the assumption that the terms
of the Related Documents will be complied with, and on Tax Counsel's conclusion
that the nature of the income of the Trust will exempt it from the rule that
some publicly traded partnerships are taxable as corporations.
If the Owner Trust were taxable as a corporation for federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on some or all of the
classes of notes. Any corporate income tax could materially reduce cash
available to make payments on the notes and the certificates, and
Certificateholders could be liable for any tax of this type that is not paid by
the Trust.
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Tax Consequences to Owners of the Notes
Treatment of the Notes as Indebtedness. The Depositor and any Noteholders
will agree, and the beneficial owners of the notes (the "Note Owners") will
agree by their purchase of notes, to treat the notes as debt for federal income
tax purposes. Except as otherwise provided in the related prospectus supplement,
Tax Counsel will deliver its opinion that the notes will be classified as debt
for federal income tax purposes. The discussion below assumes this
characterization of the notes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the notes are denominated in U.S. dollars, and that the notes are
not Indexed Securities or Strip Notes (as defined in this prospectus). Moreover,
the discussion assumes that the interest formula for the notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID regulations") relating to original issue discount ("OID"), and that any OID
on the notes (i.e., any excess of the principal amount of the notes over their
issue price) does not exceed a de minimis amount (i.e., 1/4% of their principal
amount multiplied by the number of full years included in determining their
term), all within the meaning of the OID regulations. In determining whether any
OID on the notes is de minimis, the Depositor expects to use a reasonable
assumption regarding prepayments (a "Prepayment Assumption") to determine the
weighted average maturity of the notes. If these conditions are not satisfied
with respect to any given series of notes, additional tax considerations with
respect to those notes will be disclosed in the applicable prospectus
supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, the notes will not be considered issued
with OID. The stated interest on the notes will be taxable to a Note Owner as
ordinary interest income when received or accrued in accordance with that Note
Owner's method of tax accounting. Under the OID regulations, the Note Owner of a
note issued with a de minimis amount of OID must include that OID in income, on
a pro rata basis, as principal payments are made on the note. A purchaser who
buys a note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules of
the Code.
The 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. An accrual basis Note Owner of a Short-Term Note (and some
cash method Note Owners, including regulated investment companies, as set forth
in Section 1281 of the Code) generally would be 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 period. Other cash basis Note Owners of a
Short-Term Note would, in general, be required to report interest income as
interest is paid (or, if earlier, upon the taxable disposition of the Short-Term
Note). However, a cash basis 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 the Short-Term Note. A cash
basis Note Owner that is not required to report interest income as it accrues
under Section 1281 may elect to accrue interest income on all nongovernment debt
obligations with a term of one year or less, in which case the 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.
Sale or Other Disposition. If a Note Owner sells a note, the Note Owner
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the Note Owner's adjusted tax basis in the note.
The adjusted tax basis of a note to a particular Note Owner will equal the Note
Owner's cost for the note, increased by any market discount, acquisition
discount, OID and gain previously included in income by that Note Owner with
respect to the note and decreased by the amount
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of bond premium, if any, previously amortized and by the amount of payments of
principal and OID previously received by that 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 if the note was held as a capital asset,
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.
Foreign Owners. Interest paid (or accrued) to a Note Owner who is a Foreign
Owner generally will be considered "portfolio interest," and generally will not
be subject to United States federal income tax and withholding tax if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the Foreign Owner and:
1. the Foreign Owner is not actually or constructively a "10 percent
shareholder" of the Trust or the Depositor (including a holder of 10%
of the outstanding certificates issued by the Trust) or a "controlled
foreign corporation" with respect to which the Trust or the Depositor
is a "related person" within the meaning of the Code;
2. the Foreign Owner is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code;
3. the interest is not contingent interest described in Section 871(h)(4)
of the Code; and
4. the Foreign Owner does not bear specified relationships to any
Certificateholder.
To qualify for the exemption from taxation, the Foreign Owner must provide
the applicable Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the notes with an appropriate statement, on Form W-8BEN
or a similar form, signed under penalty of perjury, certifying that the Note
Owner is a Foreign Owner and providing the Foreign Owner's name and address. If
a note is held through a securities clearing organization or other financial
institution, the organization may provide the relevant signed statement to the
withholding agent; in that case, however, the signed statement must be
accompanied by a Form W-8BEN or substitute form provided by the Foreign Owner
and the Foreign Owner must notify the financial institution acting on its behalf
of any changes to the information on the Form W-8BEN, or substitute form, within
30 days of that change. If interest paid to a Foreign Owner is not considered
portfolio interest, then it will be subject to United States federal income and
withholding tax at a rate of 30 percent, unless reduced or eliminated pursuant
to an applicable tax treaty. In order to claim the benefit of any applicable tax
treaty, the Foreign Owner must provide the applicable Trustee or other person
who is required to withhold U.S. tax with respect to the notes with an
appropriate statement on Form W-8BEN or substitute form, signed under penalties
of perjury, certifying that the Foreign Owner is entitled to benefits under the
treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a note by a Foreign Owner will be exempt from United
States federal income and withholding tax, provided that:
o the gain is not effectively connected with the conduct of a trade or
business in the United States by the Foreign Owner; and
o in the case of an individual Foreign Owner, the Foreign Owner is not
present in the United States for 183 days or more during the taxable
year of disposition.
As used in this prospectus, a "U.S. Person" means:
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1. a citizen or resident of the United States;
2. a corporation or a partnership organized in or under the laws of the
United States or any political subdivision of the United States;
3. an estate, the income of which from sources outside the United States
is includible in gross income for federal income tax purposes
regardless of its connection with the conduct of a trade or business
within the United States; or
4. a trust if:
(a) a court within the U.S. is able to exercise primary supervision
over the administration of the trust and one or more United
States persons have authority to control all substantial
decisions of the trust; or
(b) the trust was in existence on August 20, 1996 and is eligible to
elect, and has made a valid election, to be treated as a U.S.
Person despite not meeting the requirements of clause (a).
A "Foreign Owner"means a person other than a U.S. Person and persons
subject to rules applicable to certain former citizens or residents of the
United States.
Backup Withholding. Each Note Owner (other than an exempt Note Owner which
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) will be required to
provide, under penalties of perjury, a certificate on Form W-9 providing the
Note Owner's name, address, correct federal taxpayer identification number and a
statement that the Note Owner is not subject to backup withholding. Should a
nonexempt Note Owner fail to provide the required certification, the Trust will
be required to withhold 31 percent of the amount otherwise payable to the Note
Owner, and remit the withheld amount to the IRS. The amount withheld would be
credited against the Note Owner's federal income tax liability.
New Withholding Regulations. Recently, the Treasury Department issued new
regulations (the "New Regulations") which modify the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
2000, subject to certain transition rules. It is suggested that prospective
investors consult their own tax advisors regarding the New Regulations.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Tax Counsel, the IRS successfully asserted that one or more of the notes did
not represent debt for federal income tax purposes, the notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable as a
corporation with the adverse consequences described above (and the taxable
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 Trust might be treated as a publicly
traded partnership that would not be taxable as a corporation because it would
meet specified qualifying income tests. Nonetheless, treatment of the notes as
equity interests in 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 Owners may be subject to U.S. tax and cause Foreign Owners to
be subject to U.S. tax return filing and withholding
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requirements, and individual Note Owners might be subject to some limitations on
their ability to deduct their share of trust expenses.
Tax Consequences to Owners of the Certificates
Treatment of the Trust as a Partnership. Tax counsel to the Trust is of the
opionion that for federal income tax purposes, the Notes should constitute debt
and, if the Certificates are held by more than one person, the Trust will
constitute a partnership. However, the proper characterization of the
arrangement involving the Trust, the certificates, the notes, the Depositor and
the Servicer is not clear because there is no authority on transactions closely
comparable to that contemplated in this prospectus. The Depositor and the
Servicer will agree, and the beneficial owners of the certificates (the
"Certificate Owners") will agree by their purchase of certificates, to treat the
Owner Trust as a partnership (or as an entity disregarded as separate from the
Certificate Owner in the event that there is a single Certificate Owner) for
purposes of federal and state income tax, franchise tax and any other tax
measured in whole or in part by income. Unless otherwise specified in the
applicable prospectus supplement, if the Owner Trust is treated as a
partnership, the assets of the partnership would be the assets held by the
Trust, the partners of the partnership would be the Certificate Owners
(including the Depositor in its capacity as recipient of payments from the
Reserve Fund), and the notes would be debt of the partnership.
A variety of alternative characterizations are possible. For example,
because the certificates have features characteristic of debt, the certificates
might be considered debt of the Depositor or the Trust. Any characterization of
this type generally would not result in materially adverse tax consequences to
Certificate Owners as compared to the consequences from treatment of the
certificates as equity in a partnership, described below. The following
discussion assumes that the certificates represent equity interests in a
partnership. The applicable prospectus supplement will disclose the tax
considerations relevant to any certificates not intended to constitute equity
interests in a partnership.
Indexed Securities, etc. The following discussion assumes that all payments
on the certificates are denominated in U.S. dollars, none of the certificates
are Indexed Securities or Strip Certificates, and that a series of Securities
includes a single class of certificates. If these conditions are not satisfied
with respect to any given series of certificates, additional tax considerations
with respect to those certificates will be disclosed in the applicable
prospectus supplement.
Partnership Taxation. As a partnership, the Owner Trust will not be subject
to federal income tax. Rather, each Certificate Owner will be required to
separately take into account that Owner's allocated share of income, gains,
losses, deductions and credits of the Owner Trust. The Trust's income will
consist primarily of interest and finance charges earned on the Receivables
(including appropriate adjustments for market discount, OID and bond premium)
and any gain upon collection or disposition of Receivables. The Trust's
deductions will consist primarily of interest accruing with respect to the
notes, servicing and other fees, and losses or deductions upon collection or
disposition of Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement (here, the
Trust Agreement and related documents). In the Trust Agreement, the Certificate
Owners will agree that the yield on a certificate is intended to qualify as a
"guaranteed payment" and not as a distributive share of partnership income. A
guaranteed payment would be treated by a Certificate Owner as ordinary income,
but may well not be treated as interest income. The Trust Agreement will provide
that, to the extent that the treatment of the yield on a Certificate as a
guaranteed payment is not respected, the Certificate Owners of each class of
certificates will be allocated taxable income of the Trust for each month equal
to the sum of:
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1. the interest that accrues on the certificates in accordance with their
terms for that month, including interest accruing at the Pass Through
Rate for that month and interest on amounts previously due on the
certificates but not yet paid;
2. any Trust income attributable to discount on the Receivables that
corresponds to any excess of the principal amount of the certificates
over their initial issue price;
3. prepayment premium payable to the Certificate Owners for that month;
and
4. any other amounts of income payable to the Certificate Owners for that
month.
That allocation will be reduced by any amortization by the Trust of premium
on Receivables that corresponds to any excess of the initial issue price of
certificates over their initial principal amount. All remaining taxable income
of the Trust will be allocated to the Depositor. Except as provided below,
losses and deductions generally will be allocated to the Certificate Owners only
to the extent the Certificate Owners are reasonably expected to bear the
economic burden of those losses or deductions. Any losses allocated to
Certificate Owners could be characterized as capital losses, and the Certificate
Owners generally would only be able to deduct those losses against capital gain
income, and deductions would be subject to the limitations set forth below.
Accordingly, a Certificate Owner's taxable income from the Trust could exceed
the cash it is entitled to receive from the Trust.
Based on the economic arrangement of the parties, this approach for
allocating Trust income and loss should be permissible under applicable Treasury
regulations, although no assurance can be given that the IRS would not require a
greater amount of income to be allocated to Certificate Owners. Moreover, even
under the foregoing method of allocation, Certificate Owners may be allocated
income equal to the entire Pass Through Rate plus the other items described
above even though the Trust might not have sufficient cash to make current cash
payments of that amount. Thus, cash basis Certificate Owners will, in effect, be
required to report income from the certificates on the accrual basis and
Certificate Owners may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay those taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificate Owners but Certificate Owners may be purchasing certificates at
different times and at different prices, Certificate Owners may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
For each taxable year of the Certificate Owner, the Certificate Owner will
be required to report items of income, loss and deduction allocated to them by
the Owner Trust for the Trust's taxable year that ends on or before the last day
of that taxable year of the Certificate Owner. The Code prescribes rules for
determining the taxable year of the Trust. It is likely that, under these rules,
the taxable year of the Trust will be the calendar year. However, in the event
that all of the Certificate Owners possessing a 5 percent or greater interest in
the equity or profits of the Trust share a taxable year that is other than the
calendar year, the Trust could be required to use that year as its taxable year.
A significant portion of the taxable income allocated to a Certificate
Owner that is a pension, profit sharing or employee benefit plan or other
tax-exempt entity (including an individual retirement account) generally will
constitute "unrelated business taxable income" taxable to that Certificate Owner
under the Code.
An individual taxpayer's share of expenses of the Owner Trust (including
fees to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Those deductions might be disallowed to the individual in whole or
in part and might result in that Certificate Owner being taxed on an amount
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of income that exceeds the amount of cash actually paid to that Certificate
Owner over the life of the Trust.
The Owner Trust intends to make all tax calculations relating to income and
allocations to Certificate Owners on an aggregate basis. If the IRS were to
require that those calculations be made separately for each Receivable, the
Trust might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificate Owners.
Discount and Premium. It is believed that the Receivables were not issued
with OID, and, therefore, the Owner Trust should not have OID income. However,
the purchase price paid by the Trust for the Receivables may be greater or less
than the remaining principal balance of the Receivables at the time of purchase.
If so, the Receivables will have been acquired at a premium or discount, as the
case may be. (As indicated above, the Trust will make this calculation on an
aggregate basis, but might be required to recompute it on a
Receivable-by-Receivable basis.)
If the Owner Trust acquires the Receivables at a market discount or
premium, the Trust will elect to include that discount in income currently as it
accrues over the life of the Receivables or to offset the premium against
interest income on the Receivables. As indicated above, a portion of the market
discount income or premium deduction may be allocated to Certificate Owners.
Section 708 Termination. Under Section 708 of the Code, the Owner Trust
will be deemed to terminate for federal income tax purposes if 50% or more of
the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If that termination occurs, the Trust will be considered to
transfer all of it assets and liabilities to a new partnership in exchange for
an interest in the new partnership, after which the Trust would be deemed to
distribute interests in the new partnership to Certificate Owners (including the
purchasing partner who caused the termination) in liquidation of the terminated
partnership. The Trust will not comply with technical requirements that might
apply when a constructive termination occurs. As a result, the Trust may be
subject to tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the certificates sold.
A Certificate Owner's tax basis in a certificate will generally equal the
Certificate Owner's cost increased by the Certificate Owner's share of Trust
income (includible in income) and decreased by any payments received with
respect to that certificate. In addition, both the tax basis in the certificates
and the amount realized on a sale of a certificate would include the Certificate
Owner's share of the notes and other liabilities of the Trust. A Certificate
Owner acquiring certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in those certificates, and, upon sale or
other disposition of some of the certificates, allocate a portion of that
aggregate tax basis to the certificates sold (rather than maintaining a separate
tax basis in each certificate for purposes of computing gain or loss on a sale
of that certificate).
Any gain on the sale of a certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Owner Trust does not expect to have any other assets
that would give rise to those special reporting requirements. Thus, to avoid
those special reporting requirements, the Trust will elect to include market
discount in income as it accrues.
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If a Certificate Owner is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the certificates that exceeds the aggregate
cash payments with respect to the Certificates, the excess will generally give
rise to a capital loss upon the retirement of the certificates.
Allocations Between Transferors and Transferees. In general, the Owner
Trust's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the Certificate Owners
in proportion to the principal amount of certificates owned by them as of the
close of the last day of that month. As a result, a Certificate Owner purchasing
certificates may be allocated tax items (which will affect its tax liability and
tax basis) attributable to periods before the Certificate Owner actually owned
the certificates.
The use of a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Owner Trust might be reallocated among the Certificate Owners. The
Depositor is authorized to revise the Owner Trust's method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section 754 Election. In the event that a Certificate Owner sells its
certificates at a profit (loss), the purchasing Certificate Owner will generally
have a higher (or lower) basis in the certificates than the selling Certificate
Owner had. The tax basis of the Owner Trust's assets will not be adjusted to
reflect that higher (or lower) basis unless the Trust were to file an election
under Section 754 of the Code. In order to avoid the administrative complexities
that would be involved in keeping accurate accounting records, as well as
potentially onerous information reporting requirements, the Owner Trust will not
make that election. As a result, Certificate Owners might be allocated a greater
or lesser amount of Trust income than would be appropriate based on their own
purchase price for certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Owner Trust. These books will be maintained
for financial reporting and tax purposes on an accrual basis and the fiscal year
of the Trust will be set forth in the applicable prospectus supplement. The
Trustee will file a partnership information return (IRS Form 1065) with the IRS
for each taxable year of the Trust during which the Owner Trust is treated as a
partnership for federal income tax purposes, and for each such taxable year will
report each Certificate Owner's allocable share of items of Trust income and
expense to holders and the IRS on Schedule K-1. The Trust will provide the
Schedule K-1 information to nominees that fail to provide the Trust with the
information statement described below and those nominees will be required to
forward that information to the Certificate Owners. Generally, Certificate
Owners must file tax returns that are consistent with the information return
filed by the Trust or be subject to penalties unless the Certificate Owner
timely notifies the IRS of all those inconsistencies.
Under Section 6031 of the Code, any person that holds certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing specified information on the nominee, the Certificate
Owners and the certificates so held. The information includes (1) the name,
address and taxpayer identification number of the nominee and (2) as to each
Certificate Owner (x) the name, address and identification number of that
person, (y) whether that person is a U.S. person, a tax-exempt entity or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of any of the foregoing, and (z) specified information on
certificates that were held, bought or sold on behalf of that person throughout
the year. In addition, brokers and financial institutions that hold certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any information
statement of this type to the Trust. The
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information referred to above for any calendar year must be furnished to the
Trust on or before the following January 31. Nominees, brokers and financial
institutions that fail to provide the Trust with the information described above
may be subject to penalties.
The Depositor will be designated as the tax matters partner in the related
Trust Agreement, and as the tax matters partner is designated to receive notice
on behalf of, and to provide notice to those Certificate Owners not receiving
notice from, the IRS, and to represent the Certificate Owners in certain
disputes with the IRS. The Code provides for administrative examination of a
partnership as if the partnership were a separate and distinct taxpayer.
Generally, the statute of limitations for partnership items does not expire
before three years after the date on which the partnership information return is
filed. Any adverse determination following an audit of the return of the Trust
by the appropriate taxing authorities could result in an adjustment of the
returns of the Certificate Owners, and, under some circumstances, a Certificate
Owner may be precluded from separately litigating a proposed adjustment to the
items of the Trust. As the tax matters partner, the Depositor may enter into a
binding settlement on behalf of all Certificate Owners with a less than 1
percent interest in the Trust (except for any group of those Certificate Owners
with an aggregate interest of 5 percent or more in Trust profits that elects to
form a notice group or Certificate Owners who otherwise notify the IRS that the
Depositor is not authorized to settle on their behalf). In the absence of a
proceeding at the Trust level, a Certificate Owner under some circumstances may
pursue a claim for credit or refund on his own behalf by filing a request for
administrative adjustment of a Trust item. It is suggested that each Certificate
Owner consult its own tax advisor with respect to the impact of these procedures
on its particular case. An adjustment could also result in an audit of a
Certificate Owner's returns and adjustments of items not related to the income
and losses of the Trust.
Tax Consequences to Foreign Certificate Owners. It is not clear whether the
Trust would be considered to be engaged in a trade or business in the United
States for purposes of federal withholding taxes with respect to Certificate
Owners who are not U.S. Persons ("Foreign Certificate Owners") because there is
no clear authority dealing with that issue under facts substantially similar to
those described in this prospectus. Although it is not expected that the Owner
Trust would be engaged in a trade or business in the United States for those
purposes, the Trust will withhold as if it were so engaged in order to protect
the Trust from possible adverse consequences of a failure to withhold. The Trust
expects to withhold on the portion of its taxable income that is allocable to
Foreign Certificate Owners pursuant to Section 1446 of the Code, as if that
income were effectively connected to a U.S. trade or business, at a rate of 35%
for Foreign Certificate Owners that are taxable as corporations and 39.6% for
all other Foreign Certificate Owners. Subsequent adoption of Treasury
regulations or the issuance of other administrative pronouncements may require
the Trust to change its withholding procedures. In determining a holder's
withholding status, the Trust may rely on IRS Form W-8BEN (or any applicable
successor form), IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each Foreign Certificate Owner might be required to file a U.S. individual
or corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust's income. Each Foreign Certificate
Owner must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8BEN (or any applicable successor form) in order
to assure appropriate crediting of the taxes withheld. A Foreign Certificate
Owner generally would be entitled to file with the IRS a claim for refund with
respect to taxes withheld by the Trust, taking the position that no taxes were
due because the Trust was not engaged in a U.S. trade or business. However,
interest payments made (or accrued) to a Foreign Certificate Owner generally
will be considered guaranteed payments to the extent those payments are
determined without regard to the income of the Trust. If these interest payments
are properly characterized as guaranteed payments, then the interest will not be
considered "portfolio interest," in which case Certificate Owners would be
subject to United States
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federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that case, a Foreign
Certificate Owner would only be entitled to claim a refund for that portion of
the taxes, if any, in excess of the taxes that should be withheld with respect
to the guaranteed payments.
Backup Withholding. Payments made on the certificates and proceeds from the
sale of the certificates will be subject to a backup withholding tax of 31% if,
in general, the Certificate Owner fails to comply with specified identification
procedures, unless the holder is an exempt recipient under applicable provisions
of the Code. We refer you to "--Tax Consequences to Owners of the Notes--Backup
Withholding" above.
Tax Treatment of Grantor Trusts
Tax Characterization of the Trust as a Grantor Trust. The following general
discussion of the anticipated federal income tax consequences of the purchase,
ownership and disposition of the certificates of a Trust referred to as a
"grantor trust" in the applicable prospectus supplement (a "Grantor Trust"). It
is intended as an explanatory discussion of the possible effects of the
classification of any Trust as a grantor trust for federal income tax purposes
on investors generally and of related 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 advisors with regard to the tax
consequences to it of investing in certificates of a Grantor Trust ("Grantor
Trust Certificates").
Tax Counsel will deliver its opinion that the Grantor Trust will not be
classified as an association taxable as a corporation and that the Trust will be
classified as a grantor trust under the Code. In this case, beneficial owners of
Grantor Trust Certificates (referred to as "Grantor Trust Certificateholders")
could be considered to own either:
o an undivided interest in a single debt obligation held by the Grantor
Trust and having a principal amount equal to the total stated
principal amount of the Receivables and an interest rate equal to the
relevant Pass Through Rate; or
o an interest in each of the Receivables and any other Trust property.
The determination of whether the economic substance of a property transfer
is a sale or a loan secured by the transferred property has been made by the IRS
and the courts on the basis of numerous factors designed to determine whether
the transferor has relinquished and the transferee has obtained substantial
incidents of ownership in the property. Among those factors, the primary factors
examined are whether the transferee has the opportunity to gain if the property
increases in value, and has the risk of loss if the property decreases in value.
The relevant pooling and servicing agreement will express the intent of the
Depositor to sell, and the Grantor Trust Certificateholders to purchase, the
Receivables, and the Depositor and each Grantor Trust Certificateholder, by
accepting a beneficial interest in a Grantor Trust Certificate, will agree to
treat the Grantor Trust Certificates as ownership interests in the Receivables
and any other Trust property.
Treatment as Debt Obligation. If a Grantor Trust Certificateholder was
considered to own an undivided interest in a single debt obligation, the
principles described under "--Tax Treatment of Owner Trusts--Tax Consequences to
Owners of the Notes" would apply. Each Grantor Trust Certificateholder, rather
than reporting its share of the interest accrued on each Receivable, would, in
general, be required to
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include in income interest accrued or received on the principal amount of the
Grantor Trust Certificates at the relevant Pass Through Rate in accordance with
its usual method of accounting.
The Grantor Trust Certificates would be subject to OID rules, described
below under "--Stripped Bonds and Stripped Coupons" and "--Original Issue
Discount." In determining whether any OID on the Grantor Trust Certificates is
de minimis, the Depositor expects to use a reasonable Prepayment Assumption to
determine the weighted average life of the Grantor Trust Certificates. OID
includible in income for any accrual period (generally, the period between
payment dates) would generally be calculated using a Prepayment Assumption and
an anticipated yield established as of the date of initial sale of the Grantor
Trust Certificates, and would increase or decrease to reflect prepayments at a
faster or slower rate than anticipated. The Grantor Trust Certificates would
also be subject to the market discount provisions of the Code to the extent that
a Grantor Trust Certificateholder purchased those certificates at a discount
from the initial issue price (as adjusted to reflect prior accruals of OID).
The remainder of the discussion in this prospectus assumes that a Grantor
Trust Certificateholder will be treated as owning an interest in each Receivable
and the proceeds from each Receivable, any right to receive Yield Supplement
Deposits and any other Trust property, although for administrative convenience,
the Servicer will report information on an aggregate basis as though all of the
Receivables and the Yield Supplement Agreement were a single obligation. The
amount and, in some instances, character, of the income reported to a Grantor
Trust Certificateholder may differ under this method for a particular period
from that which would be reported if income were reported on a precise
asset-by-asset basis.
Characterization. Each Grantor Trust Certificateholder will be treated as
the owner of a pro rata undivided interest in the interest and principal
portions of the Trust represented by the Grantor Trust Certificates and will be
considered the equitable owner of a pro rata undivided interest in each of the
Receivables in the Trust, any right to receive Yield Supplement Deposits, and
any other Trust property. Any amounts received by a Grantor Trust
Certificateholder in lieu of amounts due with respect to any Receivable because
of a default or delinquency in payment will be treated for federal income tax
purposes as having the same character as the payments they replace.
For federal income tax purposes, the Depositor will be treated as having
retained a fixed portion of the interest due on each Receivable having an annual
percentage rate in excess of the sum of the applicable Pass Through Rate and the
Servicing Rate (each, a "High Yield Receivable") equal to the difference
between:
o the annual percentage rate of the Receivable; and
o the sum of the applicable Pass Through Rate and the Servicing Rate
(the "Retained Yield"). The Retained Yield will be treated as
"stripped coupons" within the meaning of Section 1286 of the Code, and
the Stripped Receivables will be treated as "stripped bonds." We refer
you to "--Stripped Bonds and Stripped Coupons" below.
Accordingly, each Grantor Trust Certificateholder will be treated as owning its
pro rata percentage interest in:
o payments received under any Yield Supplement Agreement, and
o the principal of, and interest payable on, each Receivable (minus the
Retained Yield on the High Yield Receivables).
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Those Receivables that bear interest at a rate which is less than or equal
to the sum of the applicable Pass Through Rate and the Servicing Rate (the "Low
Yield Receivables") will not be treated as stripped bonds. Instead, Yield
Supplement Deposits will be payable to eliminate the difference between the
actual yield on each Low Yield Receivable and the yield the Receivable would
have had if its interest rate had equaled the sum of the applicable Pass Through
Rate and the Servicing Rate. We refer you to "--Yield Supplement Deposits"
below.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with that Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Receivables in the Trust represented by Grantor Trust Certificates,
including interest, OID, if any, prepayment fees, assumption fees, any gain
recognized upon an assumption, late payment charges received by the Servicer and
any gain recognized upon collection or disposition of the Receivables (but not
including any portion of the Retained Yield). A Grantor Trust Certificateholder
will also be required to report under its usual method of accounting any
payments received under any Yield Supplement Agreement to the extent that these
payments are treated as income. Under Sections 162 or 212 of the Code, each
Grantor Trust Certificateholder will be entitled to deduct its pro rata share of
Base Servicing Fees, prepayment fees, assumption fees, any loss recognized upon
an assumption and late payment charges retained by the Servicer, provided that
those amounts are reasonable compensation for services rendered to the Trust.
Grantor Trust Certificateholders that are individuals, estates or trusts will be
entitled to deduct their share of expenses only to the extent those expenses
plus all other Code Section 212 expenses exceed two percent of its adjusted
gross income. In addition, Grantor Trust Certificateholders who are individuals
may be subject to additional deduction limitations based on adjusted gross
income.
A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Servicer. A Grantor Trust Certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the Servicer, whichever is
earlier. Because interest accrues on the Receivables over differing monthly
periods and is paid in arrears and interest collected on a Receivable generally
is paid to Certificateholders in the following month, the amount of interest
accruing to a Grantor Trust Certificateholder during any calendar month will not
equal the interest distributed in that month. The actual amount of discount on a
Receivable will be includible in income as principal payments are received on
the Receivables. If the Base Servicing Fees paid to the Servicer are deemed to
exceed reasonable servicing compensation, the amount of that excess could be
considered as an ownership interest retained by the Servicer (or any person to
whom the Servicer assigned for value all or a portion of the Base Servicing
Fees) in a portion of the interest payments on the Receivables. The Receivables
would then be subject to the "stripped bond" and "stripped coupons" rules of the
Code discussed below.
Discount and Premium. In determining whether a Grantor Trust
Certificateholder has purchased its interest in the Receivables held by the
related Trust at a discount or premium and whether the Receivables have OID,
market discount, or amortizable premium, a portion of the purchase price of a
Certificate should be allocated to the Grantor Trust Certificateholder's
undivided interest in accrued but unpaid interest, amounts collected at the time
of purchase but not distributed, and rights to receive Yield Supplement
Deposits. As a result, the portion of the purchase price allocable to a Grantor
Trust Certificateholder's undivided interest in the Receivables will be
increased or decreased, as applicable, and the potential OID, market discount,
or amortizable premium on the Receivables could be increased or decreased
accordingly.
92
Premium. A Grantor Trust Certificateholder that acquires an interest in
Receivables at a premium over the "stated redemption price at maturity" of the
Receivables may elect to amortize that premium under a constant interest method.
Amortizable bond premium will be treated as an offset to interest income on that
Grantor Trust Certificate. The basis for that Grantor Trust Certificate will be
reduced to the extent that amortizable premium is applied to offset interest
payments. It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under Section 171 of the
Code. With some exceptions, a Grantor Trust Certificateholder that makes this
election for a Grantor Trust Certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that the Grantor Trust
Certificateholder holds during the year of the election or thereafter. Absent an
election to amortize bond premium, the premium will be deductible as an ordinary
loss upon disposition of the Certificate or pro rata as principal is paid on the
Receivables.
If a premium is not subject to amortization using a reasonable prepayment
assumption, the holder of a Grantor Trust Certificate acquired at a premium
should recognize a loss if a Receivable prepays in full, equal to the difference
between the portion of the prepaid principal amount of that Receivable that is
allocable to the Grantor Trust Certificate and the portion of the adjusted basis
of the Grantor Trust Certificate that is allocable to that Receivable. If a
reasonable prepayment assumption is used to amortize that premium, it appears
that that loss would be available, if at all, only if prepayments have occurred
at a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
Stripped Bonds and Stripped Coupons. Although the tax treatment of stripped
bonds is not entirely clear, based on recent guidance from the IRS, each
purchaser of a Grantor Trust Certificate will be treated as the purchaser of a
stripped bond (to the extent that the Receivables consist of High Yield
Receivables) which generally should be treated as a single debt instrument
issued on the day it is purchased for purposes of calculating any original issue
discount. Generally, under applicable Treasury regulations (the "Section 1286
Treasury Regulations"), if the discount on a stripped bond is larger than a de
minimis amount (as calculated for purposes of the OID rules of the Code), that
stripped bond will be considered to have been issued with OID. We refer you to
"--Original Issue Discount." Based on the preamble to the Section 1286 Treasury
Regulations, the Trust intends to take the position that, although the matter is
not entirely clear, the interest income on the certificates at the sum of the
Pass Through Rate and the portion of the Servicing Rate that does not constitute
excess servicing will be treated as "qualified stated interest" within the
meaning of the Section 1286 Treasury Regulations. In this case, the amount of
OID on a High Yield Receivable will equal the amount by which the purchase price
of a High Yield Receivable is less than the portion of the remaining principal
balance of the Receivable allocable to the interest acquired.
Original Issue Discount. The IRS has stated in published rulings that, in
circumstances similar to those described in this prospectus, the special rules
of the Code relating to OID will be applicable to a Grantor Trust
Certificateholder's interest in those Receivables meeting the conditions
necessary for these rules to apply. Generally, a Grantor Trust Certificateholder
that acquires an undivided interest in a Receivable issued or acquired with OID
must include in gross income the sum of the "daily portions," as defined below,
of the OID on that Receivable for each day on which it owns a Grantor Trust
Certificate, including the date of purchase but excluding the date of
disposition. In the case of an original Grantor Trust Certificateholder, the
daily portions of OID with respect to a Receivable generally would be determined
as follows. A calculation will be made of the portion of OID that accrues on the
Receivable during each successive monthly accrual period (or shorter period in
respect of the date of original issue or the final Payment Date). This will be
done, in the case of each full monthly accrual period, by adding:
93
o the present value of all remaining payments to be received on the
Receivable under the Prepayment Assumption used in respect of the
Receivables; and
o any payments received during that accrual period, and subtracting from
that total the "adjusted issue price" of the Receivable at the
beginning of that accrual period.
No representation is made that the Receivables will prepay at any prepayment
assumption. The "adjusted issue price" of a Receivable at the beginning of the
first accrual period is the amount of the purchase price paid by the Grantor
Trust Certificateholder for the Grantor Trust Certificate that is allocable to
the Receivable, and the "adjusted issue price" of a Receivable at the beginning
of a subsequent accrual period is the "adjusted issue price" at the beginning of
the immediately preceding accrual period plus the amount of OID allocable to
that accrual period and reduced by the amount of any payment on the Receivable
(other than "qualified stated interest") made at the end of or during that
accrual period. The OID accruing during that accrual period will then be divided
by the number of days in the period to determine the daily portion of OID for
each day in the period. With respect to an initial accrual period shorter than a
full monthly accrual period, the daily portions of OID must be determined
according to a reasonable method, provided that that method is consistent with
the method used to determine the yield to maturity of the Receivables.
If the amount of OID is de minimis under the rule set forth above, a High
Yield Receivable would not be treated as having OID. The actual amount of
discount on a High Yield Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivable.
With respect to the Receivables, the method of calculating OID as described
above will cause the accrual of OID to either increase or decrease (but never
below zero) in any given accrual period to reflect the fact that prepayments are
occurring at a faster or slower rate than the prepayment assumption used in
respect of the Receivables. Subsequent purchasers that purchase Receivables at
more than a de minimis discount should consult their tax advisors with respect
to the proper method to accrue that OID.
Yield Supplement Deposits. The proper Federal income tax characterization
of the Yield Supplement Deposits is not clear. Moreover, the sum of the income
and deductions properly reportable by a Grantor Trust Certificateholder in any
taxable year may not equal the amounts that would be reportable if a Grantor
Trust Certificateholder held instead of an interest in the Receivables and in
the Yield Supplement Agreement either a debt instrument bearing interest at the
applicable Pass Through Rate or an interest in a trust holding Receivables each
of which bears interest at a rate at least equal to the sum of the Pass Through
Rate plus the Servicing Rate. It is likely that the right to receive Yield
Supplement Deposits will be treated as a separate asset purchased by each
Grantor Trust Certificateholder, in which case a portion of each Grantor Trust
Certificateholder's purchase price or other tax basis in the Grantor Trust
Certificate equal to the fair market value of the right to receive the Yield
Supplement Deposits should be allocated to the right to receive payments of
Yield Supplement Deposits. The right to receive Yield Supplement Deposits may be
treated as a loan made by a Grantor Trust Certificateholder to the Depositor in
an amount equal to the present value, discounted at a rate equal to the sum of
the applicable Pass Through Rate and the Servicing Rate, of the projected Yield
Supplement Deposits. In that event, a portion of the Yield Supplement Deposits
generally representing a yield equal to the applicable Pass Through Rate plus
the Servicing Rate on the discounted value should be treated as interest
includible in income as accrued or received, and the remainder should be treated
as a return of the principal amount of the deemed loan. Alternatively, it is
possible that the entire amount of each Yield Supplement Deposit should be
included in income as accrued or received, in which event a Grantor Trust
Certificateholder should also be entitled to amortize the portion of its
purchase price allocable to its right
94
to receive Yield Supplement Deposits. The method of calculating that
amortization is unclear, and could result in the inclusion of greater amounts of
income than a Grantor Trust Certificateholder's actual yield on a Receivable.
Alternatively, it is possible that the Yield Supplement Deposits could be
treated as payments adjusting the purchase price of the Low Yield Receivables,
rather than as a separate asset. In that event, a Grantor Trust
Certificateholder could be treated as having purchased each Low Yield Receivable
at a discount (which may consist of imputed interest, market discount, or both)
that, combined with the actual coupon rate of the Receivable, produces a yield
equal to the sum of the applicable Pass Through Rate and the Servicing Rate. It
is not clear whether, and to what extent, the amounts includible in income or
amortizable under any of these methods would be adjusted to take account of
prepayments on the Receivables. Moreover, it is possible that the IRS might
contend that none of the above methods is appropriate, and that income with
respect to the Yield Supplement Agreement should be reported by a Grantor Trust
Certificateholder in some other manner. In addition, to the extent that the
amounts payable pursuant to Yield Supplement Agreement decline during any period
by reason of prepayments on the Receivables, it is possible that a portion of
the amount amortizable by the Grantor Trust Certificateholder during that period
would be treated as a capital loss (which would not offset ordinary income),
rather than as an ordinary deduction. It is suggested that Grantor Trust
Certificateholders consult their tax advisors regarding the appropriate method
of accounting for income attributable to the Yield Supplement Agreement.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Receivables may be subject to the market discount rules of
Sections 1276 through 1278 of the Code to the extent an undivided interest in a
Receivable is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of that Receivable allocable to that Grantor Trust
Certificateholder's undivided interest in the Receivable over that holder's tax
basis in that interest. Market discount with respect to a Receivable will be
considered to be zero if the amount allocable to the Receivable is less than
0.25% of the Receivable's stated redemption price at maturity multiplied by the
weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, it is suggested that investors consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled payment
or a prepayment) or any gain on disposition of a market discount bond shall be
treated as ordinary income to the extent that it does not exceed the accrued
market discount at the time of that payment. The amount of accrued market
discount for purposes of determining the tax treatment of subsequent principal
payments or dispositions of the market discount bond is to be reduced by the
amount so treated as ordinary income.
The Code also grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. While the
Treasury Department has not yet issued regulations, rules described in the
relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with respect to which there is OID, the
amount of market discount that accrues during any accrual period would be equal
to the product of:
o the total remaining market discount; and
o a fraction, the numerator of which is the OID accruing during the
period and the denominator of which is the total remaining OID at the
beginning of the accrual period.
95
If a Grantor Trust Certificate is issued with respect to which there is no OID,
the amount of market discount that accrues during a period is equal to the
product of:
o the total remaining market discount; and
o a fraction, the numerator of which is the amount of stated interest
paid during the accrual period and the denominator of which is the
total amount of stated interest remaining to be paid at the beginning
of the accrual period.
For purposes of calculating market discount under any of the above methods in
the case of instruments, for example, the Grantor Trust Certificates, that
provide for payments that may be accelerated by reason of prepayments of other
obligations securing those instruments, the same prepayment assumption
applicable to calculating the accrual of OID will apply. Because the regulations
described above have not been issued, it is impossible to predict what effect
those regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A Grantor Trust Certificate holder who acquired a Grantor Trust Certificate
at a market discount also may be required to defer a portion of its interest
deductions for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry that Grantor Trust Certificate purchased with
market discount. For these purposes, the de minimis rule referred to above
applies. Any deferred interest expense would not exceed the market discount that
accrues during that taxable year and is, in general, allowed as a deduction not
later than the year in which the market discount is includible in income. If
that holder elects to include market discount in income currently as it accrues
on all market discount instruments acquired by the holder in that taxable year
or thereafter, the interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID regulations permit a Grantor
Trust Certificateholder to elect to accrue all interest, discount (including de
minimis market or original issue discount) and premium in income as interest,
based on a constant yield method. If that election were to be made with respect
to a Grantor Trust Certificate with market discount, the Grantor Trust
Certificateholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that that Grantor Trust Certificateholder acquires during the
year of the election or thereafter. Similarly, a Grantor Trust Certificateholder
that makes this election for a Grantor Trust Certificate that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that that
Grantor Trust Certificateholder owns or acquires. We refer you to "--Premium"
above. The election to accrue interest, discount and premium on a constant yield
method with respect to a Grantor Trust Certificate is irrevocable except with
the approval of the IRS.
Sale or Exchange of a Grantor Trust Certificate. Sale or exchange of a
Grantor Trust Certificate prior to its maturity will result in gain or loss
equal to the difference, if any, between the amount received and the owner's
adjusted tax basis in the Grantor Trust Certificate. The adjusted tax basis
generally will equal the seller's purchase price for the Grantor Trust
Certificate, increased by any market discount, OID and gain previously included
in the seller's gross income with respect to the Grantor Trust Certificate, and
reduced by the amount of any premium, if any, previously amortized and by the
amount of any payments of principal and OID on the Grantor Trust Certificate
previously received by the seller. That gain or loss will be capital gain or
loss to an owner for which a Grantor Trust Certificate is a "capital asset"
within the meaning of Section 1221, and will be long-term or short-term
depending on whether the Grantor Trust Certificate has been owned for the
long-term capital gain holding period (currently more than one year).
96
Foreign Persons. Generally, interest or OID paid by the person required to
withhold tax under Section 1441 or 1442 of the Code to:
o a Grantor Trust Certificateholder that is not a U.S. Person (as
defined under "--Tax Treatment of Owner Trusts--Tax Consequences to
Owners of the Notes--Foreign Owners") (a "Foreign Grantor Trust
Certificateholder"); or
o a person holding on behalf of a Foreign Grantor Trust
Certificateholder, as well as accrued OID recognized by the Foreign
Grantor Trust Certificateholder on the sale or exchange of that
Grantor Trust Certificate.
will not be subject to withholding to the extent that a Grantor Trust
Certificate evidences ownership in Receivables issued after July 18, 1984 by
natural persons, if that Foreign Grantor Trust Certificateholder complies with
specified identification requirements (including delivery of a statement, signed
by the Foreign Grantor Trust Certificateholder under penalties of perjury,
certifying that that Foreign Grantor Trust Certificateholder is not a U.S.
Person and providing the name and address of that Foreign Grantor Trust
Certificateholder). Additional restrictions apply to Receivables where the
obligor is not a natural person in order to qualify for the exemption from
withholding.
Although it is not entirely clear, it is likely that amounts received by a
Foreign Grantor Trust Certificateholder that are attributable to payments of
Yield Supplement Deposits received pursuant to any Yield Supplement Agreement
generally would not be subject to withholding tax. It is suggested that Foreign
Grantor Trust Certificateholders consult their tax advisors regarding the
withholding tax consequences of amounts received on the Grantor Trust
Certificates that are attributable to payments of Yield Supplement Deposits
received pursuant to any Yield Supplement Agreement.
Information Reporting and Backup Withholding. The Servicer will furnish or
make available, within a reasonable time after the end of each calendar year, to
each person who was a Grantor Trust Certificateholder at any time during that
year, that information as may be deemed necessary or desirable to assist Grantor
Trust Certificateholders in preparing their federal income tax returns, or to
enable holders to make that information available to beneficial owners or
financial intermediaries that hold Grantor Trust Certificates as nominees on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that that person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a payment to a recipient would be allowed as a credit
against that recipient's federal income tax liability.
97
State and Local Tax Considerations
Potential holders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the certificates and
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 certificates and notes.
ERISA Considerations
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as individual retirement
accounts and some types of Keogh Plans (each a "Benefit 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. ERISA also imposes duties on persons who are fiduciaries of
Benefit Plans subject to ERISA and prohibits specified transactions between a
Benefit Plan and parties in interest with respect to those Benefit Plans. 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 purchase and holding of Securities by a Benefit Plan depending on the type
and circumstances of the plan fiduciary making the decision to acquire the
Securities. Potentially available exemption 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." Insurance company general accounts should also discuss with
their legal counsel the availability of exemptive relief under Section 401(c) of
ERISA. A purchaser of Securities 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 a Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased notes or certificates if assets of the Trust were deemed to be
assets of the Benefit Plan. Under a regulation issued by the United States
Department of Labor (the "Plan Assets Regulation"), the assets of a Trust would
be treated as plan assets of a Benefit Plan for the purposes of ERISA and the
Code only if the Benefit Plan acquired an "equity interest" in the Trust and
none of the exceptions contained in the 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. The likely treatment in this
context of notes and certificates of a given series will be discussed in the
applicable prospectus supplement.
98
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,
governmental 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(a)(1)(B) of the Code, the
sanction for violation being loss of "qualified" status.
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 purchase of
Securities consult with its tax and/or legal advisors regarding whether the
assets of the related Trust would be considered plan assets, the possibility of
exemptive relief from the prohibited transaction rules and other issues and
their potential consequences.
99
Underwriting
On the terms and conditions set forth in an underwriting agreement with
respect to the notes, if any, of a given series and an underwriting agreement
with respect to the certificates of that series (collectively, the "Underwriting
Agreements"), the Depositor will agree to cause the related Trust to sell to the
underwriters named in the Underwriting Agreements (the "Underwriters") and in
the applicable prospectus supplement, and each of those Underwriters will
severally agree to purchase, the principal amount of each class of notes and
certificates, as the case may be, of the related series set forth in the
Underwriting Agreements and in the applicable prospectus supplement.
In each of the Underwriting Agreements with respect to any given series of
Securities, the several Underwriters will agree, subject to the terms and
conditions set forth in the Underwriting Agreements, to purchase all the notes
and certificates, as the case may be, described in the Underwriting Agreements
which are offered by this prospectus and by the applicable prospectus supplement
if any of those notes and certificates, as the case may be, are purchased.
Each prospectus supplement will either:
o set forth the price at which each class of notes and certificates, as
the case may be, being offered by that prospectus supplement will be
offered to the public and any concessions that may be offered to some
dealers participating in the offering of those notes and certificates;
or
o specify that the related notes and certificates, as the case may be,
are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of that sale.
After the initial public offering of those notes and certificates, those public
offering prices and those concessions may be changed.
Each Underwriting Agreement will provide that BMW FS and the Depositor will
indemnify the Underwriters against specified civil liabilities, including
liabilities under the Securities Act, or contribute to payments the several
Underwriters may be required to make in respect of the specified civil
liabilities.
Each Trust may, from time to time, invest the funds in its Accounts in
Eligible Investments acquired from the Underwriters or from the Depositor.
Pursuant to each Underwriting Agreement with respect to a given series of
Securities, the closing of the sale of any class of Securities subject to that
Underwriting Agreement will be conditioned on the closing of the sale of all
other classes of Securities of that series.
The place and time of delivery for the Securities in respect of which this
prospectus is delivered will be set forth in the applicable prospectus
supplement.
Legal Opinions
Certain legal matters relating to the Securities of any series will be
passed upon for the related Trust, the Depositor and the Servicer by counsel
specified in the applicable prospectus supplement. Certain legal matters will be
passed upon for the Underwriters by counsel specified in the applicable
prospectus supplement.
100
Index of Terms
Accounts...........................................59
Actuarial Receivables..............................22
Administration Agreement...........................73
Administrative Purchase Payment....................60
Administrative Receivable..........................60
Administrator......................................73
Advances...........................................63
Auction............................................47
Base Rate..........................................39
Base Servicing Fee.................................63
Bond Equivalent Yield..............................48
Business Day.......................................39
Calculation Agent..................................43
Calculation Date...................................43
California Contracts...............................79
CD Rate............................................44
CD Rate Security...................................39
Cede...............................................28
Certificate Pool Factor............................30
Certificateholder..................................37
CI.................................................53
class..............................................31
Clearstream, Luxembourg Participants...............51
Code...............................................81
Collection Account.................................58
Commercial Paper Rate..............................44
Commercial Paper Rate Security.....................39
Cooperative........................................54
DBC................................................53
Dealer Agreements..................................21
Definitive Certificates............................55
Definitive Notes...................................55
Definitive Securities..............................51
Depositaries.......................................51
Designated LIBOR Page..............................47
DTC Participants...................................31
Euroclear Operator.................................54
Euroclear Participants.............................51
Events of Default..................................33
Excess Payment.....................................62
Federal Funds Rate.................................45
Federal Funds Rate Security........................39
Final Scheduled Maturity Date......................60
Fixed Rate Securities..............................39
Floating Rate Securities...........................39
Foreign Certificate Owners.........................89
Foreign Grantor Trust Certificateholder............97
FTC Rule...........................................78
grantor trust......................................11
Grantor Trust Certificateholders...................90
Grantor Trust Certificates.........................90
H.15 Daily Update..................................44
H.15(519)..........................................44
High Yield Receivable..............................91
Indenture..........................................31
Index..............................................49
Index Currency.....................................40
Indexed Principal Amount...........................49
Indexed Securities.................................49
Indirect DTC Participants..........................52
Insolvency Event...................................70
Insolvency Laws....................................77
Interest Determination Date........................42
Interest Reset Date................................41
Interest Reset Period..............................41
IRS................................................80
LIBOR..........................................39, 46
London Banking Day.................................43
London Business Day................................40
Low Yield Receivables..............................92
Money Market Yield.................................45
Moody's............................................59
New CI.............................................53
New Regulations....................................84
New York Business Day..............................39
Noteholder.........................................31
OID................................................82
OID regulations....................................82
Original Certificate Balance.......................30
owner trust........................................11
Payahead Account...................................59
Payments Ahead.....................................59
Pool Balance.......................................64
Pooling and Servicing Agreement....................21
Precomputed Advance................................62
Prepayment Assumption..............................82
Principal Balance..................................64
Principal Financial Center.........................40
Principal Financial Center Business Day............40
prospectus supplement..............................21
Purchase Agreement.................................56
rebate.............................................23
Receivables Pool...................................21
Related Documents..................................36
Relief Act.........................................80
Required Deposit Rating............................59
Required Yield Supplement Amount...................65
Reserve Fund.......................................66
Retained Yield.....................................91
Schedule of Receivables............................56
Scheduled Payment..................................22
Section 1286 Treasury Regulations..................93
Securities.........................................21
Securities Act.....................................28
Securityholders....................................28
101
Servicer Default...................................70
Servicer Letter of Credit..........................68
Servicing Fee Rate.................................63
Short-Term Note....................................82
Simple Interest Advance............................63
Specified Currency.................................40
Spread.............................................39
Spread Multiplier..................................39
Standard & Poor's..................................59
Strip Certificates.................................38
Strip Notes........................................31
Supplemental Servicing Fee.........................63
TARGET Business Day................................40
Telerate Page 120..................................45
Telerate Page 56...................................47
Telerate Page 57...................................47
Terms and Conditions...............................54
Total Servicing Fee................................63
Treasury Bills.....................................47
Treasury Rate......................................47
Treasury Rate Security.............................39
Trustee............................................24
U.S. Person........................................83
UCC................................................58
Underwriting Agreements............................99
Warranty Purchase Payment..........................57
Warranty Receivable................................57
weighted average life..............................29
Yield Supplement Deposit...........................64
102
================================================================================
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Depositor or any Underwriter. Neither the delivery of this Prospectus nor
any sale made hereunder shall under any circumstance create an implication that
there has been no change in the affairs of the Depositor or the Receivables
since the date thereof. This Prospectus does not constitute an offer or
solicitation by anyone in any state in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
BMW FS Securities LLC
Depositor
BMW Financial
Services NA, LLC
Servicer
Until [ ] , 2003 (90 days after the date of this Prospectus), all dealers
effecting transactions in the Notes, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
BMW Vehicle Owner
Trust [ ]-A
$[ ]
% Asset Backed Notes,
Class A-1
$[ ]
% Asset Backed Notes,
Class A-2
$[ ]
% Asset Backed Notes,
Class A-3
$[ ]
% Asset Backed Notes,
Class A-4
$[ ]
% Asset Backed Notes,
Class B
PROSPECTUS SUPPLEMENT
[ ]
[ ]
[ ]
[ ]
================================================================================
The information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been declared effective
by the Securities and Exchange Commission. We are not using this Prospectus to
offer to sell these securities or to solicit offers to buy these securities in
any place where the offer or sale is not permitted.
Subject to completion, dated March [ ], 2003
Prospectus Supplement
(To Prospectus dated March [ ], 2003)
BMW Vehicle Owner Trust [ ]-A
BMW FS Securities LLC,
Depositor
BMW Financial Services NA, LLC,
Servicer
$[ ] ASSET BACKED NOTES
_____% Class A-1 Notes due 200_
_____% Class A-2 Notes due 200_
_____% Class A-3 Notes due 200_
_____% Class A-4 Notes due 200_
_____% Class B Notes due 200_
The trust's main source of payments on the notes will be loan payments generated
by a portfolio of retail installment sale contracts secured in most cases by BMW
vehicles.
See "Risk Factors" beginning on page S-__ for a discussion of risks that you
should consider in connection with an investment in the notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or determined that this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
================================================================================
Initial Principal Price to Underwriting Proceeds
Balance Public Discounts to Depositor
- --------------------------------------------------------------------------------
Class A-1 Notes % % %
- --------------------------------------------------------------------------------
Class A-2 Notes % % %
- --------------------------------------------------------------------------------
Class A-3 Notes % % %
- --------------------------------------------------------------------------------
Class A-4 Notes % % %
- --------------------------------------------------------------------------------
Class B Notes % % %
- --------------------------------------------------------------------------------
Total $ $ $
- --------------------------------------------------------------------------------
The notes will not be listed on any securities exchange. Currently, there is no
public market for the notes.
We expect that delivery of the notes will be made to investors on or about
____________.
[ ]
March [ ], 2003
TABLE OF CONTENTS
Page
Important Notice About Information Presented in this
Prospectus Supplement and the Accompanying Prospectus......................5
Summary of Parties to the Transaction.........................................6
Summary of Monthly Deposits to and Withdrawals from Accounts..................7
Summary of Terms..............................................................8
Risk Factors.................................................................21
The Trust....................................................................29
General .....................................................................29
Capitalization of the Trust..................................................30
The Owner Trustee and the Indenture Trustee..................................30
The Receivables..............................................................30
Assets of the Trust..........................................................30
Eligibility Criteria.........................................................32
Description of Initial Receivables...........................................33
Maturity and Prepayment Considerations.......................................39
Delinquencies, Repossessions and Loan Loss Information.......................39
Weighted Average Life of the Notes...........................................42
Note Factors.................................................................50
Use of Proceeds..............................................................50
The Depositor and the Servicer...............................................50
The Notes....................................................................50
General .....................................................................50
Payments of Interest.........................................................51
Payments of Principal........................................................51
Optional Prepayment..........................................................53
Indenture....................................................................53
Notices .....................................................................53
Governing Law................................................................54
Payments on the Notes........................................................54
Calculation of Available Amounts.............................................54
Payment of Distributable Amounts.............................................56
Credit Enhancement...........................................................59
S-2
TABLE OF CONTENTS
(continued)
Page
Subordination................................................................59
Reserve Account..............................................................59
Yield Supplement Overcollateralization Amount................................60
Description of the Transfer and Servicing Agreements.........................62
The Transfer and Servicing Agreements........................................62
Sale and Assignment of Receivables; Subsequent Receivables...................62
Accounts ....................................................................62
Collections..................................................................62
Pre-Funding Account..........................................................63
Capitalized Interest Account.................................................64
Note Distribution Account....................................................64
Advances ....................................................................65
Servicing Compensation.......................................................65
Net Deposits.................................................................65
Optional Purchase............................................................66
Removal of Servicer..........................................................66
Duties of the Owner Trustee and the Indenture Trustee........................67
The Owner Trustee and the Indenture Trustee..................................68
Material Income Tax Consequences.............................................69
Tax Characterization of the Trust............................................69
Treatment of the Notes as Indebtedness.......................................69
ERISA Considerations.........................................................70
Underwriting.................................................................71
Notice to Canadian Residents.................................................73
Resale Restrictions..........................................................73
Representations of Purchasers................................................73
Rights of Action (Ontario Purchasers)........................................73
Enforcement of Legal Rights..................................................74
Notice to British Columbia Residents.........................................74
Taxation and Eligibility for Investment......................................74
Legal Opinions...............................................................74
Index of Terms...............................................................75
S-3
Annex A Global Clearance, Settlement and Tax Documentation Procedures.........1
Initial Settlement............................................................1
Secondary Market Trading......................................................1
Material U.S. Federal Income Tax Documentation Requirements...................3
S-4
Important Notice About Information Presented in this
Prospectus Supplement and the Accompanying Prospectus
Information about the securities is provided in two separate documents that
progressively provide varying levels of detail: (1) the accompanying prospectus,
which provides general information, some of which may not apply to a particular
class of securities, including your class; and (2) this prospectus supplement,
which describes the specific terms of your class of securities.
If the description of the terms of your securities varies between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
Cross-references are included in this prospectus supplement and in the
accompanying prospectus which direct you to more detailed descriptions of a
particular topic. You can also find references to key topics in the Table of
Contents beginning on page S-2 in this prospectus supplement and the Table of
Contents beginning on page 2 in the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page S-75 in this prospectus supplement and under the caption "Index of
Terms" beginning on page 102 in the accompanying prospectus.
S-5
- --------------------------------------------------------------------------------
Summary of Parties to the Transaction*
---------------------
|----------------------- BMW FINANCIAL
| SERVICES NA, LLC
| (seller and servicer)
| ---------------------
| |
| |
- ------------ ---------------------
servicing of BMW FS
receivables SECURITIES
- ------------ LLC
| (depositor)
| ---------------------
| | ------------------------
| | WILMINGTON TRUST
| --------------------- / COMPANY
| BMW VEHICLE / (owner trustee)
|----------------------- OWNER TRUST / ------------------------
[ ]-A
(ISSUER)
----------------------- ---------------------
JPMORGAN BANK / \
(indenture trustee) / \
------------------------ / \
/ \
/ \
/ \
/ \
/ \
/ ------------------
---------------
CLASS A-1 NOTES CERTIFICATES
CLASS A-2 NOTES
CLASS A-3 NOTES ------------------
CLASS A-4 NOTES
AND
CLASS B NOTES
---------------
* This chart provides only a simplified overview of the relations between the
key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
- --------------------------------------------------------------------------------
S-6
Summary of Monthly Deposits to and
Withdrawals From Accounts*
- ----------------------------------------------------------- /----------- -----------
Servicer / Payments on Obligors on
\ Receivables Receivables
\----------- -----------
- -----------------------------------------------------------
| | | | / \ | |
| | | | / \ | |
| | | | / \ | |
| | | | / \ | |
|Principal | |Servicer| |Reimbursements| |Warranty & |
|& Interest | |Advances| |of Servicer | |Administrative|
|on | | | | Advances | |Payments |
|Receivables| | | | | \ /
\ / \ / | | \ /
\ / \ / | | \ /
\ / \ / | | \ /
/ ----------------
/ Withdrawals from
\ Reserve Account
- ---------------------------------------------------------- \ --------------- -------
COLLECTION ACCOUNT Reserve
- ---------------------------------------------------------- ------------\ Account
| | Deposits to \ -------
| | Reserve Account | |
| | ------------/ | |
| | |Excess monies|
Interest & Payments on |from Reserve |
Principal Certificates |Account |
| | \ /
\|/ \|/ \ /
----------- ----------- \ /
Noteholders Certificate ----------
Holders Depositor
----------- -----------
----------
* This chart provides only a simplified overview of the monthly flow of funds.
Refer to this prospectus supplement and the prospectus for a further
description.
S-7
Summary of Terms
The following summary contains a brief description of the notes. You will
find a detailed description of the terms of the offering of the notes following
this summary. You should carefully read this entire document and the
accompanying prospectus to understand all of the terms of the offering of the
notes. You should consider both documents when making your investment decision.
Relevant Parties
Issuer................................. BMW Vehicle Owner Trust [ ]-A. The trust will be
established by a trust agreement.
Seller................................. BMW Financial Services NA, LLC.
Servicer............................... BMW Financial Services NA, LLC.
Depositor.............................. BMW FS Securities LLC.
Indenture Trustee...................... JPMorgan Chase Bank.
Owner Trustee.......................... Wilmington Trust Company.
Relevant Agreements
Indenture.............................. The indenture between the issuer and the indenture trustee.
The indenture provides for the terms relating to the notes.
Trust Agreement........................ The trust agreement between the depositor and the owner
trustee. The trust agreement governs the creation of the
trust and provides for the terms relating to the certificates.
Sale and Servicing Agreement........... The sale and servicing agreement among the issuer, the
indenture trustee, the servicer and the depositor. The sale
and servicing agreement governs the transfer of the
receivables by the depositor to the trust and the servicing
of the receivables by the servicer.
Administration Agreement............... The administration agreement among BMW Financial Services NA,
LLC, as administrator, the trust and the indenture trustee.
The administration agreement governs the provision of reports
by the administrator and the performance by the administrator
of other administrative duties for the trust.
S-8
Receivables Purchase Agreement......... The receivables purchase agreement between the depositor and the
seller. This agreement governs the sale of the receivables from
BMW Financial Services NA, LLC to the depositor.
Relevant Dates
Closing Date........................... Expected to be March [ ], 2003.
Initial Cutoff Date.................... [ ], 2003.
Subsequent Cutoff Date................. The first day of the month during which a subsequent
receivable is transferred to the trust.
Payment Dates.......................... The trust will pay interest and principal on the notes on the
twenty-fifth day of each month. If the twenty-fifth day of
the month is not a business day, payments on the securities
will be made on the next business day. The date that any
payment is made is called a payment date. The first payment
date is [ ], 2003.
Final Scheduled Payment Dates.......... The final principal payment for each class of notes is
scheduled to be made on the final scheduled payment dates as
follows:
o Class A-1 Notes ____, 200_
o Class A-2 Notes ____, 200_
o Class A-3 Notes ____, 200_
o Class A-4 Notes ____, 200_
o Class B Notes _____, 200_.
Record Date............................ So long as the notes are in book-entry form, the trust will
make payments on the securities to the holders of record on
the day immediately preceding the payment date. If the notes
are issued in definitive form, the record date will be the
last day of the month preceding the payment date.
S-9
Description of the Securities
General................................ The notes consist of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes -
sometimes referred to as the Class A Notes - and the Class B
Notes. The initial principal amount of each class of notes
is described on the front cover of this prospectus supplement.
Payments of interest on the Class B Notes are subordinated to
the payments of interest on and, in certain circumstances,
principal of the Class A Notes as described in this
prospectus supplement.
The trust is also issuing certificates representing the equity
interest in the trust. The depositor currently does not expect
to sell the certificates, but is not prohibited from doing so.
The depositor is not offering the certificates by this
prospectus supplement. Any information in this prospectus
supplement relating to the certificates is presented solely to
provide you with a better understanding of the notes.
Receivables............................ The trust's main source of funds for making payments on the
notes will be collections on motor vehicle retail installment
sale contracts, also known as the receivables. All of the
initial receivables are, and all of the subsequent
receivables will be, secured by motor vehicles manufactured
by subsidiaries of Bayerische Motoren Werke
Aktiengesellschaft ("BMW AG" and, together with all other BMW
group companies, the "BMW Group") except that __% by
principal balance of the receivables are secured by vehicles
of other manufacturers.
Initially, the principal balance of the receivables on [ ],
2001, referred to as the "initial cutoff date," was
$[ ]. As of the initial cutoff date, the receivables
(the "Initial Receivables") had the following characteristics:
o number of receivables: [ ]
o average principal balance: $[ ]
o weighted average annual
percentage rate: [ ]%
S-10
o weighted average remaining term to maturity:
[ ] months
o weighted average original term to
maturity: [ ] months
The receivables owned by the trust are classified as simple
interest receivables. Simple interest receivables are
described in more detail in "The Receivables" in the
accompanying prospectus.
We refer you to "The Receivables" in this prospectus
supplement for more information on the receivables.
Funding Period......................... During the period from the Closing Date through the end of
the Collection Period in [ ], 2003 (the "Funding
Period"), the Trust can use funds on deposit in an account
(the "Pre-Funding Account") to purchase additional
receivables (the "Subsequent Receivables") from the Depositor
in an amount up to approximately $[ ]. The
purchase price for the Subsequent Receivables will be
withdrawn from the Pre-Funding Account. A portion of the
purchase price will be deposited into the reserve account and
the remainder of the purchase price will be paid to the
Depositor by the trust and then to BMW Financial Services NA,
LLC by the Depositor. If the full amount deposited on the
Closing Date cannot be used for the purpose of purchasing
Subsequent Receivables during the Funding Period, all
remaining monies will be applied as a mandatory prepayment of
the notes sequentially to the earliest maturing class of
Class A Notes then outstanding.
Terms of the Notes..................... In general, noteholders are entitled to receive payments of
interest and principal from the trust only to the extent that
collections from trust assets are sufficient to make those
payments. Interest and principal collections from trust
assets will be divided among the various classes of
securities in specified proportions. The trust will pay
interest and principal to noteholders of record as of the
preceding record date.
Interest:
S-11
The interest rate for each class of notes is set forth on the
front cover of this prospectus supplement. The Class A-1
Notes will accrue interest on an actual/360 basis from the
previous payment date to the next payment date, except that
the first interest accrual period will be from the closing
date to [ ], 2003. This means that the interest due on each
payment date will be the product of:
o the outstanding principal balance of the related
class of notes,
o the interest rate, and
o the actual number of days since the previous payment date
to but excluding the current payment date or, in the case
of the first payment date, since the closing date divided
by 360.
The Class A-2, Class A-3, Class A-4 and Class B Notes will
accrue interest on a 30/360 basis from the 25th day of each
calendar month to the 25th day of the succeeding calendar
month except that the first interest accrual period will be
from the closing date to [ ], 2003. This means that the
interest due on each payment date will be the product of:
o the outstanding principal balance of the related class
of notes;
o the applicable interest rate; and
o 30 or, in the case of the first payment date, ___
divided by 360.
If noteholders of any class do not receive all interest owed
to them on a payment date, the trust will make payments of
interest on later payment dates to make up the shortfall
together with interest on those amounts, to the extent funds
from specified sources are available to cover the shortfall.
Principal:
The trust will pay principal sequentially to the earliest
maturing class of Class A Notes then outstanding until that
class is paid in full and then to the Class B
S-12
Notes.
S-13
Priority of Distributions.............. From collections on the receivables during the prior calendar
month and, in the event of a shortfall in meeting the
payments described in clauses (1) through (5), amounts
withdrawn from the reserve account, the trust will pay the
following amounts on each payment date in the following order
of priority:
(1) To the servicer, the servicing fee and all unpaid
servicing fees from prior collection periods and amounts
in respect of reimbursement for non-recoverable servicer
advances,
(2) To the Class A Noteholders, the accrued interest on the
Class A Notes,
(3) To the principal distribution account, the first
priority principal distribution amount which will
generally be the amount, if any, equal to the excess of:
o the principal balances of the Class A Notes over
o the sum of the principal balance of the receivables plus
the amount, if any, remaining on deposit in the
pre-funding account less the required yield supplement
overcollateralization amount,
(4) To the Class B noteholders, accrued and unpaid interest on
the Class B Notes,
(5) To the principal distribution account, generally an amount
equal to:
o the excess of
o the sum of the principal balance of the notes over
o an amount equal to the sum of the principal balance of
the receivables plus the amount, if any, on deposit in
the pre-funding account less the required yield
supplement overcollateralization amount, provided
S-14
that this amount will be reduced by any amounts
previously deposited in the principal distribution
account in accordance with clause (3) above,
(6) To the reserve account, the amount, if any, necessary to
cause the amount on deposit in the reserve account to
equal the specified reserve account balance, which is [ ]%
of the current aggregate principal balance of
the receivables,
(7) To the indenture trustee and the owner trustee, the
indenture trustee fee and owner trustee fee, respectively,
to the extent not paid by the servicer, and all unpaid
indenture trustee fees and owner trustee fees from prior
collection periods to the extent not otherwise paid by the
servicer, and
(8) To the certificateholders, any amounts remaining in the
collection account.
On the final scheduled payment date of any class of notes,
the amount required to be allocated to the principal
distribution account will be the amount necessary to reduce
the principal balance of that class of notes to zero.
S-15
Distributions from the Principal
Distribution Account........................ From deposits made to the principal distribution account, the
trust will generally pay principal on the notes in the
following order of priority:
o to the Class A-1 Notes until they are paid in full;
o to the Class A-2 Notes until they are paid in full;
o to the Class A-3 Notes until they are paid in full;
o to the Class A-4 Notes until they are paid in full;
o to the Class B Notes until they are paid in full; and
o to the certificateholders, any funds remaining.
Change in Priority of Distribution upon The order of priority for distributions will change following
Certain Events of Default.............. the occurrence of:
o a default for five days or more in the payment of
interest on the controlling class of notes that has
resulted in an acceleration of the notes;
o a default in the payment of principal on any note
when due that has resulted in an acceleration of the
notes;
o an insolvency or a bankruptcy with respect to the
trust that has resulted in an acceleration of the
notes, or
o any other event of default that results in the
liquidation of the trust.
Following the occurrence of the preceding events, the trust
will make no distributions of principal or interest on the
Class B Notes until payment in full of principal and interest
on the Class A Notes. In addition, payments of principal on
the Class A Notes will be made first to the Class A-1 Notes
until the Class A-1 Notes are repaid in full, and then pro
rata to the Class A-2, Class A-3 and Class A-4 Notes.
S-16
Following the occurrence of any other event of default which
has resulted in an acceleration of the notes but has not yet
resulted in a liquidation of the trust, no change will be
made in the priority of payments on the Class A Notes and the
Class B Notes on each distribution date until a liquidation,
if any, of the property of the trust.
Optional Redemption.................... The servicer may cause the trust to redeem any outstanding
securities when the outstanding aggregate principal balance
of the receivables declines to 10% or less of the original
aggregate principal balance of the receivables as of the
initial cutoff date plus the original amount deposited in the
pre-funding account. We refer you to "Description of the
Transfer and Servicing Agreements-Optional Purchase" in this
prospectus supplement for more detailed information.
Credit Enhancement..................... Credit enhancement is intended to protect you against losses
and delays in payments on your securities by absorbing losses
on the receivables and other shortfalls in cash flows. The
credit enhancement for the Class A Notes will include:
o the subordination of the Class B Notes;
o the reserve account; and
o the subordination of the certificateholder's right
to receive excess interest.
The credit enhancement for the Class B Notes will include:
o the reserve account; and
o the subordination of the certificateholder's right
to receive excess interest.
Subordination of Principal and Interest. As long as the Class
A Notes remain outstanding:
o payments of interest on the Class B Notes will be
subordinated to payments of interest on the Class A Notes
and, in certain circumstances, payments of principal on
the Class A Notes; and
o payments of principal on the Class B Notes
S-17
will be subordinated to payment of interest and principal
on the Class A Notes.
Reserve Account. On each payment date, the trust will use
funds in the reserve account to cover shortfalls in payments
of the servicing fee and interest and principal required to
be paid on the notes.
The sale and servicing agreement sets forth the specified
reserve account balance, which is the amount that is required
to be on deposit in the reserve account. On the closing date,
the depositor will cause to be deposited $[ ] into the
reserve account, which is [ ]% of the initial aggregate
principal balance of the receivables as of the initial cutoff
date. During the Funding Period, if the trust purchases
Subsequent Receivables, a portion of the purchase price for
the Subsequent Receivables withdrawn from the Pre-Funding
Account will be deposited into the reserve account, if
necessary, to maintain the amount on deposit in the reserve
account at the specified reserve account balance. On each
payment date, after making required payments to the servicer
and to the holders of the notes, the trust will make a
deposit into the reserve account to the extent necessary to
maintain the amount on deposit in the reserve account at the
specified reserve account balance.
Excess Interest. The certificateholder is entitled to receive
payments of interest collected on the receivables which are
not used by the trust to make other required payments. The
certificateholder's right to receive this excess interest is
subordinated to the payment of the servicing fee,
reimbursement of non-recoverable advances, the payment of
principal and interest on the notes, the funding of the
reserve account and the payment of indenture trustee and
owner trustee fees.
For more detailed information about the reserve account, we
refer you to "Subordination; Reserve Account" in this
prospectus supplement.
Yield Supplement
Overcollateralization Amount........... On the Closing Date, the sum of the principal balance of the
receivables as of the initial cutoff date and the amount on
deposit in the pre-funding account will exceed the initial
principal amount of the securities, by [$ ] (the "Initial
Yield Supplement Overcollateralization Amount"), which is
approximately [ ]% of the sum of the aggregate
S-18
principal balance of the initial receivables as of the
initial cutoff date and the amount on deposit in the
pre-funding account on the closing date. The yield supplement
overcollateralization amount will decline on each payment
date. The yield supplement overcollateralization amount is
intended to compensate for the low APRs on some of the
receivables.
For detailed information on the yield supplement
overcollateralization amount, we refer you to "Description of
the Transfer and Servicing Agreements-Yield Supplement
Overcollateralization Amount" in this prospectus supplement.
Tax Status............................. Subject to important considerations described in this
prospectus supplement and the accompanying prospectus, Weil,
Gotshal & Manges LLP, special tax counsel to the trust, will
deliver its opinion that:
1. the notes will be characterized as debt for tax purposes;
2. the trust will not be characterized as an association or a
publicly traded partnership taxable as a corporation for
federal income tax purposes.
If you purchase the notes, you will agree to treat the notes
as debt. The depositor and any subsequent purchaser of the
certificates will agree to treat the trust
o as a partnership in which the owners of the certificates
are partners, or
o if there is only one beneficial owner of the certificates,
as a "disregarded entity," for federal income tax
purposes.
We refer you to "Material Income Tax Consequences" in this
prospectus supplement and "Material Income Tax
Consequences--Tax Treatment of Owner Trusts" in the
accompanying prospectus.
ERISA Considerations................... The notes are generally eligible for purchase by employee
benefit plans and individual retirement accounts, subject to
those considerations discussed under "ERISA Considerations"
in this prospectus
S-19
supplement and in the accompanying prospectus.
We refer you to "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus. If you are a
benefit plan fiduciary considering purchase of the securities
you should, among other things, consult with your counsel in
determining whether all required conditions have been
satisfied.
Eligibility for Purchase by Money
Market Funds........................... The Class A-1 Notes will be eligible for purchase by money
market funds under Rule 2a-7 under the Investment Company Act
of 1940, as amended. A money market fund should consult its
legal advisers regarding the eligibility of the Class A-1
Notes under Rule 2a-7 and whether an investment in the Class
A-1 Notes satisfies the fund's investment policies and
objectives.
Ratings................................ It is a condition to the issuance of the securities that the
securities will receive the following ratings from Standard
& Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., Moody's Investors Service, Inc. and Fitch, Inc.
(the "Rating Agencies"):
Standard &
Class Poor's Moody's Fitch
----- ---------- ------- -----
A-1 A-1+ P-l F-1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A3 A
S-20
Risk Factors
You should consider the following risk factors (and the factors set forth under
"Risk Factors" in the accompanying prospectus) in deciding whether to purchase
the securities of any class.
Because the trust has limited assets, The only source of funds for payments on the securities is
there is only limited protection against the assets of the trust and the reserve account. The
potential losses. securities are not obligations of, and will not be insured or
guaranteed by, any governmental agency or the seller, the
servicer, any trustee or any of their affiliates. You must
rely solely on payments on the receivables and amounts on
deposit in the reserve account for payments on the notes.
Although funds in the reserve account will be available to
cover shortfalls in payments of interest and principal on
each payment date, the amounts deposited in the reserve
account will be limited. If the entire reserve account has
been used, the trust will depend solely on current
collections on the receivables to make payments on the notes.
Any excess amounts released from the reserve account to the
depositor will no longer be available to noteholders on any
later payment date. We refer you to "Subordination; Reserve
Account" in this prospectus supplement.
Occurrence of events of default under the Payment defaults or the insolvency or dissolution of the
indenture may result in insufficient depositor may result in prepayment of the securities, which
funds to make payments on your securities. may result in losses. If the trust fails to pay principal of
the notes when due, or fails to pay interest on the notes of
the controlling class within five days of the due date,
the indenture trustee or the holders of the controlling class
of notes outstanding may declare the entire amount of the
notes to be due immediately. If this happens, the trustee may
be directed to sell the assets of the trust and prepay the
notes. In the event the indenture trustee sells the
receivables under adverse market conditions, proceeds from
the sale of the receivables may not be sufficient to repay
all of the securities and you may suffer a loss.
If you own Class B Notes, you are subject The Class B Notes bear greater risk than the Class A Notes
to greater credit risk because the Class because payments of interest and principal on the Class B
Notes are subordinate to the Class A Notes. Notes B are subordinate, to the extent described below, to
payments of interest and principal on the Class A Notes.
S-21
Interest payments on the Class B Notes on each payment date
will be subordinated to servicing fees due to the servicer,
interest payments on the Class A Notes and an allocation of
principal payments to the Class A Notes to the extent the sum
of the principal balances of the Class A Notes exceeds the
receivables balance plus the amount on deposit in the
pre-funding account less the yield supplement
overcollateralization amount.
Principal payments on the Class B Notes will be fully
subordinated to principal payments on the Class A Notes. No
principal will be paid on the Class B Notes until the Class A
Notes have been paid in full.
The failure to pay interest on the Class The indenture provides that failure to pay interest when due
B Notes is not an event of default. on the Class B Notes will not be an event of default under
the indenture. Under these circumstances, the holders of the
Class B Notes will not have any right to declare an event of
default, to cause the maturity of the notes to be accelerated
or to direct or consent to any action under the Indenture.
You may suffer losses because you have Because the trust has pledged the property of the trust to
limited control over actions of the trust the indenture trustee to secure payment on the notes, the
and conflicts between classes of notes may indenture trustee may, and at the direction of the required
occur. percentage of the controlling class, which will be the Class
A Notes for so long as any Class A Notes are outstanding and
the Class B Notes after the Class A Notes have been paid in
full, will take one or more of the other actions specified in
the indenture relating to the property of the trust,
including a sale of the assets of the trust. In addition, the
holders of a majority of the Class A Notes, under some
circumstances, have the right to waive events of servicing
termination or terminate the servicer without consideration
of the effect that the waiver or termination would have on
the holders of Class B Notes. The holders of Class B Notes
will not have the ability to waive events of servicing
termination or to remove the servicer until the Class A Notes
have been paid in full.
The occurrence of an event of default The trust will not make any distributions of principal or
under the indenture may delay payments on interest on the Class B Notes until payment in full of
the Class B Notes. principal and interest on the Class A Notes following:
S-22
o an event of default under the indenture relating
to the payment of principal on any note or the
payment of interest on the Class A Notes which has
resulted in acceleration of the notes;
o an event of default under the indenture relating
to an insolvency event or a bankruptcy with
respect to the trust which has resulted in an
acceleration of the notes; or
o a liquidation of the trust assets following any
event of default under the indenture.
This may result in a delay or default in making payments on
the Class B Notes.
Class B noteholders may not be able to If an event of default occurs under the indenture, only the
direct the indenture trustee upon an holders of the Class A Notes may waive that event of default,
event of default under the accelerate the maturity dates of the notes or direct or
indenture. consent to any action under the indenture. The holders of any
outstanding Class B Notes will not have any rights to direct
or to consent to any action until the Class A Notes have been
repaid in full.
Payment priorities increase risk of loss Classes of notes that receive payments, particularly
or delay in payment to certain notes. principal payments, before other classes will be repaid more
rapidly than the other classes and payments to these other
classes may be delayed if collections and amounts on deposit
in the reserve account are inadequate to pay all amounts
payable on all classes of notes on any payment date. In
addition, because principal of each class of notes will be
paid sequentially, classes of notes that have higher
sequential numerical class designation - and, in particular,
the Class B Notes - will be outstanding longer and therefore
will be exposed to the risk of losses on the receivables
during periods after other classes have been receiving most
or all amounts payable on their notes, and after which a
disproportionate amount of credit enhancement may have been
applied and not replenished.
S-23
As a result, the yields of the later maturing classes of
Class A Notes will be sensitive, and the yields of the Class
B Notes will be very sensitive to losses on the receivables
and the timing of those losses. If the actual rate and amount
of losses exceed your expectations, and if amounts in the
reserve account are insufficient to cover the resulting
shortfalls, the yield to maturity on your notes may be lower
than anticipated, and you could suffer a loss.
Classes of notes that receive payments earlier than expected
are exposed to greater reinvestment risk and classes of notes
that receive principal later than expected are exposed to
greater risk of loss. In either case, the yields on your
notes could be materially and adversely affected.
Upon the occurrence of an event of default and acceleration
of the notes, principal payments will be made first on the
Class A-1 Notes until the Class A-1 Notes have been paid in
full, and thereafter on the Class A-2 Notes, Class A-3 Notes
and Class A-4 Notes pro rata based on the amount outstanding
under each class. Consequently, even after an event of
default and acceleration of all the notes, the Class A-2
Noteholders, Class A-3 Noteholders and Class A-4 Noteholders
will not receive payments on principal until the Class A-1
notes have been paid in full.
The geographic concentration of the Economic conditions in the states where obligors reside may
obligors and performance of the affect delinquencies, losses and prepayments on the
receivables may increase the risk of loss receivables. The following economic conditions may affect on
investment. your payments on the receivables:
o unemployment,
o interest rates,
o inflation rates, and
o consumer perceptions of the economy.
If a large number of obligors are located in a particular
state, these conditions could increase the delinquency,
credit loss or repossession experience of the receivables. If
there is a concentration of obligors and receivables in
particular states, any adverse economic conditions in those
states may affect the performance of the securities more than
if this concentration did not exist.
S-24
As of the initial cutoff date, BMW Financial Services NA,
LLC's records indicate that the billing addresses of the
originating dealers of the receivables were concentrated in
the following states:
Percentage of Total
State Principal Balance
----- -----------------
California [ ]
Texas [ ]
New York [ ]
Florida [ ]
No other state, by billing address, constituted more than 5%
of the aggregate principal balance of the receivables as of
the initial cutoff date.
[ ] of the outstanding principal amount of the receivables
were originated in California. A large number of
manufacturers and providers of high-technology equipment and
services are headquartered in California. Some companies in
this sector have recently reported significant reductions in
orders or sales. If this downturn continues, it could have a
substantial impact on the California economy and on the
performance of receivables originated in that state.
For a discussion of the breakdown of the receivables by
state, we refer you to "The Receivables" in this prospectus
supplement.
Prepayments on receivables may cause You may receive payment of principal on your securities
prepayments on the securities, resulting earlier than you expected. If that happens, you may not be
in reinvestment risk to you. able to reinvest the principal you receive at a rate as high
as the rate on your securities. Prepayments on the
receivables will shorten the life of the securities to an
extent that cannot be predicted. Prepayments may occur for a
number of reasons. Some prepayments may be caused by the
obligors under the receivables. For example, obligors may:
o make early payments, since receivables will generally be
prepayable at any time without penalty;
o default, resulting in the repossession and sale of the
financed vehicle; or
S-25
o damage the vehicle or become unable to pay due to death or
disability, resulting in payments to the trust under any
existing physical damage, credit life or other insurance.
Some prepayments may be caused by the seller or the servicer.
For example, the seller will make representations and
warranties regarding the receivables, and the servicer will
agree to take or refrain from taking certain actions with
respect to the receivables. If the seller or the servicer
breaches a representation or warranty and the breach is
material and cannot be remedied, it will be required to
purchase the affected receivables from the trust. This will
result, in effect, in the prepayment of the purchased
receivables. In addition, if amounts on deposit in the
pre-funding account are not fully utilized by the end of the
funding period, these amounts will be applied as a prepayment
of principal of the Class A Notes sequentially to the
earliest maturing class of Class A Notes then outstanding.
Moreover, the servicer has the option to purchase the
receivables from the trust when the total outstanding
principal balance of the receivables is 10% or less of the
sum of the total outstanding principal balance of the
receivables as of the initial cutoff date plus the amount on
deposit in the pre-funding account as of the closing date.
The rate of prepayments on the receivables may be influenced
by a variety of economic, social and other factors. The
seller maintains limited historical data with respect to
prepayments. For these reasons, the seller cannot predict the
actual prepayment rates for the receivables. The seller,
however, believes that the actual rate of prepayments will
result in the weighted average life of the receivables being
shorter than the period from the closing date to the final
scheduled maturity date for the related class of securities.
If this is the case, the weighted average life of each class
of securities will be correspondingly shorter.
S-26
Possible prepayment due to inability to The trust will buy subsequent receivables from the depositor
acquire subsequent receivables during the funding period and the depositor will buy
subsequent receivables from the seller during same time
period to the extent that the seller has receivables to sell
to the depositor. The number of receivables that the seller
has to sell depends on its ability to originate and acquire
additional receivables which, in turn, is affected by the
number of financed vehicles sold. The number of financed
vehicles sold is affected by a variety of factors, including
interest rates, unemployment levels, the rate of inflation
and consumer perception of economic conditions generally. If
the full amount deposited in the pre-funding account for the
purpose of purchasing subsequent receivables from the seller
cannot be used for that purpose during the funding period,
any remaining amounts will be paid on the notes as prepayment
or principal on the following payment date. If the amount on
deposit in the pre-funding account exceeds $100,000, then
such mount will be applied in reduction of the principal
balance of each preceding payment date. If the amount on
deposit in the pre-funding account is less than $100,000,
then such amount will be applied in reduction of the
principal balance of the Class A Notes in sequential order.
We refer you to "Description of the Transfer and Servicing
Agreements - Pre-Funding Account in this prospectus
supplement."
In addition, the subsequent receivables will have different
characteristics than those described in this prospectus
supplement. However, the seller will not select any
subsequent receivables to adversely affect the interests of
the noteholders and certificateholders.
Withdrawal or downgrading of the initial A security rating is not a recommendation to buy, sell or
ratings of the notes will affect the hold securities. Similar ratings on different types of
prices for the notes upon resale. securities do not necessarily mean the same thing. You should
analyze the significance of each rating independently from
any other rating. A rating agency may change its rating of
the notes after the notes are issued if that rating agency
believes that circumstances have changed. Any subsequent
change in a rating will likely affect the price that a
subsequent purchaser would be willing to pay for the notes
and your ability to resell your notes.
S-27
The notes are not suitable investments The notes, and in particular the Class B Notes, are not a
for all investors. suitable investment for any investor that requires a regular
or predictable schedule of payments or payment on specific
dates. The notes are complex investments that should be
considered only by sophisticated investors. We suggest that
only investors who, either alone or with their financial, tax
and legal advisors, have the expertise to analyze the
prepayment, reinvestment and default risks, the tax
consequences of an investment and the interaction of these
factors should consider investing in the notes.
S-28
The Trust
General
The BMW Vehicle Owner Trust [ ]-A (the "Trust") is a Delaware business
trust to be formed pursuant to the trust agreement (the "Trust Agreement")
between BMW FS Securities LLC, as depositor (the "Depositor"), and Wilmington
Trust Company, as owner trustee (the "Owner Trustee"). After its formation, the
Trust will not engage in any activity other than:
1. acquiring, holding and managing a pool of motor vehicle retail installment
sales contracts (the "Initial Receivables") and any additional motor
vehicle retail installment sale contracts purchased during the Funding
Period (the "Subsequent Receivables" and together with the "Initial
Receivables", the "Receivables ") and the other assets of the Trust and
proceeds from those assets;
2. issuing the notes;
3. making payments on the notes; and
4. engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental to or connected with those
activities.
The net proceeds from the sale of the Notes (as defined in this prospectus
supplement) will be used by the Trust to purchase the Initial Receivables and
the Subsequent Receivables from the Depositor pursuant to the sale and servicing
agreement dated as of _______ __, 2003 (the "Sale and Servicing Agreement")
among BMW Financial Services NA, LLC ("BMW FS") as seller, servicer (in that
capacity the "Servicer"), custodian and administrator, the Trust, and JPMorgan
Chase Bank, as indenture trustee (the "Indenture Trustee") and to fund the
Reserve Account.
BMW FS will be appointed to act as the servicer of the Receivables. The
Servicer will service the Receivables pursuant to the Sale and Servicing
Agreement, the Trust Agreement and the owner trust administration agreement
dated as of ________ __, 2003, (the "Administration Agreement") among BMW FS, as
administrator, the Trust and the Indenture Trustee, and will be compensated for
those services as described under "Description of the Transfer and Servicing
Agreements--Servicing Compensation" in this prospectus supplement and
"Description of the Transfer and Servicing Agreements--Servicing Compensation"
in the accompanying prospectus.
Pursuant to agreements between BMW FS and dealers in BMW products ("BMW
Centers"), BMW Centers will repurchase from BMW FS those contracts that do not
meet specified representations and warranties made by the BMW Centers. These BMW
Centers' repurchase obligations are referred to in this prospectus supplement as
"BMW Center Recourse." Those representations and warranties relate primarily to
the origination of the contracts and the perfection of the security interests in
the related financed vehicles, and do not relate to the creditworthiness of the
related Obligors or the collectability of those contracts. Although the Dealer
Agreements with respect to the Receivables will not be assigned to the Owner
Trustee, the Sale and Servicing Agreement will require that any recovery by BMW
FS in respect of any Receivable pursuant to any BMW Center Recourse be deposited
in the Collection Account to satisfy BMW FS' repurchase obligations under the
Sale and Servicing Agreement. The sales by the BMW Centers of retail installment
sale contracts to BMW FS do not generally provide for recourse against the BMW
S-29
Centers for unpaid amounts in the event of a default by an Obligor, other than
in connection with the breach of the foregoing representations and warranties.
The Trust property includes the Receivables and monies due or received
under the Receivables on or after the related cutoff date. The Reserve Account
will be maintained for the benefit of the Noteholders.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address set forth below under
"The Owner Trustee and the Indenture Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes had taken place on that
date:
Class A-1 Notes....................................... $[ ]
----------
Class A-2 Notes....................................... [ ]
----------
Class A-3 Notes....................................... [ ]
----------
Class A-4 Notes....................................... [ ]
----------
Class B Notes......................................... [ ]
----------
Total.............................................. $[ ]
==========
The Owner Trustee and the Indenture Trustee
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company is a Delaware banking corporation, and its Corporate
Trust Office is located at 1100 North Market Street, Rodney Square North,
Wilmington, Delaware 19890-0001, Attn: Corporate Trust Administration. The
Depositor, the Servicer and its affiliates may maintain normal commercial
banking relations with the Owner Trustee and its affiliates. The fees and
expenses of the Owner Trustee will be paid by the Administrator.
JPMorgan Chase Bank is the Indenture Trustee under the Indenture (the
Indenture Trustee and the Owner Trustee are collectively referred to as the
"Trustees"). JP Morgan Chase Bank is a New York banking association and its
principal executive offices are located at 450 West 33rd Street, New York, New
York 10001. The Depositor, the Servicer and its affiliates may maintain normal
commercial banking relations with the Indenture Trustee and its affiliates.
The Receivables
Assets of the Trust
On the Closing Date, the assets of the Trust will include:
1. the Initial Receivables having an aggregate principal balance as of the
close of business on [ ] (the "Initial Cutoff Date") of approximately $[ ]
(the "Initial Pool Balance") and the Subsequent Receivables;
S-30
2. all rights, benefits, obligations and proceeds arising from or in
connection with the Receivables, including the right to receive payments
collected thereon after the Initial Cutoff Date with respect to the Initial
Receivables and on or after the related Subsequent Cutoff Date with respect
to any Subsequent Receivables;
3. security interests in the new or used automobiles, motorcycles, light-duty
trucks and sport utility vehicles (the "Financed Vehicles") securing each
Receivable;
4. the related Receivable files;
5. all rights to insurance proceeds and liquidation proceeds with respect to
the Receivables;
6. certain rights under the Receivables Purchase Agreement dated as of
[___________], 2003 (the "Receivables Purchase Agreement") between the
Depositor and BMW FS, as seller (the "Seller") and any Subsequent Purchase
Agreement between the Depositor and BMW FS;
7. funds on deposit from time to time in the Reserve Account;
8. funds on deposit in the Collection Account;
9. funds on deposit in the Pre-Funding Account; and
10. funds on deposit in the Capitalized Interest Account.
The Motor Vehicle Contracts that comprise the Receivables are secured by
new or used automobiles, motorcycles, light-duty trucks and sport utility
vehicles manufactured by the BMW Group vehicles except that __% by principal
balance of the Receivables are secured by vehicles of other manufacturers. The
Contracts were originated by BMW Centers who participate in BMW FS' vehicle
financing program and were acquired by BMW FS. See "BMW FS' Vehicle Financing
Programs."
The Trust will purchase the Initial Receivables from the Depositor on or
about [ ], 2003 (the "Closing Date") pursuant to the Sale and Servicing
Agreement.
The Depositor will have purchased the Initial Receivables from the Seller
pursuant to the Receivables Purchase Agreement. In the Receivables Purchase
Agreement, the Seller makes specific representations and warranties as of the
Closing Date with respect to the Receivables and agrees to repurchase any
Receivable with respect to which there is a breach of any such representation
and warranty if that breach has a material and adverse effect on the interests
of the Depositor or the Trust in the related Receivable. Under the Sale and
Servicing Agreement, the Depositor will assign all of its rights under the
Receivables Purchase Agreement, including its right to enforce the Seller's
repurchase obligations, to the Trust.
The Receivables may be prepaid at any time without penalty by the purchaser
or co-purchasers of the Financed Vehicle or any other person or persons who are
obligated to make payments thereunder (each, an "Obligor").
S-31
Eligibility Criteria
The Receivables were or will be selected from the Seller's portfolio of
motor vehicle retail installment sale contracts based on several criteria,
including the requirement that each Receivable:
1. has an original term of not more than [ ] months;
2. has a current principal balance of at least $[ ];
3. provides for level monthly payments that fully amortize the amount financed
over the original term of the related Contract;
4. is not more than 30 days past due as of the Initial Cutoff Date or
Subsequent Cutoff Date, as applicable;
5. does not have a final scheduled payment date later than six months prior to
the Final Scheduled Payment Date of the Class B Notes; and
6. does not have any notation in the Servicer's records indicating the Obligor
is the subject of a bankruptcy proceeding.
No selection procedures believed to be adverse to the Noteholders were used
in selecting the Receivables.
During the Funding Period, pursuant to the Receivables Purchase Agreement,
the Depositor is obligated to purchase from BMW FS and, pursuant to the Sale and
Servicing Agreement, to sell to the Trust, Subsequent Receivables to the extent
they are available. On the Closing Date, the amount available to purchase
Subsequent Receivables will be approximately $[ ]. On each date on which
Subsequent Receivables are transferred to the Trust (each, a "Subsequent
Transfer Date"), BMW FS will convey Subsequent Receivables to the Depositor
pursuant to an agreement (a "Subsequent Purchase Agreement") between BMW FS and
the Depositor. The Depositor will convey the Subsequent Receivables to the Trust
on the related Subsequent Transfer Date pursuant to the Sale and Servicing
Agreement and an agreement (a "Subsequent Transfer Agreement") between the
Depositor and the Trust. The purchase price for each Subsequent Receivable will
be withdrawn from the Pre-Funding Account, a portion of the withdrawal amount
will be deposited into the Reserve Account, if necessary, and the remainder of
the purchase price will be paid to the Depositor by the Trust and then to BMW FS
by the Depositor.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others:
1. as of the Subsequent Cutoff Date, each of the Subsequent Receivable must
satisfy the eligibility criteria specified under "The Receivables" in the
Prospectus Supplement and in the Sale and Servicing Agreement;
2. BMW FS will have selected the Subsequent Receivables in a manner that it
believes is not adverse to the interests of the Noteholders;
S-32
3. BMW FS and the Depositor will deliver opinions of counsel to the Trust, the
Indenture Trustee and the Rating Agencies with respect to the validity of
the conveyance of the Subsequent Receivables;
4. after inclusion of the Subsequent Receivables, the weighted average
remaining term of the Receivables shall not be greater than ___ months;
5. none of the Subsequent Receivables will have an APR of less than [ ]%;
6. after inclusion of the Subsequent Receivables, at least [ ]% of the
aggregate principal balance of the Receivables is secured by Financed
Vehicles which were new at the date of origination;
7. None of the Subsequent Receivables will have a final scheduled payment not
later than six months prior to the Final Scheduled Payment Date for the
Class B Notes:
8. the Rating Agencies shall confirm that the ratings on the Notes (as defined
in this prospectus supplement) will not be withdrawn or reduced as a result
of the transfer of such Subsequent Receivables to the Trust.
Because the Subsequent Receivables may be originated after the Initial
Receivables, following the conveyance of Subsequent Receivables to the Trust
some of the characteristics of the Receivables, such as the weighted average APR
of the Receivables, the weighted average term to maturity of the Receivables and
the geographic concentration of the Receivables are likely to vary from those of
the Initial Receivables.
Description of Initial Receivables
All of the Initial Receivables were originated by BMW FS or purchased by
BMW FS from BMW Centers. As of the Initial Cutoff Date, approximately [ ]% of
the Initial Receivables by aggregate principal balance represented financing of
new vehicles and [ ]% of the Initial Receivables by aggregate principal balance
represented financing of used vehicles.
As of the Initial Cutoff Date, approximately [ ]%, [ ]%, [ ]% and [ ]% of
the Initial Receivables by aggregate principal balance were BMW automobiles, BMW
motorcycles, BMW sport utility vehicles, and vehicles of other manufacturers,
respectively.
The distribution by APR, geographic distribution, distribution by remaining
term and distribution by remaining balance of the Initial Receivables as of the
Initial Cutoff Date are as set forth in the following tables. We refer you to
"The Receivables" in the accompanying prospectus for a further description of
the characteristics of Simple Interest Receivables.
COMPOSITION OF THE INITIAL RECEIVABLES
Aggregate Principal Balance......................... $[ ]
Number of Receivables............................... [ ]
Average Principal Balance........................... $[ ]
Average Original Amount Financed.................... $[ ]
Range of Original Amount Financed................ $[ ]
Weighted Average APR(1)............................. [ ]%
Range of APRs.................................... [ ]% to [ ]%
Weighted Average Original Term to Maturity(1)....... [ ] months
Range of Original Term to Maturities............. [ ] months to [ ] months
S-33
Weighted Average Remaining Term to Maturity(1)...... [ ] months
Range of Remaining Term to Maturities............ [ ] months to [ ] months
- ----------------
(1) Weighted by Principal Balance as of the Initial Cutoff Date.
S-34
Distribution of the Initial Receivables by APR
(Percentages may not add to 100.00% due to rounding)
Percentage
of Aggregate Initial Cutoff Date Percentage
Number of Number of Principal of Initial
Range of APRs (%) Receivables Receivables Balance Pool Balance
- ----------------- ----------- ------------ ------------------- ------------
2.01% to 3.00%................ [ ] [ ] $ %
3.01% to 4.00%................ [ ] [ ]
4.01% to 5.00%................ [ ] [ ]
5.01% to 6.00%................ [ ] [ ]
6.01% to 7.00%................ [ ] [ ]
7.01% to 8.00%................ [ ] [ ]
8.01% to 9.00%................ [ ] [ ]
9.01% to 10.00%............... [ ] [ ]
10.01% to 11.00%.............. [ ] [ ]
11.01% to 12.00%.............. [ ] [ ]
12.01% to 13.00%.............. [ ] [ ]
13.01% to 14.00%.............. [ ] [ ]
14.01% to 15.00%.............. [ ] [ ]
15.01% to 16.00%.............. [ ] [ ]
-------- -------- -------- -------
Totals:....................... [ ] [ ]% $ %
Distribution of the Initial Receivables by State
Based on the State in which the Related Vehicle is Titled
(Percentages may not add to 100.00% due to rounding)
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- ----------------- ----------- ------------- ------------------- ------------
Alabama....................... % %
Alaska........................
Arizona.......................
Arkansas......................
California....................
Colorado......................
Connecticut...................
Delaware......................
Florida.......................
Georgia.......................
Hawaii........................
Idaho.........................
Illinois......................
Indiana.......................
Iowa..........................
Kansas........................
Kentucky......................
Louisiana.....................
Maine.........................
S-35
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- ----------------- ----------- ------------- ------------------- ------------
Alabama....................... % %
Alaska........................
Arizona.......................
Arkansas......................
California....................
Colorado......................
Connecticut...................
Delaware......................
Florida.......................
Georgia.......................
Hawaii........................
Idaho.........................
Illinois......................
Indiana.......................
Iowa..........................
Kansas........................
Kentucky......................
Louisiana.....................
Maine.........................
Maryland......................
Massachusetts.................
Michigan......................
Minnesota.....................
Mississippi...................
Missouri......................
Montana.......................
Nebraska......................
Nevada........................
New Hampshire.................
New Jersey....................
New Mexico....................
New York......................
North Carolina................
North Dakota..................
Ohio..........................
Oklahoma......................
Oregon........................
Pennsylvania..................
Rhode Island..................
South Carolina................
South Dakota..................
Tennessee.....................
Texas.........................
Utah..........................
Vermont.......................
Virginia......................
S-36
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- ----------------- ----------- ------------- ------------------- ------------
Washington....................
West Virginia.................
Wisconsin.....................
Wyoming.......................
-------- -------- -------- -------
Totals:.......................
======== ======== ======== =======
- ----------------
(1) Percentages may not add to 100% due to rounding.
Distribution of the Initial Receivables by Remaining Term to Scheduled Maturity
Percentage of Percentage of
Remaining Term to Number of Aggregate Number of Aggregate Aggregate Principal
Scheduled Maturity Receivables Receivables Principal Balance Balance (1)
- ------------------ ----------- ----------- ----------------- -----------
6 months or less............... [ ] 00.00% [$ . ] 00.00%
7 to 12 months................. [ ] 00.00% [$ . ] 00.00%
13 to 18 months................ [ ] 00.00% [$ . ] 00.00%
19 to 24 months................ [ ] 00.00% [$ . ] 00.00%
25 to 30 months................ [ ] 00.00% [$ . ] 00.00%
31 to 36 months................ [ ] 00.00% [$ . ] 00.00%
37 to 42 months................ [ ] 00.00% [$ . ] 00.00%
43 to 48 months................ [ ] 00.00% [$ . ] 00.00%
49 to 54 months................ [ ] 00.00% [$ . ] 00.00%
55 to 60 months................ [ ] 00.00% [$ . ] 00.00%
Greater than 60 months......... [ ] 00.00% [$ . ] 00.00%
Total................. [ ] 00.00% [$ . ] 00.00%
- ----------------
(1) Percentage may not add to 100% because of rounding.
S-37
Distribution by Remaining Principal Balance of the Initial Receivables
Percentage of Percentage of
Aggregate Aggregate Aggregate
Number of Number of Principal Principal
Range of Remaining Principal Balances Receivables Receivables Balance Balance(1)
- ------------------------------------- ----------- ------------- --------- ----------
$0 - 2,500.00............................. [ , ] [0.00%] [$ . ] [0.00%]
$2,501.01 - 5,000.00...................... [ , ] [0.00%] [$ . ] [0.00%]
$5,001.01 - 7,500.00...................... [ , ] [0.00%] [$ . ] [0.00%]
$7,501.01 - 10,000.00..................... [ , ] [0.00%] [$ . ] [0.00%]
$10,001.01 - 12,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$12,501.01 - 15,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$15,001.01 - 17,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$17,501.01 - 20,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$20,001.01 - 22,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$22,501.01 - 25,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$25,001.01 - 27,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$27,501.01 - 30,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$30,001.01 - 32,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$32,501.01 - 35,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$35,001.01 - 37,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$37,501.01 - 40,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$40,001.01 - 42,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$42,501.01 - 45,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$45,001.01 - 47,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$47,501.01 - 50,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$50,001.01 - 52,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$52,501.01 - 55,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$55,001.01 - 57,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$57,501.01 - 60,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$60,001.01 - 62,500.00.................... [ , ] [0.00%] [$ . ] [0.00%]
$62,501.01 - 65,000.00.................... [ , ] [0.00%] [$ . ] [0.00%]
Greater than $65,000.01................... [ , ] [0.00%] [$ . ] [0.00%]
Totals........................... [ , ] [0.00%] [$ . ] [0.00%]
- ----------------
(1) Percentages may not add to 100% because of rounding.
S-38
Maturity and Prepayment Considerations
Information regarding maturity and prepayment considerations with respect
to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes (collectively, the "Class A Notes") and the Class B Notes (the "Class
B Notes" and together with the Class A Notes, the "Notes") is set forth under
"Weighted Average Life of the Securities" in the accompanying prospectus and
"Risk Factors--You may experience reduced returns on your investment resulting
from prepayments, repurchases or early termination of the trust" in the
accompanying prospectus. Except as otherwise provided in this prospectus
supplement, no principal payments will be made on the Class A-2 Notes until the
Class A-1 Notes have been paid in full; no principal payments will be made on
the Class A-3 Notes until the Class A-2 Notes have been paid in full; and no
principal payments will be made on the Class A-4 Notes until the Class A-3 Notes
have been paid in full. In addition, no principal payments will be made on the
Class B Notes until the Class A Notes have been paid in full. We refer you to
"Payments on the Notes" in this prospectus supplement.
Because the rate of payment of principal of each class of Notes depends
primarily on the rate of payment (including prepayments) of the principal
balance of the Receivables, final payment of any class of Notes could occur
significantly earlier or later than their respective final scheduled Payment
Dates set forth under "Payments on the Notes" (each, a "Final Scheduled Payment
Date") in this prospectus supplement. Noteholders will bear the risk of being
able to reinvest principal payments on the Notes at yields at least equal to the
yield on their respective classes of Notes. No prediction can be made as to the
rate of prepayments on the Receivables in either stable or changing interest
rate environments.
Although the Receivables have different APRs, disproportionate rates of
prepayments between Receivables with APRs greater than or less than the Required
Rate (as defined in the accompanying prospectus) will generally not affect your
yield. However, higher rates of prepayments of Receivables with higher APRs will
decrease the amount available to cover delinquencies and defaults on the
Receivables and may decrease the amounts available to be deposited in the
Reserve Account.
Delinquencies, Repossessions and Loan Loss Information
Set forth below is information concerning BMW FS' experience with respect
to its entire portfolio of new and used BMW motor vehicle retail installment
sale contracts, which includes contracts sold by but still being serviced by BMW
FS. Credit losses are an expected cost in the business of extending credit and
are considered in BMW FS' rate-setting process.
Delinquency, repossession and loss experience may be influenced by a
variety of economic, social and geographic conditions and other factors beyond
the control of BMW FS. There is no assurance that BMW FS' delinquency,
repossession and loss experience with respect to its retail installment sale
contracts, or the experience of the trust with respect to the contracts, will be
similar to that set forth below. If economic conditions in the future differ
from those during the periods referenced in the tables below, BMW FS'
delinquency, repossession and loss experience may be adversely affected.
The percentages in the tables below have not been adjusted to eliminate the
effect of the growth of BMW FS' portfolio. Accordingly, the delinquency,
repossession and net loss percentages would be expected to be higher than those
shown if a group of receivables were isolated at a period
S-39
in time and the delinquency, repossession and net loss data showed the activity
only for that isolated group over the periods indicated.
The following tables set forth the historical delinquency experience and
net credit loss and repossession experience of BMW FS' portfolio of contracts
for new and used automobiles, motorcycles, light duty trucks and sport utility
vehicles.
In the table below, the period of delinquency for the years ended December
31, 2001, 2000, 1999, 1998, 1997 and 1996 is based on the number of days more
than 20% of a scheduled payment on a cumulative basis is contractually past due.
The information included below under the headings "Delinquencies as a percent of
contracts outstanding - 90 days or more" and "Dollar Delinquencies as a percent
of principal amount outstanding - 90 days or more" excludes vehicles that have
been repossessed. There is no assurance that the behavior of the Receivables
will be comparable to BMW FS' experience shown in the following tables.
Delinquency Experience
At December 31,
-------- -------- -------- -------- -------- --------
2001 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
Number of contracts at end of
period....................... 152,871 120,009 98,921 89,431 87,222 77,525
Delinquencies as a percent of
contracts outstanding
30-59 days................. 1.38% 1.60% 1.78% 1.84% 2.08% 1.81%
60-89 days................. 0.25% 0.36% 0.33% 0.36% 0.61% 0.44%
90 days or more............ 0.20% 0.29% 0.23% 0.24% 0.35% 0.72%
Total...................... 1.83% 2.25% 2.34% 2.44% 3.04% 2.97%
Dollar delinquencies as a percent
of principal amount outstanding
30-59 days................. 1.30% 1.50% 1.55% 1.63% 2.04% 1.80%
60-89 days................. 0.24% 0.38% 0.30% 0.34% 0.60% 0.47%
90 days or more............ 0.17% 0.26% 0.20% 0.25% 0.32% 0.76%
Total...................... 1.71% 2.13% 2.06% 2.22% 2.96% 3.03%
S-40
The information in the table below includes contracts for new and used
automobiles, motorcycles, light duty trucks and sport utility vehicles. All
amounts and percentages, except as indicated, are based on the principal
balances of the contracts net of unearned finance and other charges. Averages
are computed by taking a simple average of year-end outstanding amounts for each
period presented. The information set forth under the heading "Charge-offs"
represents the total aggregate net principal balance of contracts determined to
be uncollectible in the period less proceeds from disposition of related
vehicles, other than recoveries described in the next sentence. The information
set forth under the heading "Recoveries" generally includes amounts received
from customers with respect to contracts previously charged-off, net of the
proceeds realized in connection with the sale of the financed vehicles. The
information set forth under the heading "Number of Repossessions sold" means the
number of repossessed financed vehicles that have been sold by BMW FS in a given
period.
Net Credit Loss Experience
(dollars in thousands)
At or for Twelve Months Ended
-------- -------- -------- -------- -------- --------
2001 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- --------
Principal Amount Outstanding .. $3,206,427 $2,467,392 $1,956,319 $1,627,533 $1,563,687 $1,432,160
Average Principal Amount
Outstanding ................. $2,836,909 $2,211,856 $1,791,926 $1,595,610 $1,497,924 $1,314,649
Number of Contracts Outstanding 152,871 120,009 98,921 89,431 87,222 77,525
Average Number of Contracts
Outstanding.................. 136,440 109,465 94,176 88,327 82,374 70,188
Charge-offs - full period actuals $ 19,683 $ 14,839 $ 13,362 $ 11,658 $ 9,958 $ 7,435
Recoveries - full period actuals $ 3,613 $ 3,547 $ 3,941 $ 3,485 $ 2,852 $ 1,960
Net Losses .................... $ 16,070 $ 11,292 $ 9,421 $ 8,173 $ 7,106 $ 5,475
Number of Repossessions sold... 1,019 742 828 839 734 477
Number of Repossessions sold as a
percent of the Average Number
of Contracts Outstanding..... 0.75% 0.68% 0.84% 0.95% 0.89% 0.68%
Net Losses as a percent of
Average Principal Amount
Outstanding.................. 0.57% 0.51% 0.53% 0.51% 0.47% 0.42%
S-41
Weighted Average Life of the Notes
Prepayments on motor vehicle receivables can be measured relative to a
payment standard or model. The model used in this prospectus supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables in question are the same size and
amortize at the same rate and that each receivable in each month of its life
will either be paid as scheduled or be paid in full. For example, in a pool of
receivables originally containing 10,000 receivables, a 1% ABS rate means that
1% of the receivables prepay each month. ABS does not purport to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of receivables, including the
Receivables.
As the rate of the payment of principal of each class of Notes will depend
on the rate of payment (including prepayments) of the principal balance of the
Receivables, final payment of any class of Notes could occur significantly
earlier than the respective Final Scheduled Payment Dates. Reinvestment risk
associated with early payment of the Notes will be borne exclusively by the
holders of the Notes.
The tables captioned "Percent of Initial Class A Note Principal at Various
ABS Percentages" (the "ABS Tables") have been prepared on the basis of the
characteristics of the Receivables described under "The Receivables Pool." The
ABS Tables assume that:
o the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on each Receivable is scheduled to be made
and is made on the last day of each month and each month has 30 days;
o payments are made on the Notes on each Payment Date, and each Payment Date
is assumed to be the twenty-fifth day of each applicable month;
o the balance in the Reserve Account on each Payment Date is the required
amount described under "Subordination; Reserve Account";
o the amounts in the Pre-Funding Account are fully invested in Subsequent
Receivables on __; and
o except as indicated in the ABS Tables, the Servicer does not exercise its
option to purchase the Receivables on the earliest Payment Date on which
its option may be exercised.
The hypothetical pools each have an assumed cutoff date of [ ], 2003. The ABS
Tables indicate the projected weighted average life of each class of Notes and
sets forth the percent of the initial principal amount 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 Initial Receivables and the Subsequent
Receivables have been aggregated into hypothetical pools with all of the
Receivables within each hypothetical pool having the characteristics set forth
in the tables below and that the level scheduled monthly payment for each of the
pools, based on the aggregate principal balance, APR, original term to
S-42
maturity and remaining term to maturity as of the assumed cutoff date, will be
such that each pool will be fully amortized by the end of its remaining term to
maturity.
S-43
Initial Receivables
- --------------------------------------------------------------------------------
Aggregate Principal Original Term Stated Remaining
Pool Balance APR (in Months) Term (in Months)
- ---- ------- --- ----------- ----------------
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
2
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
4
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
7
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
Subsequent Receivables
- --------------------------------------------------------------------------------
Aggregate Principal Original Term Stated Remaining
Pool Balance APR (in Months) Term (in Months)
---- ------- --- ----------- ----------------
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very 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 Table at the
various constant 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.
S-44
Percentage of Initial Class A-1 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.5% 1.7%
- ------------ ---- ---- ---- ----
Closing Date
Weighted Average Life (years)(1)(2)..................
Weighted Average Life to Call (years)(1)(3)..........
- -----------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
Percentage of Initial Class A-2 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.5% 1.7%
- ------------ ---- ---- ---- ----
Closing Date...........
Weighted Average Life (years)(1)(2)...................
Weighted Average Life to Call (years)(1)(3)...........
S-45
- -------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-46
Percentage of Initial Class A-3 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.5% 1.7%
- ------------ ---- ---- ---- ----
Closing Date..............
Weighted Average Life (years)(1)(2)...................
Weighted Average Life to Call (years)(1)(3)...........
- -----------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-47
Percentage of Initial Class A-4 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.5% 1.7%
- ------------ ---- ---- ---- ----
Closing Date..........
Weighted Average Life (years)(1)(2)
Weighted Average Life to Call (years)(1)(3)
*Month of optional purchase(3)
- -------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables ) and should be read in
conjunction with those assumptions.
S-48
Percentage of Class B Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.5% 1.7%
- ------------ ---- ---- ---- ----
Closing Date..........
Weighted Average Life (years)(1)(2)
Weighted Average Life to Call (years)(1)(3)
*Month of optional purchase(3)
- -------------
(1) The weighed average life of a certificate is determined by (x) multiplying
the amount of each principal payment on a certificate by the number of
years from the date of issuance of the note to the related Payment Date,
(y) adding the results and (z) dividing the sum by the original principal
amount of the certificate.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-49
Note Factors
The "Note Pool Factor" with respect to any class of Notes will be a
seven-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 1.0000000 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
holder's note by the related Note Pool Factor for that month.
Pursuant to the Transfer and Servicing Agreements, the Noteholders will
receive monthly reports concerning the payments received on the Receivables, the
Pool Balance, the related Note Pool Factors and various other items of
information pertaining to the Trust. Noteholders of record during each calendar
year will be furnished 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 Securityholders" in the accompanying
prospectus.
Use of Proceeds
The Depositor will use the net proceeds from the sale of the Notes to
purchase the Receivables from BMW FS pursuant to the Receivables Purchase
Agreement and to fund the Initial Reserve Account, the Pre-Funding Account and
the Capitalized Interest Account. The net proceeds to be received by the
Depositor from the sale of the Receivables to the Trust will be used by the
Depositor in connection with its acquisition of the Receivables from BMW FS and
to pay other expenses in connection with the issuance of the Notes. BMW FS will
use the proceeds from the sale of the Receivables for general corporate
purposes. In addition, BMW FS or its affiliates may apply all or any portion of
the net proceeds of this offering to the repayment of debt, including
"warehouse" debt secured by the Receivables prior to their sale to the Trust.
One or more of the Underwriters, or their respective affiliates or entities for
which their respective affiliates act as administrator and/or provide liquidity
lines, may have acted as a "warehouse lender" to BMW FS or its affiliates, and
may receive a portion of the proceeds as repayment of that "warehouse" debt.
The Depositor and the Servicer
Information regarding the Depositor and the Servicer is set forth under the
captions "The Depositor" and "The Servicer" in the accompanying prospectus.
The Notes
General
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the registration statement. A copy of the
final signed Indenture will be filed with the SEC following the issuance of the
Securities. The following summary describes the material terms of the Notes and
the Indenture. The summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Notes and the Indenture. Where particular provisions or terms used in the
Indenture are referred to, the actual provisions, which includes definitions of
terms, are incorporated by reference as part of the
S-50
summary. The following summary supplements, and to the extent inconsistent
therewith replaces, the description of the general terms and provisions of the
notes of any given series and the related Indenture set forth in the
accompanying prospectus, to which description reference is hereby made.
Payments of Interest
Each class of Notes will constitute Fixed Rate Securities, as that term is
defined under "Certain Information Regarding the Securities--Fixed Rate
Securities" in the accompanying prospectus. Interest on the principal balances
of the classes of the Notes will accrue at the respective per annum interest
rates set forth on the cover of this prospectus supplement (each, an "Interest
Rate") and will be payable to the Noteholders monthly on the twenty-fifth day of
each month (or, if that date is not a Business Day, on the next succeeding
Business Day) (a "Payment Date") commencing [ ], 2003.
Interest on the outstanding principal amount of Class A-1 Notes will accrue
at the related Interest Rate from and including the most recent Payment Date on
which interest has been paid (or from and including the Closing Date with
respect to the first Payment Date) to but excluding the current Payment Date.
Interest on the Class A-2, Class A-3, Class A-4 Notes and Class B Notes will
accrue at the related Interest Rate from and including the 25th day of the month
(or from and including the Closing Date with respect to the first Payment Date)
to but excluding the 25th day of the following calendar month.
Interest on the Class A-1 Notes will be calculated on the basis of the
actual number of days in the related Interest Period divided by 360, and
interest on the Class A-2, Class A-3 Notes, Class A-4 Notes and Class B Notes
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest accrued but not paid on any Payment Date will be due on the
next Payment Date, together with interest on that amount at the applicable
Interest Rate, to the extent lawful. Interest payments on the Notes will
generally be made from Available Amounts and from amounts on deposit in the
Reserve Account, after the Servicing Fee and non-recoverable Advances have been
paid. We refer you to "Subordination; Reserve Account--Reserve Account" and
"Payments on the Notes" in this prospectus supplement.
Interest payments to holders of the Class A Notes will have the same
priority. Under specified circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Class A Notes
on any Payment Date, in which case the holders of the Class A Notes will receive
their ratable share (based upon the aggregate amount of interest due to that
class) of the aggregate amount available to be distributed in respect of
interest on the Class A Notes. Interest payments to holders of the Class B Notes
will be subordinated to interest payments and, in limited circumstances,
principal to holders of the Class A Notes.
Payments of Principal
The Trust will generally make principal payments to the Noteholders on each
Payment Date in an amount equal to the Principal Distribution Amount. The
"Principal Distribution Amount" with respect to any Payment Date equals the sum
of:
o the First Priority Principal Distribution Amount (as defined in this
prospectus supplement); and
o the Regular Principal Distribution Amount (as defined in this
prospectus supplement).
S-51
The Trust will pay principal on the Notes from funds on deposit in the
Collection Account including amounts, if any, from the Reserve Account, in
accordance with the priorities described under "Payments on the Notes--Payment
of Distributable Amounts."
Principal payments on the Notes will generally be made on each Payment
Date, in the following order of priority:
1. to the Class A-1 Notes until paid in full;
2. to the Class A-2 Notes until paid in full;
3. to the Class A-3 Notes until paid in full;
4. to the Class A-4 Notes until paid in full; and
5. to the Class B Notes until paid in full.
Notwithstanding the foregoing, following the occurrence and during the
continuation of:
o a default in the payment of any interest on any Note of the
Controlling Class (as defined in this prospectus supplement) when the
same becomes due and payable, which default continues for a period of
five days;
o a default in the payment of principal of or any installment of the
principal of any Note when the same becomes due and payable;
o the bankruptcy of the Trust or the occurrence of other circumstances
relating to the bankruptcy or insolvency of the Trust, as described in
the Indenture; or
o any other Event of Default that results in a liquidation of the Trust;
the priority of payments change. In particular, the Class A Notes will receive
100% of the Principal Distribution Amount until the Notes are paid in full. The
trust will make no distributions of principal on the Class B Notes until payment
in full of principal and interest on the Class A Notes and will not make any
distributions of interest on the Class B Notes until interest on the Class A
Notes and the First Priority Principal Distribution Amount has been allocated to
the Class A Notes. In addition, principal payments on the Class A Notes will be
made first to the holders of the Class A-1 Notes until they have been paid in
full; thereafter principal payments on the Class A Notes will be made to the
holders of the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes
(together with the holders of the Class A-1 Notes, the "Noteholders") on a pro
rata basis based on the principal balance of that class of outstanding Notes.
Beginning on the Payment Date on which the Class A Notes have been paid in full,
the remainder of the Principal Distribution Amount, if any, and on each
subsequent Payment Date, 100% of the Principal Distribution Amount, will be paid
to the holders of record of the Class B Notes (the "Class B Noteholders") until
the Class B Notes have been paid in full.
The actual Payment Date on which the outstanding principal amount of any
class of Notes is paid in full may be significantly earlier than its Final
Scheduled Payment Date based on a variety of factors, including the factors
described under "Weighted Average Life of the Securities" in the accompanying
prospectus.
S-52
If the principal amount of a class of Notes has not been paid in full on or
prior to its Final Scheduled Payment Date, the Noteholders' Principal
Distribution Amount for that Payment Date will, to the extent the remaining
Available Amounts are sufficient, include an amount sufficient to reduce the
unpaid principal amount of that class of Notes to zero on that Payment Date. We
refer you to "Payment on the Notes--Payment of Distributable Amounts" in this
prospectus supplement.
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 10% or less of the sum of the Initial Pool Balance and
the amount on deposit in the Pre-Funding Account on the Closing Date, Class A-4
and Class B Noteholders will receive an amount in respect of the Class A-4 and
Class B Notes equal to the outstanding principal balance of the Class A-4 and
Class B Notes, together with accrued but unpaid interest at the related Interest
Rate. The "Pool Balance" on any Payment Date will equal the aggregate principal
balance of the Receivables at the end of the related Collection Period, after
giving effect to all payments of principal received from Obligors and Purchased
Amounts (for this purpose, Liquidated Receivables will have a principal balance
of zero.).
Indenture
Events of Default; Rights upon Event of Default. Upon an Event of Default,
the Controlling Class of Noteholders will have the rights set forth in the
prospectus under "The Notes--Indenture--Events of Default; Rights Upon Event of
Default." The Indenture Trustee may sell the Receivables subject to the
conditions set forth in the Indenture following an Event of Default, including a
default in the payment of any principal of or a default for five days or more in
the payment of any interest on any note of the Controlling Class. The failure to
pay interest on any Class B Note within five days of the related payment date
will not constitute an Event of Default under the Indenture. In the case of an
Event of Default not involving any default in payment of principal of or
interest on a Class A Note, the Indenture Trustee is prohibited from selling the
Receivables unless one of the conditions set forth in the accompanying
prospectus under "The Notes--Indenture--Events of Default and--Rights Upon Event
of Default" has been satisfied. Following the occurrence of certain Events of
Default under the Indenture, the trust will make no distributions of principal
or interest on the Class B Notes until payment in full of principal and interest
on the Class A Notes. In addition, payments of principal on the Class A Notes
will be made first to the Class A-1 Notes until the Class A-1 Notes are repaid
in full, and then pro rata to the Class A-2, Class A-3 and Class A-4 Notes until
each principal amount is paid in full. If there are any amounts remaining, those
amounts will be used to pay interest and principal on the Class B Notes until
the principal amount is paid in full.
"Controlling Class" means with respect to any outstanding Notes, the Class
A Notes (voting together as a single class) as long as any Class A Notes are
outstanding, and thereafter, the Class B Notes for so long as any Class B Notes
are outstanding - excluding Notes held by the Depositor, the Servicer or their
affiliates.
Notices
Noteholders will be notified in writing by the Indenture Trustee of any
Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon a Responsible Officer (as defined in
the Transfer and Servicing Agreements) obtaining actual knowledge of these
events.
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If Notes are issued other than in book-entry form, those notices will be
mailed to the addresses of Noteholders as they appear in the register maintained
by the Indenture Trustee prior to mailing. Those notices will be deemed to have
been given on the date of that publication or mailing.
Governing Law
The Indenture and the Notes are governed by and shall be construed in
accordance with the laws of the State of New York applicable to agreements made
in and to be performed wholly within that jurisdiction.
Payments on the Notes
On or before the 18th calendar day of each month (or, if the 18th day is
not a Business Day, the next succeeding Business Day (each a "Determination
Date")), the Servicer will inform the Owner Trustee and the Indenture Trustee
of, among other things, the amount of funds collected on or in respect of the
Receivables, the amount of Advances to be made by and reimbursed to the Servicer
and the Servicing Fee and other servicing compensation payable to the Servicer,
in each case with respect to the immediately preceding Collection Period. On or
prior to each Payment Date, the Servicer will also determine the following:
1. Available Amounts;
2. Class A Noteholders' interest distribution;
3. Class B Noteholders' interest distribution;
4. Principal Distribution Amount; and
5. based on the available funds and other amounts available for payment
on the related Payment Date as described below, the amount to be
distributed to the Class A Noteholders and Class B Noteholders.
The Indenture Trustee or the Owner Trustee, as the case may be, will make
payments to the Noteholders out of the amounts on deposit in the Collection
Account. The amounts to be distributed to the Noteholders will be determined in
the manner described below.
Calculation of Available Amounts
The amount of funds available for distribution on a Payment Date will
generally equal the sum of Available Interest and Available Principal
(collectively, "Available Amounts").
"Available Interest" for a Payment Date will equal the sum of the following
amounts (without duplication) allocable to interest received or allocated by the
Servicer on or in respect of the Receivables during the related Collection
Period:
1. that portion of all collections on Receivables allocable to interest
(including the amount, if any, of Advances for that Collection period,
but excluding the amount, if any, of reimbursements of Advances
previously made to the Servicer);
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2. the Purchase Amount of each Receivable that became a Purchased
Receivable to the extent attributable to accrued interest on that
Receivable;
3. Recoveries for that Collection Period;
4. investment earnings on the Accounts (other than the Collection Account
and the Reserve Account) for the related Payment Date;
5. net Liquidation Proceeds for that Collection Period to the extent
allocable to interest;
6. net Investment Losses deposited by the Servicer; and
7. Capitalized Interest Payments.
"Available Principal" for a Payment Date will equal the sum of the
following amounts, without duplication, with respect to the related Collection
Period:
1. the portion of all collections on Receivables allocable to principal;
2. net Liquidation Proceeds for that Collection Period to the extent
allocable to principal;
3. that portion allocable to principal of the Purchase Amount of all
Receivables that became Purchased Receivables during or in respect of
that Collection Period; and
4. on the Payment Date immediately following the end of the Funding
Period, the remaining Pre-Funded Amount not used to acquire Subsequent
Receivables.
Available Interest and Available Principal on any Payment Date will exclude
the following amounts:
1. amounts received on a particular Receivable (other than a Liquidated
Receivable) to the extent that the Servicer has previously made an
unreimbursed Advance in respect of that Receivable; and
2. net Liquidation Proceeds with respect to a particular Receivable to
the extent of unreimbursed Advances in respect of that Receivable.
"Liquidation Proceeds" means, with respect to any Receivable that becomes a
Liquidated Receivable, the moneys collected in respect of that Liquidated
Receivable, from whatever source, during or after the Collection Period in which
the Receivable became a Liquidated Receivable, including liquidation of the
related Financed Vehicle, net of the sum of any out-of-pocket expenses of the
Servicer reasonably allocated to the liquidation and any amounts required by law
to be remitted to the Obligor on the Liquidated Receivable.
A "Liquidated Receivable" means a Receivable with respect to which the
earliest of the following shall have occurred:
o the related Financed Vehicle has been repossessed and liquidated;
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o the related Financed Vehicle has been repossessed in excess of 90 days
and has not yet been liquidated;
o the Servicer has determined in accordance with its collection policies
that all amounts that it expects to receive with respect to the
Receivable have been received; or
o the end of the Collection Period in which the Receivable becomes more
than 150 days or more past due.
"Purchased Amount" means any Administrative Purchase Payments or Warranty
Purchase Payments made with respect to Purchased Receivables.
"Purchased Receivable" means a Warranty Receivable or an Administrative
Receivable, respectively.
"Recoveries" means, with respect to any Receivable that becomes a
Liquidated Receivable, monies collected in respect of that Liquidated
Receivable, from whatever source, during any Collection Period following the
Collection Period in which the Receivable became a Liquidated Receivable, net of
the sum of any amounts expended by the Servicer for the account of the Obligor
and any amounts required by law to be remitted to the Obligor.
Payment of Distributable Amounts
Prior to each Payment Date, the Servicer will calculate the amount to be
distributed to the Class A Noteholders and Class B Noteholders. On each Payment
Date, the Servicer will allocate amounts on deposit in the Collection Account
with respect to the related Collection Period as described below and will
instruct the Indenture Trustee to make the following payments and distributions
from Available Amounts on deposit in the Collection Account, and in the event of
a shortfall in meeting the payments described in clauses (1) through (5) below
(an "Available Amounts Shortfall") amounts withdrawn from the Reserve Account,
in the following amounts and order of priority:
1. to the Servicer, the Servicing Fee, including any unpaid Servicing
Fees with respect to one or more prior Collection Periods, and
non-recoverable Advances;
2. to the Class A Noteholders:
o the aggregate amount of interest accrued for the related Interest
Period on each of the Class A Notes at their respective interest
rates on the principal outstanding as of the previous Payment
Date after giving effect to all payments of principal to the
Class A Noteholders on the preceding Payment Date; and
o the excess, if any, of the amount of interest payable to the
Class A Noteholders on prior Payment Dates over the amounts
actually paid to the Class A Noteholders on those prior Payment
Dates, plus interest on that shortfall to the extent permitted by
law;
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3. to the Principal Distribution Account, the First Priority Principal
Distribution Amount, if any;
4. to the Class B Noteholders:
o (a) the aggregate amount of interest accrued for the related
Interest Period on each of the Class B Notes at the interest rate
on the Class B Notes on the principal outstanding as of the
previous Payment Date after giving effect to all payments of
principal to the Class B Noteholders on the preceding Payment
Date; and
o the excess, if any, of the amount of interest payable to the
Class B Noteholders on prior Payment Dates over the amounts
actually paid to the Class B Noteholders on those prior Payment
Dates, plus interest on that shortfall to the extent permitted by
law;
5. to the Principal Distribution Account, the Regular Principal
Distribution Amount;
6. to the Reserve Account, from Available Amounts remaining (this amount
being the "Excess Amount"), the amount necessary to cause the amount
on deposit in that account to equal the Specified Reserve Account
Balance;
7. to the Indenture Trustee and the Owner Trustee, any accrued and unpaid
Trust Fees and Expenses, in each case to the extent the fees and
expenses have not been previously paid by the Servicer;] and
8. any Available Amounts remaining, to the Certificateholder.
The Noteholders' Principal Distribution Amount will be allocated among the
Notes as described above under "The Notes--Payments of Principal."
For the purposes of this prospectus supplement, the following terms will
have the following meanings:
The "First Priority Principal Distribution Amount" will mean, with respect
to any Payment Date, an amount equal to the excess, if any of:
o the aggregate outstanding principal amount of the Class A Notes as of
the preceding Payment Date (after giving effect to any principal
payments made on the Class A Notes on that preceding Payment Date)
over
o the Pool Balance at the end of the Collection Period preceding that
Payment Date plus amounts on deposit in the Pre-Funding Account less
the Yield Supplement Overcollateralization Amount with respect to such
Payment Date;
provided however, that the First Priority Principal Distribution Amount shall
not exceed the sum of the aggregate outstanding principal amount of all of the
Notes on that Payment Date (after giving effect to any principal payments made
on the Notes on that preceding Payment Date); and provided further, that the
First Priority Principal Distribution Amount on and after the Final Scheduled
Payment Date of a class of Class A Notes shall not be less than the amount that
is necessary to
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reduce the outstanding principal amount of that class of Class A Notes and all
earlier maturing classes of Class A Notes to zero.
"Interest Period" means:
o with respect to the Class A-1 Notes, the period from and including the
most recent Payment Date on which interest has been paid (or, in the
case of the first Payment Date, the Closing Date) to but excluding the
next succeeding Payment Date; and
o with respect to the Class A-2, Class A-3, Class A-4 Notes and Class B
Notes, the period from and including the 25th day of the calendar
month (or, in the case of the first Payment Date, from and including
the Closing Date) to but excluding the 25th day of the next calendar
month.
The "Principal Distribution Account" will mean the administrative
subaccount of the Note Distribution Account established and maintained as the
Principal Distribution Account pursuant to the Sale and Servicing Agreement.
The "Principal Distribution Amount" will mean, with respect to any Payment
Date, the sum of the First Priority Principal Distribution Amount and the
Regular Principal Distribution Amount with respect to that Payment Date.
The "Regular Principal Distribution Amount" will: mean, with respect to any
Payment Date, an amount not less than zero equal to the excess, if any of:
o an amount equal to (i) the aggregate outstanding principal amount of
all the Notes as of the preceding Payment Date (after giving effect to
any principal payments made on the Notes on that preceding Payment
Date) or the Closing Date, as the case may be, minus (ii) the sum of
the Pool Balance at the end of the Collection Period preceding that
Payment Date plus amounts on deposit in the Pre-Funding Account less
the Yield Supplement Overcollateralization Amount with respect to that
Payment Date, over
o the First Priority Principal Distribution Amount, if any, with respect
to that Payment Date;
provided however, that the Regular Principal Distribution Amount shall not
exceed the sum of the aggregate outstanding principal amount of all of the Notes
on that Payment Date (after giving effect to any principal payments made on the
Notes on that preceding Payment Date in respect of the First Priority Principal
Distribution Amount, if any); and provided further, that the Regular Principal
Distribution Amount on and after the Final Scheduled Payment Date of a class of
Class A Notes shall not be less than the amount that is necessary to reduce the
outstanding principal amount of that class of Class A Notes and all earlier
maturing classes of Class A Notes to zero.
"Trust Fees and Expenses" will mean all accrued and unpaid Trustees' fees and
any amounts due to the Trustees for reimbursement of expenses or in respect of
indemnification and other administrative fees of the Trust.
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Credit Enhancement
The protection afforded to the Noteholders will be effected both by the
preferential right of the Noteholders to receive, to the extent described in
this prospectus supplement, current distributions on the Receivables, the
establishment of the Reserve Account and the subordination of the
Certificateholder's right to receive excess interest. The protection afforded to
the Class B Noteholders will be effected by the establishment of the Reserve
Account and the subordination of the Certificateholder's right to receive excess
interest.
Subordination
The rights of the Class B Noteholders to receive any distributions of
interest or principal is subordinated to payments of interest on the Class A
Notes and, in limited circumstances, payments of principal of the Class A Notes.
To the extent that the Pool Balance plus the amount on deposit in the
Pre-Funding Account less the Yield Supplement Overcollateralization Amount with
respect to a Payment Date has decreased to a level which is less than the
aggregate outstanding principal balance on the Class A Notes, a First Priority
Principal Distribution Amount will be payable prior to the payment of interest
on or principal of the Class B Notes. The Certificateholder is entitled to
receive payments of interest collected on the Receivables which are not used by
the trust to make other required payments. The Certificateholder's right to
receive this excess interest is subordinated to all other payments required to
be made on any Payment Date.
Reserve Account
The Reserve Account will be a segregated account in the name of the
Indenture Trustee. The Reserve Account will be created with an initial deposit
by the Depositor on the Closing Date of an amount equal to $[ ] (the "Reserve
Account Initial Deposit"). The Reserve Account will thereafter be funded by the
deposit in the Reserve Account of all Excess Amounts, if any, for each Payment
Date to the extent necessary to restore or bring the amounts on deposit in the
Reserve Account to the Specified Reserve Account Balance.
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of Noteholders and may be invested in Eligible Investments.
Investment income on those investments (net of losses and expenses) will be paid
to the Depositor, upon the direction of the Servicer, to the extent that funds
on deposit in the Reserve Account exceed the Specified Reserve Account Balance.
If the amount on deposit in the Reserve Account on any Payment Date (after
giving effect to all deposits to and withdrawals from the Reserve Account on
that Payment Date) is greater than the Specified Reserve Account Balance for
that Payment Date, subject to limitations set forth in the Transfer and
Servicing Agreements, the Indenture Trustee will include the amount of the
excess in the amounts to be distributed to the Certificateholder pursuant to
clause (8) in the first paragraph under "Payments on the Securities--Payment of
Distributable Amounts" in this prospectus supplement. The Noteholders will not
have any rights in, or claims to, amounts distributed to the Certificateholders
or to the Depositor.
The "Specified Reserve Account Balance" with respect to any Payment Date
will be an amount equal to [ ]% of the sum of the current Pool Balance. During
the Funding Period, if the Trust purchases Subsequent Receivables, a portion of
the purchase price for the Subsequent Receivables withdrawn from the Pre-Funding
Account will be deposited in the Reserve Account, if necessary, to maintain the
amount on deposit in the Reserve Account at the Specified Reserve
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Account Balance. In no event, however, will the Specified Reserve Account
Balance on any Payment Date be less than $[ ].
The Servicer may, from time to time after the date of this prospectus
supplement, request each rating agency to approve a formula for determining the
Specified Reserve Account Balance that is different from that described above or
change the manner by which the Reserve Account is funded. If each rating agency
delivers a letter to the Owner Trustee to the effect that the use of any new
formula will not result in a qualification, reduction or withdrawal of its
then-current rating of any class of the Notes, then the Specified Reserve
Account Balance will be determined in accordance with the new formula. The Sale
and Servicing Agreement will accordingly be amended, without the consent of any
Noteholder, to reflect the new calculation.
Amounts held from time to time in the Reserve Account will be held for the
benefit of the Noteholders. On each Payment Date, funds will be withdrawn from
the Reserve Account to the extent of any Available Amounts Shortfall with
respect to that Payment Date and will be deposited in the Note Distribution
Account for distribution to the Noteholders
None of the Noteholders, the Indenture Trustee, the Owner Trustee or the
Depositor will be required to refund any amounts properly distributed or paid to
them, whether or not there are sufficient funds on any subsequent Payment Date
to make full distributions to the Noteholders.
The Reserve Account and the subordination of the Class B Notes are intended
to enhance the likelihood of receipt by Class A Noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the Class
A Noteholders will experience losses. However, the Reserve Account could be
depleted. If the amount required to be deposited into or required to be
withdrawn from the Reserve Account to cover shortfalls in collections on the
Receivables exceeds the amount of available cash in the Reserve Account,
Noteholders could incur losses or suffer a temporary shortfall in the amounts
distributed to the Noteholders.
Yield Supplement Overcollateralization Amount
On the Closing Date, the sum of the Pool Balance and the amount on deposit
in the Pre-Funding Account will exceed the initial principal amount of the
Notes, by [ ] (the "Initial Yield Supplement Overcollateralization Amount"),
which is approximately [ ]% of the sum of the aggregate principal balance of the
Initial Receivables as of the Initial Cutoff Date and the amount on deposit in
the Pre-Funding Account on the Closing Date. The Yield Supplement
Overcollateralization Amount is intended to compensate for the low APRs on some
of the Receivables.
With respect to any Payment Date, the "Yield Supplement
Overcollateralization Amount" is the amount specified below with respect to that
Payment Date:
- --------------------------------------------------------------------------------
Closing Date
- --------------------------------------------------------------------------------
May 2003 [ ]
- --------------------------------------------------------------------------------
June 2003 [ ]
- --------------------------------------------------------------------------------
July 2003 [ ]
- --------------------------------------------------------------------------------
August 2003 [ ]
- --------------------------------------------------------------------------------
September 2003 [ ]
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
Closing Date
- --------------------------------------------------------------------------------
October 2003 [ ]
- --------------------------------------------------------------------------------
November 2003 [ ]
- --------------------------------------------------------------------------------
December 2003 [ ]
- --------------------------------------------------------------------------------
January 2004 [ ]
- --------------------------------------------------------------------------------
February 2004 [ ]
- --------------------------------------------------------------------------------
March 2004 [ ]
- --------------------------------------------------------------------------------
April 2004 [ ]
- --------------------------------------------------------------------------------
May 2004 [ ]
- --------------------------------------------------------------------------------
June 2004 [ ]
- --------------------------------------------------------------------------------
July 2004 [ ]
- --------------------------------------------------------------------------------
August 2004 [ ]
- --------------------------------------------------------------------------------
September 2004 [ ]
- --------------------------------------------------------------------------------
October 2004 [ ]
- --------------------------------------------------------------------------------
November 2004 [ ]
- --------------------------------------------------------------------------------
December 2004 [ ]
- --------------------------------------------------------------------------------
January 2005 [ ]
- --------------------------------------------------------------------------------
February 2005 [ ]
- --------------------------------------------------------------------------------
March 2005 [ ]
- --------------------------------------------------------------------------------
April 2005 [ ]
- --------------------------------------------------------------------------------
May 2005 [ ]
- --------------------------------------------------------------------------------
June 2005 [ ]
- --------------------------------------------------------------------------------
July 2005 [ ]
- --------------------------------------------------------------------------------
August 2005 [ ]
- --------------------------------------------------------------------------------
September 2005 [ ]
- --------------------------------------------------------------------------------
October 2005 [ ]
- --------------------------------------------------------------------------------
November 2005 [ ]
- --------------------------------------------------------------------------------
December 2005 [ ]
- --------------------------------------------------------------------------------
January 2006 [ ]
- --------------------------------------------------------------------------------
February 2006 [ ]
- --------------------------------------------------------------------------------
March 2006 [ ]
- --------------------------------------------------------------------------------
April 2006 [ ]
- --------------------------------------------------------------------------------
May 2006 [ ]
- --------------------------------------------------------------------------------
June 2006 [ ]
- --------------------------------------------------------------------------------
July 2006 [ ]
- --------------------------------------------------------------------------------
August 2006 [ ]
- --------------------------------------------------------------------------------
September 2006 [ ]
- --------------------------------------------------------------------------------
October 2006 [ ]
- --------------------------------------------------------------------------------
November 2006 [ ]
- --------------------------------------------------------------------------------
December 2006 [ ]
- --------------------------------------------------------------------------------
January 2007 [ ]
- --------------------------------------------------------------------------------
February 2007 [ ]
- --------------------------------------------------------------------------------
March 2007 [ ]
- --------------------------------------------------------------------------------
April 2007 [ ]
- --------------------------------------------------------------------------------
May 2007 [ ]
- --------------------------------------------------------------------------------
June 2007 [ ]
- --------------------------------------------------------------------------------
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The Yield Supplement Overcollateralization Amount has been calculated for
each Payment Date as the sum of the amount for each Receivable equal to the
excess, if any, of (x) the scheduled payments due on the Receivable for each
future Collection Period discounted to present value as of the end of the
preceding Collection Period at the APR of that Receivable over (y) the scheduled
payments due on the Receivable for each future Collection Period discounted to
present value as of the end of the preceding Collection Period at [ ]%. For
purposes of the preceding definition, future scheduled payments on the
Receivables are assumed to be made on their scheduled due dates without any
delay, defaults or prepayments.
Description of the Transfer and Servicing Agreements
The Transfer and Servicing Agreements
The following summary of the Indenture, the Sale and Servicing Agreement,
the Administration Agreement and the Trust Agreement (collectively, 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 supplement 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 signed Transfer and Servicing Agreements will be
filed with the SEC following the issuance of the Notes. Any description of the
Transfer and Servicing Agreements in this prospectus supplement supplements, and
to the extent inconsistent replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth in the
accompanying prospectus, to which description reference is hereby made.
Sale and Assignment of Receivables; Subsequent Receivables
Information with respect to the conveyance of the Initial Receivables from
the Depositor to the Trust on the Closing Date and the Subsequent Receivables
from the Depositor to the Trust on the Subsequent Closing Date pursuant to the
Sale and Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables; Subsequent Receivables
" in the accompanying prospectus.
Accounts
In addition to the accounts referred to under "Description of the Transfer
and Servicing Agreements--Accounts" in the accompanying prospectus, the Servicer
will also establish and will maintain with the Indenture Trustee the Reserve
Account in the name of the Indenture Trustee on behalf of the Noteholders.
Collections
The Transfer and Servicing Agreements generally require that the Servicer
deposit all payments on 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, if each condition to
making monthly deposits as may be required by the Sale and Servicing Agreement
(including the satisfaction of specified ratings criteria by the Servicer or the
Servicer obtaining a letter of credit or similar agreement and the absence of
any Servicer Default) is satisfied, the Servicer may retain those amounts until
the related Deposit Date. The Servicer or the
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Depositor, as the case may be, will remit the aggregate Warranty Purchase
Payments and Administrative Purchase Payments of Receivables to be purchased
from the Trust into the Collection Account on or before each Deposit Date. 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. We refer you to "Description of the
Transfer and Servicing Agreements--Collections" in the accompanying prospectus.
"Eligible Investments" are specified in the Trust Agreement and will be
limited to investments which meet the criteria of each rating agency from time
to time as being consistent with its then-current ratings of the Notes.
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 interest accrued to date, second to principal
until the principal balance is brought current, third to reduce the unpaid late
charges as provided in the Receivable and finally to prepay principal of the
Receivable. We refer you to "Description of the Transfer and Servicing
Agreements--Collections" in the accompanying prospectus.
Collections on or in respect of a Receivable made during a Collection
Period which are not late fees, prepayment charges, extension fees or certain
other similar fees or charges will be applied first to any outstanding Advances
made by the Servicer with respect to that Receivable, and then to the related
Scheduled Payment. Any collections on or in respect of a Receivable remaining
after such applications will be considered an "Excess Payment." Excess Payments
constituting a prepayment in full of the related Receivable will be applied as a
partial prepayment (a "Prepayment") of the Notes.
Pre-Funding Account
On the Closing Date, a cash amount equal to approximately $[ ] (the
"Pre-Funded Amount") will be deposited into an account (the "Pre-Funding
Account") which will be established in the name of the Indenture Trustee. The
Pre-Funded Amount will be equal to approximately [ ]% of the aggregate principal
amount of the Notes. The Pre-Funding Account will be an asset of the Trust and
will be pledged to the Indenture Trustee pursuant to the Indenture. The
Pre-Funded Amount will be funded from the sale of the Notes and is expected to
be used to acquire Subsequent Receivables. The "Funding Period" is the period
from and including the Closing Date until the earliest of:
o the Determination Date on which the amount on deposit in the
Pre-Funding Account is $100,000 or less;
o the occurrence of a Servicer Default (as defined in the Sale and
Servicing Agreement) or an Event of Default under the Indenture; and
o the last day of the Collection Period in [ ] 2003.
The Pre-Funded Amount will be reduced during the Funding Period by the amount
withdrawn from the Pre-Funding Account used to purchase Subsequent Receivables
in accordance with the Sale and
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Servicing Agreement and by the amount withdrawn from the Pre-Funding Account
deposited in the Reserve Account in connection with the purchase of the
Subsequent Receivables. Amounts held in the Pre-Funding Account may be invested
in Eligible Investments. Any earnings on amounts on deposit in the Pre-Funding
Account will be included in Available Interest on the next Payment Date pursuant
to the Sale and Servicing Agreement. Any Pre-Funded Amount remaining at the end
of the Funding Period will be payable as a principal distribution to the
Noteholders as a partial mandatory redemption or prepayment on the immediately
following Payment Date. If the remaining Pre-funded Amount is equal to or less
than $100,000, the Servicer will instruct the Indenture Trustee in writing to
withdraw the remaining Pre-Funded Amount and deposit that amount in the Note
Distribution Account to be applied to reduce the outstanding amount of the
earliest maturing class of Class A Notes. If the Pre-Funded Amount is greater
than $100,000, the Servicer will instruct the Indenture Trustee in writing to
withdraw amounts equal to the product of the Pre-Funded Percentage for each
Class of Notes and the Pre-Funded Amount and deposit those amounts in the Note
Distribution Account to be applied in reduction of the outstanding amount of
each Class of Notes, sequentially to the earliest maturing class of Class A
Notes then outstanding. We refer you to "Description of Transfer and Servicing
Agreements-Accounts" in the accompanying prospectus.
"Pre-Funded Percentage" means, with respect to a Class of Notes, the ratio
(expressed as a percentage), the numerator of which is the outstanding amount of
such Class of Notes as of the preceding Payment Date and the denominator of
which is the Note Balance as of the preceeding Payment Date.
Capitalized Interest Account
On the Closing Date, approximately $[ ] will be deposited in an account
(the "Capitalized Interest Account") which will be established in the name of
the Indenture Trustee. The Capitalized Interest Account will be an asset of the
Trust, and will be pledged to the Indenture Trustee pursuant to the Indenture.
The amount so deposited in the Capitalized Interest Account, including
reinvestment income thereon, will be deposited to the Collection Account as a
collection on each Payment Date up to and including the Mandatory Redemption
Date in an amount equal to the interest accrued at the Weighted Average Security
Rate less 2.5% on the amount on deposit in the Pre-Funding Account (the
"Capitalized Interest Payments"). Any amounts on deposit in the Capitalized
Interest Account in excess of the required amount on each Payment Date or on
deposit in the Capitalized Interest Account at the end of the Funding Period
will be paid to the Depositor. The "Weighted Average Security Rate" shall be the
percentage equivalent of a fraction, the numerator of which is the sum of:
o the product of the Class A-1 Rate times the Initial Class A-1 Note
Balance;
o the product of the Class A-2 Rate times the Initial Class A-2 Note
Balance;
o the product of the Class A-3 Rate times the Initial Class A-3 Note
Balance;
o the product of the Class A-4 Rate times the Initial Class A-4 Note
Balance; and
o the product of the Class B Rate times the Initial Class B Note
Balance, and
the denominator of which is the sum of: the Initial Class A-1 Note Balance, the
Initial Class A-2 Note Balance, the Initial Class A-3 Note Balance, the Initial
Class A-4 Note Balance and the Initial Class B Note Balance.
Note Distribution Account
On or prior to the Closing Date, the Indenture Trustee will establish and
maintain initially with itself an account 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 "Note Distribution Account). The Note Distribution Account will be
maintained at an Eligible Institution.
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Advances
On or before the Business Day prior to each Payment Date (the "Deposit
Date"), the Servicer will make a payment into the Collection Account for each
Receivable of an amount equal to the product of the principal balance of the
Receivable as of the first day of the related Collection Period and one-twelfth
of its APR minus the amount of interest actually received on the Receivable
during the Collection Period (an "Advance"). If the calculation results in a
negative number, an amount equal to the negative amount will be paid to the
Servicer in reimbursement of outstanding Advances. 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)
will, up to the amount of outstanding Advances in respect that Receivable, be
withdrawn from the Collection Account and paid to the Servicer in reimbursement
of the outstanding Advances. The Servicer will not be required to make any
Advances, other than the Advance of an interest shortfall arising from a prepaid
Receivable, to the extent that it does not expect to recoup the Advance from
subsequent collections or recoveries. The Servicer will make all Advances by
depositing into the Collection Account Advances in respect of a Collection
Period on the Business Day immediately preceding the related Payment Date. We
refer you to "Description of the Transfer and Servicing Agreements--Advances" in
the accompanying prospectus.
Servicing Compensation
The servicing fee for the calendar month immediately preceding any Payment
Date (a "Collection Period") will be one-twelfth of 1.00% (the "Servicing Rate")
of the Pool Balance as of the first day of the related Collection Period or, in
the case of the first Payment Date, the Pool Balance as of the Initial Cutoff
Date (the "Servicing Fee"). The Servicing Fee, together with any previously
unpaid Servicing Fee, will be paid on each Payment Date solely to the extent of
Available Interest. The Servicer will be entitled to collect and retain as
additional servicing compensation in respect of each Collection Period any late
fees, prepayment charges and any other administrative fees and expenses or
similar charges collected during that Collection Period, plus any investment
earnings or interest earned during that Collection Period from the investment of
monies on deposit in the Collection Account and the Note Distribution Account.
We refer you to "Description of the Transfer and Servicing
Agreements--Collections" in this prospectus supplement and "Description of the
Transfer and Servicing Agreements--Servicing Compensation" in the accompanying
prospectus. The Servicer will be paid the Servicing Fee for each Collection
Period on the following Payment Date related to that Collection Period. However,
if it is acceptable to each rating agency without a reduction in the rating of
each class of Notes, 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 Receivables for that Collection Period. The
Servicing Fee will be paid from Available Interest in accordance with the
priority of payments set forth under "Payment on the Notes-Payment of
Distributable Amounts".
Net Deposits
As an administrative convenience and as long as specified conditions are
satisfied, for so long as BMW FS is the Servicer, BMW FS will be permitted to
make the deposit of collections, aggregate Advances and amounts deposited in
respect of purchases of Receivables by the Depositor or the Servicer 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, however, will
account to the Owner Trustee and to the Noteholders as if all of the foregoing
deposits and payments were made
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individually. We refer you to "Description of the Transfer and Servicing
Agreements--Net Deposits" in the accompanying prospectus.
Optional Purchase
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 shall have declined
to 10% or less of the sum of the Initial Pool Balance plus the amount on deposit
in the Pre-Funding Account on the Closing Date, as described in the accompanying
prospectus under "Description of the Transfer and Servicing
Agreements--Termination." The "Redemption Price" for the outstanding Notes will
be equal to the unpaid principal amount of the outstanding Notes plus accrued
and unpaid interest on the Notes on the date of the optional purchase.
Removal of Servicer
The Indenture Trustee or Noteholders evidencing more than 50% of the voting
interests of the Class A Notes then outstanding (or if the Class A Notes have
been paid in full, by holders of Class B Notes then outstanding evidencing more
than 50% of the voting interests of the Class B Notes), may terminate the rights
and obligations of the Servicer under the Sale and Servicing Agreement upon the
following events ("Servicer Defaults"):
1. any failure by the Servicer to deliver to the applicable Trustee for
deposit in any Account any required payment or to direct the Indenture
Trustee to make the required payments from any Account and that
failure continues unremedied for five Business Days after discovery of
that failure by the Servicer or after the receipt by the Servicer of
notice of that failure;
2. any failure by the Servicer to duly observe or perform in any material
respect any other covenants or agreements in the Sale and Servicing
Agreement, which failure materially and adversely affects the rights
of the Noteholders, and which failure continues unremedied for 60 days
after written notice of that failure is given to the Servicer by (a)
the Indenture Trustee or (b) the holders of Notes representing more
than 50% of the Controlling Class; and
3. the occurrence of an Insolvency Event (as defined in the attached
prospectus) of the Servicer.
Under those circumstances, 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 under the Sale and Servicing Agreement. The
Indenture Trustee or 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 similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than the appointment
of a bankruptcy trustee or similar official has occurred, that trustee or
official may have the power to prevent the Indenture Trustee or the Noteholders
from effecting a transfer of servicing. In the event that the Indenture Trustee
is unwilling or unable so to act, it may appoint or petition a court of
competent jurisdiction to appoint a successor servicer. The Indenture Trustee
may make arrangements for compensation to be paid, which in no event may be
greater than the servicing compensation paid to the Servicer under the Sale and
Servicing Agreement.
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Notwithstanding termination under this section, the Servicer shall be entitled
to payment of amounts payable to it prior to termination, for services rendered
prior to termination. Upon payment in full of the principal and interest on the
Class A Notes, the Class B Noteholders will succeed to the rights of the Class A
Noteholders with respect to removal of the Servicer.
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 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. If no Servicer
Default has occurred, 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 Certificateholder, 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, in which case it
will only be required to examine them to determine whether they conform to the
requirements of the Trust Agreement. The Trust Agreement says that the Owner
Trustee will not be responsible for knowing about any event unless an officer of
the Owner Trustee has actual knowledge of the event or has received written
notice of the event.
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 Depositor or the Servicer of any funds paid to the
Depositor or the Servicer in respect of the Notes or the Receivables, 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 or Servicer 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 says that the Indenture Trustee will not be responsible
for knowing about any event unless an officer of the Indenture Trustee has
actual knowledge of the event or has received written notice of the event.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or to make any investigation of
matters arising under the Indenture or to institute, conduct or defend any
litigation under the Indenture or in relation to the Indenture or that
litigation at the request, order or direction of any of the Noteholders, unless
those Noteholders have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred by
the Indenture Trustee in connection with the exercise of those rights. No
Noteholder will have any right under the Indenture to institute any proceeding
with respect to the Indenture, other than with respect to the failure by the
Depositor or the Servicer, as applicable, to remit payment. A Noteholder's right
to institute any proceeding with respect to the Indenture Trustee is conditioned
upon the Noteholder providing the Indenture Trustee with written notice of the
Event of Default and the holders of the Controlling Class evidencing not less
than 25% of the voting interests of the Controlling Class, voting together as a
single class, have made written request upon the Indenture Trustee to institute
that proceeding in its own name as the Indenture
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Trustee under the Indenture. No proceeding shall commence unless the Noteholders
have offered to the Indenture Trustee reasonable indemnity and the Indenture
Trustee for 60 days has neglected or refused to institute that proceeding.
The Owner Trustee and the Indenture Trustee
Wilmington Trust Company will be the Owner Trustee under the Trust
Agreement. JPMorgan Chase Bank 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 Servicer and the Owner Trustee or the Servicer and the Indenture Trustee, in
each case acting jointly (or in some instances, the Owner Trustee or the
Indenture Trustee acting alone), will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust. 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 by the Sale and
Servicing Agreement and the Trust Agreement or the Indenture Trustee by the
Indenture 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 and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor Owner Trustee
or Indenture Trustee, as applicable. The Servicer may also remove the Owner
Trustee or the Indenture Trustee if either ceases to be eligible to continue as
trustee under the Trust Agreement or the Indenture, as the case may be, becomes
legally unable to act or becomes insolvent. In those circumstances, the Servicer
will be obligated to appoint a successor Owner Trustee or Indenture Trustee, as
applicable. Any resignation or removal of the Owner Trustee or the Indenture
Trustee and appointment of a successor Owner Trustee or Indenture Trustee, as
applicable, will not become effective until acceptance of the appointment by the
successor.
The Servicer will be obligated to pay the fees of the Owner Trustee and the
Indenture Trustee in connection with their duties under the Trust Agreement and
Indenture, respectively. The Owner Trustee and the Indenture Trustee will be
entitled to indemnification by BMW FS and the Depositor for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Owner Trustee or the Indenture Trustee not resulting from its own willful
misfeasance, bad faith or negligence (other than by reason of a breach of any of
its representations or warranties set forth in the Trust Agreement or the
Indenture, as the case may be). The Depositor will be obligated to indemnify the
Owner Trustee and the Indenture Trustee for specified taxes that may be asserted
in connection with the transaction.
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Material Income Tax Consequences
The following is a general discussion of the material federal income tax
considerations of the purchase, ownership and disposition of the Notes. The
discussion is based upon law, regulations, rulings and decisions now in effect,
all of which are subject to change. The discussion below does not purport to
deal with all federal tax considerations applicable to all categories of
investors. It is recommended that investors consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Notes.
We refer you to the discussions under "Material Income Tax
Consequences--Tax Treatment of Owner Trusts" and "State and Local Tax
Considerations" in the accompanying prospectus.
Tax Characterization of the Trust
In the opinion of Weil, Gotshal & Manges LLP, tax counsel to the Trust:
o the Notes will be characterized as debt for tax purposes; and
o the Trust will not be characterized as an association (or a publicly
traded partnership) taxable as a corporation for federal income tax
purposes.
If the Trust were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The Trust's
taxable income would include all its income on the related Receivables, which
may be reduced by its interest expense on the Notes. Any imposition of corporate
income tax could materially reduce cash available to make payments on the Notes,
and the beneficial owners of the Certificates could be liable for any corporate
income tax that is unpaid by the Trust.
Treatment of the Notes as Indebtedness
The Depositor, any Certificateholder and the beneficial owners of the Notes
(the "Note Owners") will agree by their purchase of the Securities, to treat the
Notes as debt for federal income tax purposes. The Depositor and the Servicer
and any subsequent holder of Certificates will agree, to treat the Trust:
o as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificate
Owner, and the Notes being debt of the partnership; or
o if a single beneficial owner owns all of the Certificates and none of
the Notes are characterized as equity interests in the Trust, as
disregarded as an entity separate from the Certificate Owner for
purpose of federal and state income tax, franchise tax and any other
tax measured in whole or in part by income, with the assets of the
Trust and the Notes treated as assets and indebtedness of the
Certificate Owner.
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However, the proper characterization of the arrangement involving the Trust, the
Notes, the Depositor and the Servicer is not clear because there is no authority
on transactions closely comparable to the transaction described in this
prospectus supplement.
ERISA Considerations
Section 406 of ERISA and Section 4975 of the Code prohibit pension,
profit-sharing and other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans (each, a "Benefit Plan"),
from engaging in specified transactions, such as direct or indirect sales or
exchanges or extensions of credit with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to those
Benefit Plans. 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. Title I of ERISA also requires that fiduciaries of a Benefit Plan
subject to ERISA make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing, plan documents.
If the assets of the trust were deemed to be assets of a Benefit Plan,
transactions involving the trust, which are described in Section 406 of ERISA or
Section 4975 of the Code, might be deemed to constitute prohibited transactions
for which an exemption is not available. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
trust and none of the exceptions contained in the Plan Assets Regulation were
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. The debt
treatment of the Notes for ERISA purposes could change if the trust incurred
losses.
However, even if the Notes are treated as debt for purposes of the Plan
Assets Regulation, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
trust or any of its affiliates is or becomes a party in interest or a
disqualified person with respect to a Benefit Plan. In that instance, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the plan fiduciary making the decision to
acquire a note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90- 1, regarding investments by insurance company
pooled separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts; PTCE 91-38, regarding investments by bank collective
investment finds; PTCE 96-23, regarding transactions affected by "in-house asset
managers"; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers." Each investor using the assets of a Benefit Plan
which acquires the Notes, or to whom the Notes are transferred, will be deemed
to have represented that the acquisition and continued holding of the Notes will
be covered by one of the exemptions listed above or by another Department of
Labor prohibited transaction class exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA
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requirements; however, those plans may be subject to comparable federal, state
or local law restrictions.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other related issues and their potential consequences.
The sale of Notes to a Benefit Plan is in no respect a representation that
this investment meets all relevant legal requirements with respect to
investments by Benefit Plans generally or by a particular Benefit Plan, or that
this investment is appropriate for Benefit Plans generally or any particular
Benefit Plan.
Underwriting
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Depositor has agreed to cause the Trust to
sell to each of the underwriters named below (collectively, the "Underwriters"),
and each of the Underwriters has severally but not jointly agreed to purchase,
the principal amount of Notes set forth opposite its name below:
Underwriters Class A-1 Notes Class A-2 Notes Class A-3 Notes Class A-4 Notes Class B Notes
- ------------ --------------- --------------- --------------- --------------- -------------
[ ] $ $ $ $ $
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
Total.................... $ $ $ $ $
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase all of
the Notes. This obligation of the Underwriters is subject to specified
conditions precedent set forth in the Underwriting Agreement.
The Depositor has been advised by the Underwriters that they propose to
offer the Notes to the public initially at the prices set forth on the cover of
this prospectus supplement, and to specified dealers at these prices less the
concessions and reallowance discounts set forth below:
Class Selling Concession Reallowance Discount
A-1...................... % %
A-2...................... % %
A-3...................... % %
A-4...................... % %
B........................ % %
The Depositor and BMW FS have agreed to indemnify the Underwriters against
specified liabilities, including liabilities under the Securities Act or to
contribute to payments which the Underwriters may be required to make in respect
thereof. However, in the opinion of the SEC,
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certain indemnification provisions for liability arising under the federal
securities law are contrary to public policy and therefore unenforceable. In the
ordinary course of their respective businesses, the Underwriters and their
respective affiliates have engaged and may engage in investment banking and/or
commercial banking transactions with BMW FS and its affiliates.
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 that
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.
The Trust may, from time to time, invest funds in the Accounts in Eligible
Investments acquired from the Underwriters.
The Underwriters have advised the Depositor that, pursuant to Regulation M
under the Securities Act, the Underwriters may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, which may have the effect of stabilizing or maintaining the market price
of the Notes of any class at levels above those that might otherwise prevail in
the open market. A "stabilizing bid" is a bid for or the purchase of the Notes
of any class on behalf of the Underwriters for the purpose of fixing or
maintaining the price of those Notes. A "syndicate covering transaction" is the
bid for or the purchase of those Notes of any class on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with this offering. A "penalty bid" is an arrangement permitting one
of the Underwriters to reclaim the selling concession otherwise accruing to
another Underwriter or syndicate member in connection with this offering if the
Notes of any class originally sold by the other Underwriter or syndicate member
are purchased by the reclaiming Underwriter in a syndicate covering transaction
and has therefore not been effectively placed by the other Underwriter or
syndicate member.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Notes of any class to be higher than it might be in the
absence of stabilizing bids and syndicate covering transactions, and the
imposition of penalty bids might also have an effect on the price of any note to
the extent that it discourages resale of that note. Neither the Depositor nor
the Underwriters makes any representation or prediction as to the direction or
magnitude of any of that effect on the prices for the Notes. Neither the
Depositor nor the Underwriters makes any representation that the Underwriters
will engage in any of those transactions or that, once commenced, any of those
transactions will not be discontinued without notice.
It is expected that delivery of the Notes will be made against payment for
the Notes on or about the Closing Date, which is the [ ] business day following
the date of this prospectus supplement. Rule 15c6-1 of the Commission under the
Exchange Act of 1934 generally requires trades in the secondary market to settle
in three business days, unless the parties to any such trade expressly agree
otherwise. Accordingly, purchasers who wish to trade Notes on the date of this
prospectus supplement will be required, by virtue of the fact that the Notes
initially will settle [ ] business days after the date of this prospectus
supplement, to specify an alternate settlement cycle at the time of any such
trade to prevent a failed settlement. It is suggested that purchasers of Notes
who wish to trade Notes on the date of this prospectus supplement consult their
own advisors.
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
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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
the prospectus.
Each Underwriter will represent that:
o it has not offered or sold and will not offer or sell, prior to the
date six months after their date of issuance, any Notes to persons in
the United Kingdom, except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted in
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations
1995;
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United
Kingdom; and
o it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of the Notes or the person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom the
document can otherwise lawfully be issued or passed on.
Notice to Canadian Residents
Resale Restrictions
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Depositor, on behalf of the
Trust, prepare and file a prospectus with the securities regulatory authorities
in each province where trades of Notes are effected. Accordingly, any resale of
the Notes in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or pursuant
to a discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the Notes.
Representations of Purchasers
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Depositor, the Servicer, the related trustee, the
Trust and the dealer from whom such purchase confirmation is received that (i)
such purchaser is entitled under applicable provincial securities laws to
purchase such Notes or Notes without the benefit of a prospectus qualified under
such securities laws, (ii) where required by law, that such purchaser is
purchasing as principal and not as agent, and (iii) such purchaser has reviewed
the text above under "--Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be
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available, including common law rights of action for damages or rescission or
rights of action under the civil liability provisions of the U.S. federal
securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Depositor. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Notes or
in their particular circumstances and with respect to the eligibility of the
Notes or for investment by the purchaser under relevant Canadian legislation.
Legal Opinions
In addition to the legal opinions described in the accompanying prospectus,
legal matters relating to the Notes and federal income tax and other matters
will be passed upon for the Trust by Weil, Gotshal & Manges LLP. Certain legal
matters will be passed upon for the Underwriters by [ ].
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Index of Terms
ABS................................................42
ABS Tables.........................................42
Advance............................................65
Available Amounts..................................54
Benefit Plan.......................................70
BMW AG.............................................10
BMW Center Recourse................................29
BMW Centers........................................29
BMW FS.............................................29
BMW Group..........................................10
Capitalized Interest Account.......................64
Capitalized Interest Payments......................64
Class A Notes......................................39
Class B Noteholders................................52
Class B Noteowners.................................69
Class B Notes......................................39
Clearstream, Luxembourg.............................1
Closing Date.......................................31
Collection Period..................................65
Controlling Class..................................53
Deposit Date.......................................65
Depositor..........................................29
Determination Date.................................54
DTC.................................................1
Euroclear...........................................1
Excess Amount......................................57
Final Scheduled Payment Date.......................39
Financed Vehicles..................................31
Funding Period.....................................11
Global Securities...................................1
Indenture Trustee..................................30
Initial Cutoff Date................................31
Initial Overcollateralization Amount...............18
Initial Pool Balance...............................31
Initial Receivables............................10, 31
Initial Yield Supplement Overcollateralization
Amount..........................................60
Interest Rate......................................51
Note Distribution Account..........................64
Note Owners........................................69
Noteholders........................................52
Obligor............................................32
Owner Trustee......................................29
Payment Date.......................................51
Plan Assets Regulation.............................70
Pre-Funded Amount..................................63
Pre-Funding Account............................11, 63
Prepayment.........................................63
PTCE...............................................70
Receivables Purchase Agreement.....................31
Reserve Fund Initial Deposit.......................59
Sale and Servicing Agreement.......................29
Servicer...........................................29
Servicer Defaults..................................66
Servicing Fee......................................65
Servicing Rate.....................................65
Subsequent Purchase Agreement......................32
Subsequent Receivables.........................11, 31
Subsequent Transfer Agreement......................32
Subsequent Transfer Date...........................32
Trust..............................................29
Trust Agreement....................................29
Trustees...........................................30
Underwriters.......................................71
Underwriting Agreement.............................71
Weighted Average Security Rate.....................64
S-75
Annex A
Global Clearance, Settlement and
Tax Documentation Procedures
Except in specified circumstances, the globally offered Class A Notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold the Global Securities through The Depository Trust
Company ("DTC"), Clearstream Banking, societe anonyme ("Clearstream,
Luxembourg") or the Euroclear System ("Euroclear. The Global Securities will be
tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., three calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedure applicable to
U.S. corporate debt obligations and prior asset-backed securities issues.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC Participants holding securities will be effected on a
delivery-against-payment basis through the depositaries of Clearstream,
Luxembourg and Euroclear (in that capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet specified requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Clearstream, Luxembourg and
Euroclear will hold positions on behalf of their participants through their
depositaries, which in turn will hold those positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will be
credited to securities custody accounts on the settlement date against payment
in same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
A-1
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Clearstream, Luxembourg and/or Euroclear Participants.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC Depositor and Clearstream, Luxembourg or Euroclear
Participants. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in that accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream, Luxembourg Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Clearstream, Luxembourg or Euroclear cash debt will be
valued instead as of the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are credited
to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to pre-position funds and allow that credit line to
be drawn upon to finance settlement. Under this procedure, Clearstream Bank
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they clear the overdraft when the Global
Securities are credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of those overdraft charges, although
this result will depend on each Clearstream, Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Clearstream, Luxembourg
Participants or Euroclear Participants. The sale
A-2
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC Participants a cross-market transaction will settle no differently than
a trade between two DTC Participants.
Trading between Clearstream, Luxembourg or Euroclear Depositor and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases, Clearstream,
Luxembourg or Euroclear will instruct the Relevant Depositary, as appropriate,
to deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of the actual number of days in that accrual period and a year assumed to
consist of 360 days. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. The payment will then be reflected in the account of the Clearstream,
Luxembourg Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream, Luxembourg Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Clearstream,
Luxembourg Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Clearstream, Luxembourg Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream,
Luxembourg Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(1) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream,
Luxembourg or Euroclear account in order to settle the sale side of
the trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream,
Luxembourg Participant or Euroclear Participant.
Material U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including
A-3
original issue discount) on registered debt issued by U.S. Persons (as defined
in the accompanying prospectus), unless (1) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between that beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (2) that beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8BEN). Beneficial owners of Global
Securities that are Non-U.S. Persons generally can obtain a complete exemption
from the withholding tax by filing a signed Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Withholding). If the information
shown on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of
that change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). A Non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, generally can obtain an exemption
from the withholding tax by filing Form W-ECI (Certificate of Foreign Person's
Claim for Exemption from Withholding on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form W-8BEN). Non-U.S. Persons residing in a country that has a tax treaty with
the United States generally can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form W-8BEN. Form W-8BEN may be filed
by the Class B Noteowners or their authorized agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). A Form W-8BEN on which the beneficial owner
of a Global Security provides a U.S. taxpayer identification number generally
remains in effect until a change in circumstances causes any of the information
on the form to be incorrect. A W-8BEN on which a U.S. taxpayer identification is
not provided and a Form W-8ECI generally remain in effect for three calendar
years, absent a change in circumstances causing any information on the form to
be incorrect.
The term "Non-U.S. Person" means any person who is not a U.S. Person (as
defined in the accompanying prospectus).
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities. It is
suggested that investors consult their tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
A-4
The information in this prospectus is not complete and may be changed. A
registration statement relating to these securities has been declared effective
by the Securities and Exchange Commission. We are not using this Prospectus to
offer to sell these securities or to solicit offers to buy these securities in
any place where the offer or sale is not permitted.
Subject to completion, dated March [ ], 2003
Prospectus Supplement
(To Prospectus dated March [ ], 2003)
BMW Vehicle Owner Trust [ ]-A
BMW FS Securities LLC,
Depositor
BMW Financial Services NA, LLC,
Servicer
$[ ] ASSET BACKED NOTES
$[ ] ASSET BACKED CERTIFICATES
_____% Class A-1 Notes due 200_
_____% Class A-2 Notes due 200_
_____% Class A-3 Notes due 200_
_____% Class A-4 Notes due 200_
_____% Certificates due 200_
The trust's main source of payments on the notes and the certificates will be
loan payments generated by a portfolio of retail installment sale contracts
secured in most cases by BMW motor vehicles.
The certificates are subordinated to the notes. The certificates will not
receive distributions of principal until after the notes are paid in full.
See "Risk Factors" beginning on page S-__ for a discussion of risks that you
should consider in connection with an investment in the notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the notes or determined that this
Prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
- -----------------------------------------------------------------------------------------------------------
Initial Principal Price to Underwriting Proceeds
Balance Public Discounts to Depositor
- -----------------------------------------------------------------------------------------------------------
Class A-1 Notes % % %
- -----------------------------------------------------------------------------------------------------------
Class A-2 Notes % % %
- -----------------------------------------------------------------------------------------------------------
Class A-3 Notes % % %
- -----------------------------------------------------------------------------------------------------------
Class A-4 Notes % % %
- -----------------------------------------------------------------------------------------------------------
Certificates % % %
- -----------------------------------------------------------------------------------------------------------
Total $ $ $
- -----------------------------------------------------------------------------------------------------------
Neither the notes nor the certificates will not be listed on any securities
exchange. Currently, there is no public market for the notes or the
certificates.
We expect that delivery of the notes and the certificates will be made to
investors on or about ____________.
March [ ], 2003
TABLE OF CONTENTS
Page
Important Notice About Information Presented in this Prospectus
Supplement and the accompanying Prospectus...................................5
Summary of Parties to the Transaction..........................................6
Summary of Monthly Deposits to and Withdrawls from Accounts....................7
Summary of Terms...............................................................8
Risk Factors..................................................................20
The Trust.....................................................................25
General .....................................................................25
Capitalization of the Trust...................................................26
The Owner Trustee and the Indenture Trustee...................................26
The Receivables...............................................................26
Assets of the Trust...........................................................26
Eligibility Criteria..........................................................28
Description of Initial Receivables............................................29
Maturity and Prepayment Considerations........................................35
Delinquencies, Repossessions and Loan Loss Information........................35
Weighted Average Life of the Notes............................................38
Note Factors..................................................................46
Use of Proceeds...............................................................46
The Depositor and the Servicer................................................46
The Notes.....................................................................47
General .....................................................................47
Payments of Interest..........................................................47
Payments of Principal.........................................................48
Optional Prepayment...........................................................49
Indenture.....................................................................49
Notices .....................................................................49
Governing Law.................................................................50
The Certificates..............................................................50
General.......................................................................50
Payments of Interest..........................................................50
Optional Prepayment...........................................................51
Payments of Principal.........................................................51
Notices.......................................................................51
Governing Law.................................................................51
Payments on the Securities....................................................51
Calculation of Available Amounts..............................................52
Payment of Distributable Amounts..............................................54
Credit Enhancement............................................................56
S-2
TABLE OF CONTENTS
(continued)
Page
Subordination.................................................................56
Reserve Account...............................................................56
Yield Supplement Overcollateralization Amount.................................57
Description of the Transfer and Servicing Agreements..........................59
The Transfer and Servicing Agreements.........................................59
Sale and Assignment of Receivables; Subsequent Receivables....................59
Accounts......................................................................59
Collections...................................................................60
Pre-Funding Account...........................................................60
Capitalized Interest Account..................................................61
Note Distribution Account.....................................................62
Certificate Distribution Account..............................................62
Advances......................................................................62
Servicing Compensation........................................................62
Net Deposits..................................................................63
Optional Purchase.............................................................63
Removal of Servicer...........................................................63
Duties of the Owner Trustee and the Indenture Trustee.........................64
The Owner Trustee and the Indenture Trustee...................................65
Material Income Tax Consequences..............................................66
Tax Characterization of the Trust.............................................66
Treatment of the Notes as Indebtedness........................................66
Treatment of the Certificates.................................................67
ERISA Considerations..........................................................67
Underwriting..................................................................68
Notice to Canadian Residents..................................................71
Resale Restrictions...........................................................71
Representations of Purchasers.................................................71
Rights of Action (Ontario Purchasers).........................................71
Enforcement of Legal Rights...................................................71
Notice to British Columbia Residents..........................................71
Taxation and Eligibility for Investment.......................................72
Legal Opinions................................................................72
Index of Terms................................................................73
S-3
TABLE OF CONTENTS
(continued)
Page
Annex A Global Clearance, Settlement and Tax Documentation Procedures..........1
Initial Settlement.............................................................1
Secondary Market Trading.......................................................1
Material U.S. Federal Income Tax Documentation Requirements....................3
S-4
Important Notice About Information Presented in this
Prospectus Supplement and the accompanying Prospectus
Information about the securities is provided in two separate documents that
progressively provide varying levels of detail: (1) the accompanying prospectus,
which provides general information, some of which may not apply to a particular
class of securities, including your class; and (2) this prospectus supplement,
which describes the specific terms of your class of securities.
If the description of the terms of your securities varies between this
prospectus supplement and the accompanying prospectus, you should rely on the
information in this prospectus supplement.
Cross-references are included in this prospectus supplement and in the
accompanying prospectus which direct you to more detailed descriptions of a
particular topic. You can also find references to key topics in the Table of
Contents beginning on page S-2 in this prospectus supplement and the Table of
Contents beginning on page 2 in the accompanying prospectus.
You can find a listing of the pages where capitalized terms used in this
prospectus supplement are defined under the caption "Index of Terms" beginning
on page S-73 in this prospectus supplement and under the caption "Index of
Terms" beginning on page 102 in the accompanying prospectus.
S-5
- --------------------------------------------------------------------------------
SUMMARY OF PARTIES TO THE TRANSACTION*
---------------------
|----------------------- BMW FINANCIAL
| SERVICES NA, LLC
| (seller and servicer)
| ---------------------
| |
| |
- ------------ ---------------------
servicing of BMW FS
receivables SECURITIES
- ------------ LLC
| (depositor)
| ---------------------
| | ------------------------
| | WILMINGTON TRUST
| --------------------- / COMPANY
| BMW VEHICLE / (owner trustee)
|----------------------- OWNER TRUST / ------------------------
[ ]-A
(ISSUER)
---------------------
- ------------------------ / \
JPMORGAN CHASE BANK / \
(indenture trustee) / \
------------------------ / \
/ \
/ \
/ \
/ \
/ ------------------
---------------
CLASS A-1 NOTES CERTIFICATES
CLASS A-2 NOTES
CLASS A-3 NOTES ------------------
AND
CLASS A-4 NOTES
---------------
* This chart provides only a simplified overview of the relations between the
key parties to the transaction. Refer to this prospectus supplement and the
prospectus for a further description.
- --------------------------------------------------------------------------------
S-6
SUMMARY OF MONTHLY DEPOSITS TO AND
WITHDRAWALS FROM ACCOUNTS*
- ----------------------------------------------------------- /----------- -----------
Servicer / Payments on Obligors on
\ Receivables Receivables
\----------- -----------
- -----------------------------------------------------------
| | | | / \ | |
| | | | / \ | |
| | | | / \ | |
| | | | / \ | |
|Principal | |Servicer| |Reimbursements| |Warranty & |
|& Interest | |Advances| |of Servicer | |Administrative|
|on | | | | Advances | |Payments |
|Receivables| | | | | \ /
\ / \ / | | \ /
\ / \ / | | \ /
\ / \ / | | \ /
/ ----------------
/ Withdrawals from
\ Reserve Account
- ---------------------------------------------------------- \ --------------- -------
COLLECTION ACCOUNT Reserve
- ---------------------------------------------------------- ------------\ Account
| | Deposits to \ -------
| | Reserve Account | |
| | ------------/ | |
| | |Excess monies|
Interest & Payments on |from Reserve |
Principal Certificates |Account |
| | \ /
\|/ \|/ \ /
----------- ----------- \ /
Noteholders Certificate ----------
Holders Depositor
----------- -----------
----------
* This chart provides only a simplified overview of the monthly flow of funds.
Refer to this prospectus supplement and the prospectus for a further
description.
S-7
Summary of Terms
The following summary contains a brief description of the notes. You will
find a detailed description of the terms of the offering of the notes following
this summary. You should carefully read this entire document and the
accompanying prospectus to understand all of the terms of the offering of the
notes. You should consider both documents when making your investment decision.
Relevant Parties
Issuer................................. BMW Vehicle Owner Trust [ ]-A. The trust will be
established by a trust agreement.
Seller................................. BMW Financial Services NA, LLC.
Servicer............................... BMW Financial Services NA, LLC.
Depositor.............................. BMW FS Securities LLC.
Indenture Trustee...................... JPMorgan Chase Bank.
Owner Trustee.......................... Wilmington Trust Company.
Relevant Agreements
Indenture.............................. The indenture between the issuer and the indenture trustee.
The indenture provides for the terms relating to the notes.
Trust Agreement........................ The trust agreement between the depositor and the owner
trustee. The trust agreement governs the creation of the
trust and provides for the terms relating to the certificates.
Sale and Servicing Agreement........... The sale and servicing agreement among the issuer, the
indenture trustee, the servicer and the depositor. The sale
and servicing agreement governs the transfer of the
receivables by the depositor to the trust and the servicing
of the receivables by the servicer.
Administration Agreement............... The administration agreement among BMW Financial Services NA,
LLC, as administrator, the trust and the indenture trustee.
The administration agreement governs the provision of reports
by the administrator and the performance by the administrator
of other administrative duties for the trust.
S-8
Receivables Purchase Agreement ........ The receivables purchase agreement between the depositor and the
seller. This agreement governs the sale of the receivables from
BMW Financial Services NA, LLC to the depositor.
Relevant Dates
Closing Date........................... Expected to be March [ ], 2003.
Initial Cutoff Date.................... [ ], 2003.
Subsequent Cutoff Date................. The first day of the month during which a subsequent
receivable is transferred to the trust.
Payment Dates.......................... The trust will pay interest and principal on the securities
on the twenty-fifth day of each month. If the twenty-fifth
day of the month is not a business day, payments on the
securities will be made on the next business day. The date
that any payment is made is called a payment date. The first
payment date is [ ], 2003.
Final Scheduled Payment Dates.......... The final principal payment for each class of securities is
scheduled to be made on the final scheduled payment dates as
follows:
o Class A-1 Notes ____, 200_
o Class A-2 Notes ____, 200_
o Class A-3 Notes ____, 200_
o Class A-4 Notes ____, 200_
o Certificates _____, 200_.
Record Date............................ So long as the notes are in book-entry form, the trust will
make payments on the securities to the holders of record on
the day immediately preceding the payment date. If the
securities are issued in definitive form, the record date
will be the last day of the month preceding the payment date.
S-9
Description of the Securities
General................................ The notes consist of the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4
Notes,(collectively referred to as the Class A Notes). The
initial principal amount of each Class of notes is described
on the front cover of this prospectus supplement.
The trust will also issue $[ ] initial principal
amount of certificates (the "Certificates", and together with
the Class A Notes, the "Securities"), as described on the
cover page. The certificates will represent fractional
undivided interests in the trust. Payments of interest on
and principal of the Certificates are subordinated to the
payments of interest on and principal of the notes as
described herein.
Receivables............................ The trust's main source of funds for making payments on the
securities will be collections on motor vehicle retail
installment sale contracts, also known as the receivables.
All of the initial receivables are, and all of the subsequent
receivables will be, secured by motor vehicles manufactured
by subsidiaries of Bayerische Motoren Werke Aktiengesellschaft
("BMW AG" and, together with all other BMW group companies,
the "BMW Group") except that __% by principal balance of the
receivables are secured by vehicles of other manufacturers.
Initially, the principal balance of the receivables on [ ],
2003, referred to as the "initial cutoff date," was
$[ ]. As of the initial cutoff date, the receivables
(the "Initial Receivables") had the following characteristics:
o number of receivables: [ ]
o average principal balance: $[ ]
o weighted average annual
percentage rate: [ ]%
o weighted average remaining term to maturity: [ ] months
o weighted average original term to maturity: [ ] months
S-10
The receivables owned by the trust are classified as
simple interest receivables. Simple interest receivables are
described in more detail in "The Receivables" in the
accompanying prospectus.
We refer you to "The Receivables" in this prospectus supplement for
more information on the receivables.
Funding Period......................... During the period from the Closing Date through the end of
the Collection Period in [ ], 2003 (the "Funding
Period"), the Trust can use funds on deposit in an account
(the "Pre-Funding Account") to purchase additional
receivables (the "Subsequent Receivables") from the Depositor
in an amount up to approximately $[ ]. The
purchase price for the Subsequent Receivables will be
withdrawn from the Pre-Funding Account. A portion of the
purchase price will be deposited into the reserve account if
necessary to maintain the amount on deposit in the reserve
account at the specified reserve account balance and the
remainder of the purchase price will be paid to the Depositor
by the trust and then to BMW Financial Services NA, LLC by
the Depositor. If the full amount deposited on the Closing
Date cannot be used for the purpose of purchasing Subsequent
Receivables during the Funding Period, all remaining monies
will be applied as a mandatory prepayment of the notes
sequentially to the earliest maturing class of Class A Notes
then outstanding.
Terms of the Notes..................... In general, noteholders are entitled to receive payments of
interest and principal from the trust only to the extent that
collections from trust assets are sufficient to make those
payments. Interest and principal collections from trust
assets will be divided among the various classes of
securities in specified proportions. The trust will pay
interest and principal to noteholders of record as of the
preceding record date.
S-11
Interest:
The interest rate for each class of notes is set forth
on the front cover of this prospectus supplement. The
Class A-1 Notes will accrue interest on an actual/360
basis from the previous payment date to the next
payment date, except that the first interest accrual
period will be from the closing date to [ ], 2003.
This means that the interest due on each
payment date will be the product of:
o the outstanding principal balance of the related
class of notes,
o the interest rate, and
o the actual number of days since the previous payment
date to but excluding the current payment date or, in the
case of the first payment date, since the closing
date divided by 360.
The Class A-2, Class A-3, Class A-4 and Certificates
will accrue interest on a 30/360 basis from the 25th
day of each calendar month to the 25th day of the
succeeding calendar month except that the first
interest accrual period will be from the closing
date to [ ], 2003. This means that the interest due
on each payment date will be the product of:
o the outstanding principal balance of the related
class of notes;
o the applicable interest rate; and
o 30 or, in the case of the first payment date, ___
divided by 360.
If noteholders of any class do not receive all interest owed
to them on a payment date, the trust will make payments of
interest on later payment dates to make up the shortfall
together with interest on those amounts, to the extent funds
from specified sources are available to cover the shortfall.
Principal:
The trust will pay principal sequentially to the earliest
maturing class of Class A Notes then outstanding until that
class is paid in full.
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Terms of the Certificates.............. In general, certificateholders are entitled to receive
payments of interest and principal from the trust only to the
extent that collections from trust assets are sufficient to
make those payments. The trust will pay interest and
principal to certificateholders, of record as of the
preceding record date.
Interest:
The interest rate for the certificates is set forth on the
front cover of this prospectus supplement.
The certificates will accrue interest on a 30/360 basis from
the [ ]th day of each calendar month to the [ ]th day of the
succeeding calendar month except that the first interest
accrual period will be from the closing date to [ ], 2003.
This means that the interest due on each payment date will
be the product of: (i) the outstanding principal balance of
the certificates, (ii) the applicable interest rate, and
(iii) 30 (or, in the case of the first payment date, __)
divided by 360.
Interest distributions on the certificates are subordinated
to payments on the notes. This subordination of
distributions on the certificates is intended to increase
the likelihood that the trust will not default in making
payments due on the notes.
Principal:
o The trust will not distribute principal payments on
the certificates until the class A-1 Notes are paid
in full. On and after the payment date on which the
class A-1 Notes have been paid in full, the
certificates will receive distribution of principal
until the certificates have been paid in full. The
trust must pay the outstanding principal amount of
the certificates, to the extent not previously paid,
by [ ].
Priority of Distributions.............. From collections on the receivables during the prior calendar
month and, in the event of a shortfall in meeting the
payments described in clauses (1) through (5), amounts
withdrawn from the reserve account, the trust will pay the
following amounts on each payment date in the following order
of priority:
(1) To the servicer, the servicing fee and all
unpaid servicing fees from prior collection
periods and
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amounts in respect of reimbursement for non-recoverable
servicer advances,
(2) To the Class A Noteholders, the accrued interest on
the Class A Notes,
(3) To the principal distribution account, the first priority
principal distribution amount which will generally be the
amount, if any, equal to the excess of:
o the principal balances of the Class A Notes over
o the sum of the principal balance of the receivables
plus the amount, if any, remaining on deposit in the
pre-funding account,
(4) To the certificateholders, accrued and unpaid
interest on the certificates,
(5) To the principal distribution account, generally an
amount equal to the greater of:
o the principal balance of the Class A-1 Notes and
o the excess of
o the sum of the principal balance of the notes and
the certificates over
o an amount equal to the sum of the principal balance
of the receivables plus the amount, if any, on
deposit in the pre-funding account less the
required yield supplement overcollateralization
amount, provided that this amount will be reduced
by any amounts previously deposited in the
principal distribution account in accordance with
clause (3) above,
(6) To the reserve account, the amount, if any, necessary to
cause the amount on deposit in the reserve account to equal the
specified reserve account balance, which is [ ]% of the sum of
the current aggregate principal balance of the receivables and
the amounts currently on deposit
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in the pre-funding account,
(7) To the indenture trustee and the owner trustee, the indenture
trustee fee and owner trustee fee, respectively, and all
unpaid indenture trustee fees and owner trustee fees from
prior collection periods to the extent not otherwise paid by
the servicer; provided that until the notes have been paid
in full, the annual amount paid to the indenture trustee and
the owner trustee, respectively, out of available amounts
allocated described in this clause (7) shall not exceed
[$10,000], and
(8) To the depositor, any amounts remaining in the collection account.
On the final scheduled payment date of any class of notes,
the amount required to be allocated to the principal
distribution account will be the amount necessary to reduce
the principal balance of that class of notes to zero.
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Distributions from the Principal
Distribution Account........................ From deposits made to the principal distribution account,
the trust will generally pay principal on the notes in the
following order of priority:
o to the Class A-1 Notes until they are paid in full;
o to the Class A-2 Notes until they are paid in full;
o to the Class A-3 Notes until they are paid in full;
o to the Class A-4 Notes until they are paid in full;
o to the Certificates until they are paid in full; and
o to the Depositor, any funds remaining.
Optional Redemption.................... The servicer may cause the trust to redeem any outstanding
securities when the outstanding aggregate principal balance
of the receivables declines to 10% or less of the original
aggregate principal balance of the receivables as of the
initial cutoff date plus the original amount deposited in the
pre-funding account. We refer you to "Description of the
Transfer and Servicing Agreements-Optional Purchase" in this
prospectus supplement for more detailed information.
Credit Enhancement..................... Credit enhancement is intended to protect you against losses
and delays in payments on your securities by absorbing losses
on the receivables and other shortfalls in cash flows. The
credit enhancement for the Class A Notes will include the
subordination of the Certificates, the reserve account and
the subordination of the depositor's right to receive excess
interest. The credit enhancement for the Certificates will
include the reserve account and the subordination of the
depositor's right to receive excess interest.
Subordination of Principal and Interest. As long as the
Class A Notes remain outstanding:
o payments of interest on the Certificates will
be subordinated to payments of interest on the
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Class A Notes and, in certain circumstances,
payments of principal on the Class A Notes; and
o payments of principal on the Certificates will be
subordinated to payment of interest and principal on
the Class A Notes.
Reserve Account. On each payment date, the trust will use funds in the
reserve account to cover shortfalls in payments of
the servicing fee and interest and principal required to be paid on the
notes.
The sale and servicing agreement sets forth the specified reserve account
balance, which is the amount that is required to be on deposit in the
reserve account. On the closing date, the depositor will cause to be
deposited $[ ] into the reserve account, which is [ ]% of
the initial aggregate principal balance of the receivables as of the
initial cutoff date and the amount on deposit in the
pre-funding account as of the closing date. On each payment date,
after making required payments to the servicer and to the holders
of the notes, the trust will make a deposit into the reserve account to the
extent necessary to maintain the amount on deposit in the reserve
account at the specified reserve account balance.
Excess Interest. The depositor is entitled to receive
payments of interest collected on the receivables which are
not used by the trust to make other required payments. The
depositor's right to receive this excess interest is
subordinated to the payment of the servicing fee,
reimbursement of non-recoverable advances, the payment of
principal and interest on the notes, the funding of the
reserve account, the payment of indenture trustee and owner
trustee fees and the payment of principal and interest on
the certificates.
For more detailed information about the reserve account, we
refer you to "Subordination; Reserve Account" in this
prospectus supplement.
Yield Supplement
Overcollateralization Amount........... On the Closing Date, the sum of the principal balance of the
receivables as of the initial cutoff date and the amount on
deposit in the pre-funding account will exceed the initial
principal amount of the securities, by [ ] (the "Initial
Yield Supplement Overcollateralization Amount"), which is
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approximately [ ]% of the sum of the aggregate principal
balance of the initial receivables as of the initial cutoff
date and the amount on deposit in the pre-funding account on
the closing date. The yield supplement overcollateralization
amount will decline on each payment date. The yield
supplement overcollateralization amount is intended to
compensate for the low APRs on some of the receivables.
For detailed information on the yield supplement
overcollateralization amount, we refer you to "Description
of the Transfer and Servicing Agreement-Yield Supplement
Overcollateralization Amount" in this prospectus supplement.
Tax Status............................. Subject to important considerations described in this
prospectus supplement and the accompanying prospectus, Weil,
Gotshal & Manges LLP, special tax counsel to the trust, will
deliver its opinion that:
1. the notes will be characterized as debt for tax
purposes;
2. the trust will not be characterized as an
association or a publicly traded partnership taxable
as a corporation for federal income tax purposes.
If you purchase the notes, you will agree to treat the notes
as debt. The depositor and any subsequent purchaser of the
certificates will agree to treat the trust
o as a partnership in which the owners of the
certificates are partners, or
o if there is only one beneficial owner of the
certificates, as a "disregarded entity," for
federal income tax purposes.
We refer you to "Material Income Tax Consequences" in this
prospectus supplement and "Material Income Tax
Consequences--Tax Treatment of Owner Trusts" in the
accompanying prospectus.
ERISA Considerations................... The notes and certificates are generally eligible for
purchase by employee benefit plans and individual retirement
accounts, subject to those considerations
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discussed under "ERISA Considerations" in this prospectus supplement
and in the accompanying prospectus.
We refer you to "ERISA Considerations" in this prospectus
supplement and in the accompanying prospectus. If you are a
benefit plan fiduciary considering purchase of the
securities you should, among other things, consult with your
counsel in determining whether all required conditions have
been satisfied.
Eligibility for Purchase by Money
Market Funds........................... The Class A-1 Notes will be eligible for purchase by money market
funds under Rule 2a-7 under the Investment Company Act of 1940, as
amended. A money market fund should consult its legal advisers
regarding the eligibility of the Class A-1 Notes under Rule 2a-7
and whether an investment in the Class A-1 Notes satisfies the fund's
investment policies and objectives.
Ratings................................ It is a condition to the issuance of the securities that the
securities will receive the following ratings from Standard
& Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., and Moody's Investors Service, Inc. (the
"Rating Agencies"):
Standard &
Class Poor's Moody's
----- --------------- -------
A-1 A-1+ P-l
A-2 AAA Aaa
A-3 AAA Aaa
A-4 AAA Aaa
Certificates A A3
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Risk Factors
You should consider the following risk factors (and the factors set forth under
"Risk Factors" in the accompanying prospectus) in deciding whether to purchase
the securities of any class.
Because the trust has limited assets, The only source of funds for payments on the securities is the
there is only limited protection against assets of the trust and the reserve account. The securities are
potential losses. not obligations of, and will not be insured or guaranteed by,
any governmental agency or the seller, the servicer, any
trustee or any of their affiliates. You must rely solely on
payments on the receivables and amounts on deposit in the
reserve account for payments on the notes. Although funds in
the reserve account will be available to cover shortfalls in
payments of interest and principal on each payment date, the
amounts deposited in the reserve account will be limited. If
the entire reserve account has been used, the trust will
depend solely on current collections on the receivables to
make payments on the notes. Any excess amounts released from
the reserve account to the depositor will no longer be
available to noteholders on any later payment date. We refer
you to "Subordination; Reserve Account" in this prospectus
supplement.
Occurrence of events of default under the Payment defaults or the insolvency or dissolution of the
indenture may result in insufficient depositor may result in prepayment of the securities, which may
funds to make payments on your securities. result in losses. If the trust fails to pay principal of the
notes when due, or fails to pay interest on the notes within
five days of the due date, the indenture trustee or the
holders of the controlling class of notes outstanding may
declare the entire amount of the notes to be due
immediately. If this happens, the holders of a majority of
the notes outstanding then may direct the indenture trustee
to sell the assets of the trust and prepay the notes. In the
event the indenture trustee sells the receivables under
adverse market conditions, proceeds from the sale of the
receivables may not be sufficient to repay all of the
securities and you may suffer a loss.
If you own Certificates, you are subject The Certificates bear greater risk than the Class A Notes
to greater credit risk because the because payments of interest and principal on the Certificates
Certificates are subordinate to the Class are subordinate, to the extent described below, to payments of
A Notes. interest and principal on the Class A Notes.
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Interest payments on the Certificates on each distribution
date will be subordinated to servicing fees due to the
servicer, interest payments on the Class A Notes and an
allocation of principal payments to the Class A Notes to the
extent the sum of the principal balances of the Class A
Notes exceeds the receivables balance.
Principal payments on the Certificates will be fully
subordinated to principal payments on the Class A Notes. No
principal will be paid on the Certificates until the Class A
Notes have been paid in full.
Payment priorities increase risk of loss Classes of notes that receive payments, particularly principal
or delay in payment to certain notes. payments, before other classes will be repaid more rapidly than
the other classes and payments to these other classes may be
delayed if collections and amounts on deposit in the reserve
account are inadequate to pay all amounts payable on all
classes of notes on any payment date. In addition, because
principal of each class of notes will be paid sequentially,
classes of notes that have higher sequential numerical class
designation will be outstanding longer and therefore will be
exposed to the risk of losses on the receivables during
periods after other classes have been receiving most or all
amounts payable on their notes, and after which a
disproportionate amount of credit enhancement may have been
applied and not replenished.
As a result, the yields of the later maturing classes of
Class A Notes will be sensitive, and the yields of the
Certificates will be very sensitive to losses on the
receivables and the timing of those losses. If the actual
rate and amount of losses exceed your expectations, and if
amounts in the reserve account are insufficient to cover the
resulting shortfalls, the yield to maturity on your notes
may be lower than anticipated, and you could suffer a loss.
Classes of notes that receive payments earlier than expected
are exposed to greater reinvestment risk and classes of
notes that receive principal later than expected are exposed
to greater risk of loss. In either case, the yields on your
notes could be materially and adversely affected.
S-21
Upon the occurrence of an event of default and acceleration
of the notes, principal payments will be made first on the
Class A-1 Notes until the Class A-1 Notes have been paid in
full, and thereafter on the Class A-2 Notes, Class A-3 Notes
and Class A-4 Notes pro rata based on the amount outstanding
under each class. Consequently, even after an event of
default and acceleration of all the notes, the Class A-2
Noteholders, Class A-3 Noteholders and Class A-4 Noteholders
will not receive payments on principal until the Class A-1
notes have been paid in full.
The geographic concentration of the Economic conditions in the states where obligors reside may
obligors and performance of the affect delinquencies, losses and prepayments on the
receivables may increase the risk of loss receivables. The following economic conditions may affect
on your investment. payments on the receivables:
o unemployment,
o interest rates,
o inflation rates, and
o consumer perceptions of the economy.
If a large number of obligors are located in a particular
state, these conditions could increase the delinquency,
credit loss or repossession experience of the receivables.
If there is a concentration of obligors and receivables in
particular states, any adverse economic conditions in those
states may affect the performance of the securities more
than if this concentration did not exist.
As of the initial cutoff date, BMW Financial Services NA,
LLC's records indicate that the billing addresses of the
originating dealers of the receivables were concentrated in
the following states:
Percentage of Total
State Principal Balance
----- -----------------
%
%
%
%
No other state, by billing address, constituted more than 5%
of the aggregate principal balance of the receivables as of
the initial cutoff date.
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For a discussion of the breakdown of the receivables by
state, we refer you to "The Receivables" in this prospectus
supplement.
Prepayments on receivables may cause You may receive payment of principal on your securities earlier
prepayments on the securities, resulting than you expected. If that happens, you may not be able to
in reinvestment risk to you. reinvest the principal you receive at a rate as high as the rate
on your securities. Prepayments on the receivables will shorten
the life of the securities to an extent that cannot be
predicted. Prepayments may occur for a number of reasons. Some
prepayments may be caused by the obligors under the
receivables. For example, obligors may:
o make early payments, since receivables will generally
be prepayable at any time without penalty;
o default, resulting in the repossession and sale of the
financed vehicle; or
o damage the vehicle or become unable to pay due to death or
disability, resulting in payments to the trust under any
existing physical damage, credit life or other insurance.
Some prepayments may be caused by the seller or the
servicer. For example, the seller will make representations
and warranties regarding the receivables, and the servicer
will agree to take or refrain from taking certain actions
with respect to the receivables. If the seller or the
servicer breaches a representation or warranty and the
breach is material and cannot be remedied, it will be
required to purchase the affected receivables from the
trust. This will result, in effect, in the prepayment of the
purchased receivables. In addition, if amounts on deposit in
the pre-funding account are not fully utilized by the end of
the funding period, these amounts will be applied as a
prepayment of principal of the Class A Notes sequentially to
the earliest maturing class of Class A Notes then
outstanding. Moreover, the servicer has the option to
purchase the receivables from the trust when the total
outstanding principal balance of the receivables is 10% or
less of the sum of the total outstanding principal balance
of the receivables as of the initial cutoff date plus the
amount on deposit in the pre-funding account as of the
closing date.
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The rate of prepayments on the receivables may be influenced
by a variety of economic, social and other factors. The
seller maintains limited historical data with respect to
prepayments. For these reasons, the seller cannot predict
the actual prepayment rates for the receivables. The seller,
however, believes that the actual rate of prepayments will
result in the weighted average life of the receivables being
shorter than the period from the closing date to the final
scheduled maturity date for the related class of securities.
If this is the case, the weighted average life of each class
of securities will be correspondingly shorter.
Withdrawal or downgrading of the initial A security rating is not a recommendation to buy, sell or hold
ratings of the notes will affect the securities. Similar ratings on different types of securities do
prices for the notes upon resale. not necessarily mean the same thing. You should analyze the
significance of each rating independently from any other
rating. A rating agency may change its rating of the notes
after the notes are issued if that rating agency believes
that circumstances have changed. Any subsequent change in a
rating will likely affect the price that a subsequent
purchaser would be willing to pay for the notes and your
ability to resell your notes.
The notes are not suitable investments The notes are not a suitable investment for any investor that
for all investors. requires a regular or predictable schedule of payments or
payment on specific dates. The notes are complex investments
that should be considered only by sophisticated investors.
We suggest that only investors who, either alone or with
their financial, tax and legal advisors, have the expertise
to analyze the prepayment, reinvestment and default risks,
the tax consequences of an investment and the interaction of
these factors should consider investing in the notes.
Payments on the certificates will be Payments on the certificates will be subordinated in priority of
subordinated to payments on the notes. payment to payments on the notes as described in this prospectus
supplement. This subordination has the effect of increasing
the likelihood of payment on the notes and therefore
decreasing the likelihood of payment on the certificates.
The certificateholders will not receive any payments of
principal on a payment date until after the class A-1 Notes
have been paid in full.
S-24
The Trust
General
The BMW Vehicle Owner Trust [ ]-A (the "Trust") is a Delaware business
trust to be formed pursuant to the trust agreement (the "Trust Agreement")
between BMW FS Securities LLC, as depositor (the "Depositor"), and Wilmington
Trust Company, as owner trustee (the "Owner Trustee"). After its formation, the
Trust will not engage in any activity other than:
1. acquiring, holding and managing the Initial Receivables and the Subsequent
Receivables and the other assets of the Trust and proceeds from those
assets;
2. issuing the notes and the certificates;
3. making payments on the notes and the certificates; and
4. engaging in other activities that are necessary, suitable or convenient to
accomplish the foregoing or are incidental to or connected with those
activities.
The net proceeds from the sale of the Securities (as defined in this
prospectus supplement) will be used by the Trust to purchase the Initial
Receivables and the Subsequent Receivables from the Depositor pursuant to the
sale and servicing agreement dated as of _______ __, 2003 (the "Sale and
Servicing Agreement") among BMW Financial Services NA, LLC ("BMW FS") as seller,
servicer (in that capacity the "Servicer"), custodian and administrator, the
Trust, and JPMorgan Chase Bank, as indenture trustee (the "Indenture Trustee")
and to fund the Reserve Account.
BMW FS will be appointed to act as the servicer of the Receivables. The
Servicer will service the Receivables pursuant to the Sale and Servicing
Agreement, the owner trust administration agreement dated as of ________ __,
2003, (the "Administration Agreement") among BMW FS, as administrator, the Trust
and the Indenture Trustee and the Trust Agreement, and will be compensated for
those services as described under "Description of the Transfer and Servicing
Agreements--Servicing Compensation" in this prospectus supplement and
"Description of the Transfer and Servicing Agreements--Servicing Compensation"
in the accompanying prospectus.
Pursuant to agreements between BMW FS and dealers in BMW products ("BMW
Centers"), BMW Centers will repurchase from BMW FS those contracts that do not
meet specified representations and warranties made by the BMW Centers. These BMW
Centers' repurchase obligations are referred to in this prospectus supplement as
"BMW Center Recourse." Those representations and warranties relate primarily to
the origination of the contracts and the perfection of the security interests in
the related financed vehicles, and do not relate to the creditworthiness of the
related Obligors or the collectability of those contracts. Although the Dealer
Agreements with respect to the Receivables will not be assigned to the Owner
Trustee, the Sale and Servicing Agreement will require that any recovery by BMW
FS in respect of any Receivable pursuant to any BMW Center Recourse be deposited
in the Collection Account to satisfy BMW FS' repurchase obligations under the
Sale and Servicing Agreement. The sales by the BMW Centers of retail installment
sale contracts to BMW FS do not generally provide for recourse against the BMW
Centers for unpaid amounts in the event of a default by an Obligor, other than
in connection with the breach of the foregoing representations and warranties.
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Each certificate represents a fractional undivided ownership interest
in the Trust. The Trust property includes the Receivables and monies due or
received under the Receivables on or after the related cutoff date. The Reserve
Account will be maintained for the benefit of the Noteholders and the
Certificateholders.
The Trust's principal offices are in Wilmington, Delaware, in care of
Wilmington Trust Company, as Owner Trustee, at the address set forth below under
"The Owner Trustee and the Indenture Trustee."
Capitalization of the Trust
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes and the Certificates had
taken place on that date:
Class A-1 Notes....................................... $[ ]
-------------------
Class A-2 Notes....................................... [ ]
-------------------
Class A-3 Notes....................................... [ ]
-------------------
Class A-4 Notes....................................... [ ]
-------------------
Certificates.......................................... [ ]
-------------------
Total.............................................. $[ ]
===================
The Owner Trustee and the Indenture Trustee
Wilmington Trust Company is the Owner Trustee under the Trust Agreement.
Wilmington Trust Company is a Delaware banking corporation, and its Corporate
Trust Office is located at 1100 North Market Street, Rodney Square North,
Wilmington, Delaware 19890-0001, Attn: Corporate Trust Administration. The
Depositor, the Servicer and its affiliates may maintain normal commercial
banking relations with the Owner Trustee and its affiliates. The fees and
expenses of the Owner Trustee will be paid by the Administrator.
JP Morgan Chase Bank is the Indenture Trustee under the Indenture (the
Indenture Trustee and the Owner Trustee are collectively referred to as the
"Trustees"). JP Morgan Chase Bank is a New York banking association and its
principal executive offices are located at 450 West 33rd Street, New York, New
York 10001. The Depositor, the Servicer and its affiliates may maintain normal
commercial banking relations with the Indenture Trustee and its affiliates.
The Receivables
Assets of the Trust
On the Closing Date, the assets of the Trust will include:
1. a pool of motor vehicle retail installment sale contracts (the "Initial
Receivables") having an aggregate principal balance as of the close of
business on [ ] (the "Initial Cutoff Date") of approximately $[ ] (the
"Initial Pool Balance") and any additional motor vehicle retail installment
sale contracts purchased during the Funding Period (the "Subsequent
Receivables" and together with the Initial Receivables, the "Receivables");
S-26
2. all rights, benefits, obligations and proceeds arising from or in
connection with the Receivables, including the right to receive payments
collected thereon after the Initial Cutoff Date with respect to the Initial
Receivables and on or after the related Subsequent Cutoff Date with respect
to any Subsequent Receivables;
3. security interests in the new or used automobiles, motorcycles, light-duty
trucks and sport utility vehicles (the "Financed Vehicles") securing each
Receivable;
4. the related Receivable files;
5. all rights to insurance proceeds and liquidation proceeds with respect to
the Receivables;
6. certain rights under the Receivables Purchase Agreement dated as of
[___________], 2003 (the "Receivables Purchase Agreement") between the
Depositor and BMW FS, as seller (the "Seller") and any Subsequent Purchase
Agreement between the Depositor and BMW FS;
7. funds on deposit from time to time in the Reserve Account;
8. funds on deposit in the Collection Account;
9. funds on deposit in the Pre-Funding Account; and
10. funds on deposit in the Capitalized Interest Account.
The Motor Vehicle Contracts that comprise the Receivables are secured by
new or used automobiles, motorcycles, light-duty trucks and sport utility
vehicles manufactured by the BMW Group as well as Land Rover sport utility
vehicles except that __% by principal balance of the Receivables are secured by
vehicles of other manufacturers. The Contracts were originated by BMW Centers
and Land Rover dealers who participate in BMW FS' vehicle financing program and
were acquired by BMW FS. See "BMW FS' Vehicle Financing Programs."
The Trust will purchase the Initial Receivables from the Depositor on or
about March [ ], 2003 (the "Closing Date") pursuant to the Sale and Servicing
Agreement.
The Depositor will have purchased the Initial Receivables from the Seller
pursuant to the Receivables Purchase Agreement. In the Receivables Purchase
Agreement, the Seller makes specific representations and warranties as of the
Closing Date with respect to the Receivables and agrees to repurchase any
Receivable with respect to which there is a breach of any such representation
and warranty if that breach has a material and adverse effect on the interests
of the Depositor or the Trust in the related Receivable. Under the Sale and
Servicing Agreement, the Depositor will assign all of its rights under the
Receivables Purchase Agreement, including its right to enforce the Seller's
repurchase obligations, to the Trust.
The Receivables may be prepaid at any time without penalty by the purchaser
or co-purchasers of the Financed Vehicle or any other person or persons who are
obligated to make payments thereunder (each, an "Obligor").
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Eligibility Criteria
The Receivables were or will be selected from the Seller's portfolio of
motor vehicle retail installment sale contracts based on several criteria,
including the requirement that each Receivable:
1. has an original term of not more than [ ] months;
2. has a current principal balance of at least $[ ];
3. provides for level monthly payments that fully amortize the amount financed
over the original term of the related Contract;
4. is not more than 30 days past due as of the Initial Cutoff Date or
Subsequent Cutoff Date, as applicable;
5. does not have a final scheduled payment date later than six months prior to
the Final Scheduled Payment Date of the Certificates; and
6. does not have any notation in the Servicer's records indicating the Obligor
is the subject of a bankruptcy proceeding.
No selection procedures believed to be adverse to the Noteholders were used
in selecting the Receivables.
During the Funding Period, pursuant to the Receivables Purchase Agreement,
the Depositor is obligated to purchase from BMW FS and, pursuant to the Sale and
Servicing Agreement, to sell to the Trust, Subsequent Receivables to the extent
they are available. On the Closing Date, the amount available to purchase
Subsequent Receivables will be approximately $[ ]. On each date on which
Subsequent Receivables are transferred to the Trust (each, a "Subsequent
Transfer Date"), BMW FS will convey Subsequent Receivables to the Depositor
pursuant to an agreement (a "Subsequent Purchase Agreement") between BMW FS and
the Depositor. The Depositor will convey the Subsequent Receivables to the Trust
on the related Subsequent Transfer Date pursuant to the Sale and Servicing
Agreement and an agreement (a "Subsequent Transfer Agreement") between the
Depositor and the Trust. The purchase price for each Subsequent Receivable will
be withdrawn from the Pre-Funding Account, a portion of the withdrawal amount
will be deposited into the Reserve Account, if necessary, and the remainder of
the purchase price will be paid to the Depositor by the Trust and then to BMW FS
by the Depositor.
Any conveyance of Subsequent Receivables is subject to the following
conditions, among others:
1. as of the Subsequent Cutoff Date, each of the Subsequent Receivable must
satisfy the eligibility criteria specified under "The Receivables" in the
Prospectus Supplement and in the Sale and Servicing Agreement;
2. BMW FS will have selected the Subsequent Receivables in a manner that it
believes is not adverse to the interests of the Noteholders;
S-28
3. BMW FS and the Depositor will deliver opinions of counsel to the Trust, the
Indenture Trustee and the Rating Agencies with respect to the validity of
the conveyance of the Subsequent Receivables;
4. after inclusion of the Subsequent Receivables, the weighted average number
of months since the initial installment due date for the Receivables is at
least [ ] months;
5. none of the Subsequent Receivables will have an APR of less than [ ]%;
6. after inclusion of the Subsequent Receivables, at least [ ]% of the
aggregate principal balance of the Receivables is secured by Financed
Vehicles which were new at the date of origination; and
7. the Rating Agencies shall confirm that the ratings on the Notes (as defined
in this prospectus supplement) will not be withdrawn or reduced as a result
of the transfer of such Subsequent Receivables to the Trust.
Because the Subsequent Receivables may be originated after the Initial
Receivables, following the conveyance of Subsequent Receivables to the Trust
some of the characteristics of the Receivables, such as the weighted average APR
of the Receivables, the weighted average term to maturity of the Receivables and
the geographic concentration of the Receivables are likely to vary from those of
the Initial Receivables.
Description of Initial Receivables
All of the Initial Receivables were originated by BMW FS or purchased by
BMW FS from BMW Centers. As of the Initial Cutoff Date, approximately [ ]% of
the Initial Receivables by aggregate principal balance represented financing of
new vehicles and [ ]% of the Initial Receivables by aggregate principal balance
represented financing of used vehicles.
As of the Initial Cutoff Date, approximately [ ]%, [ ]%, [ ]% and [ ]% of
the Initial Receivables by aggregate principal balance were BMW automobiles, BMW
motorcycles, BMW sport utility vehicles and vehicles of other manufacturers,
respectively.
The distribution by APR, geographic distribution, distribution by remaining
term and distribution by remaining balance of the Initial Receivables as of the
Initial Cutoff Date are as set forth in the following tables. We refer you to
"The Receivables" in the accompanying prospectus for a further description of
the characteristics of Simple Interest Receivables.
COMPOSITION OF THE INITIAL RECEIVABLES
Aggregate Principal Balance............................................. $[ ]
Number of Receivables................................................... [ ]
Average Principal Balance............................................... $[ ]
Average Original Amount Financed........................................ $[ ]
Range of Original Amount Financed.................................... $[ ]
Weighted Average APR(1)................................................. [ ]%
Range of APRs........................................................ [ ]% to [ ]%
Weighted Average Original Term to Maturity(1)........................... [ ] months
Range of Original Term to Maturities................................. [ ] months to [ ] months
S-29
Weighted Average Remaining Term to Maturity(1).......................... [ ] months
Range of Remaining Term to Maturities................................ [ ] months to [ ] months
- ----------------
(1) Weighted by Principal Balance as of the Initial Cutoff Date.
S-30
Distribution of the Initial Receivables by APR
(Percentages may not add to 100.00% due to rounding)
Percentage
of Aggregate Initial Cutoff Date Percentage
Number of Number of Principal of Initial
Range of APRs (%) Receivables Receivables Balance Pool Balance
- ----------------- ----------- ----------- ------- ------------
2.01% to 3.00%........................ [ ] [ ] $ %
3.01% to 4.00%........................ [ ] [ ]
4.01% to 5.00%........................ [ ] [ ]
5.01% to 6.00%........................ [ ] [ ]
6.01% to 7.00%........................ [ ] [ ]
7.01% to 8.00%........................ [ ] [ ]
8.01% to 9.00%........................ [ ] [ ]
9.01% to 10.00%....................... [ ] [ ]
10.01% to 11.00%...................... [ ] [ ]
11.01% to 12.00%...................... [ ] [ ]
12.01% to 13.00%...................... [ ] [ ]
13.01% to 14.00%...................... [ ] [ ]
14.01% to 15.00%...................... [ ] [ ]
15.01% to 16.00%...................... [ ] [ ]
Totals:............................... [ ] [ ]% $ %
Distribution of the Initial Receivables by State
Based on the Addresses of the Originating BMW Centers
(Percentages may not add to 100.00% due to rounding)
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- -------- ----------- ----------- ----------------- ------------
Alabama............................... % %
Alaska................................
Arizona...............................
Arkansas..............................
California............................
Colorado..............................
Connecticut...........................
Delaware..............................
Florida...............................
Georgia...............................
Hawaii................................
Idaho.................................
Illinois..............................
Indiana...............................
Iowa..................................
Kansas................................
Kentucky..............................
Louisiana.............................
Maine.................................
S-31
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- -------- ----------- ----------- ----------------- ------------
Alabama............................... % %
Alaska................................
Arizona...............................
Arkansas..............................
California............................
Colorado..............................
Connecticut...........................
Delaware..............................
Florida...............................
Georgia...............................
Hawaii................................
Idaho.................................
Illinois..............................
Indiana...............................
Iowa..................................
Kansas................................
Kentucky..............................
Louisiana.............................
Maine.................................
Maryland..............................
Massachusetts.........................
Michigan..............................
Minnesota.............................
Mississippi...........................
Missouri..............................
Montana...............................
Nebraska..............................
Nevada................................
New Hampshire.........................
New Jersey............................
New Mexico............................
New York..............................
North Carolina........................
North Dakota..........................
Ohio..................................
Oklahoma..............................
Oregon................................
Pennsylvania..........................
Rhode Island..........................
South Carolina........................
South Dakota..........................
Tennessee.............................
Texas.................................
Utah..................................
Vermont...............................
Virginia..............................
S-32
Percentage of
Aggregate Percentage
Number of Number of Initial Cutoff Date of Initial
State(1) Receivables Receivables Principal Balance Pool Balance
- -------- ----------- ----------- ----------------- ------------
Washington............................
West Virginia.........................
Wisconsin.............................
Wyoming...............................
----------- ----------- ----------------- ------------
Totals:...............................
=========== =========== ================= ============
- ----------------
(1) Based on the addresses of the originating BMW Centers.
Distribution of the Initial Receivables by Remaining Term to Scheduled Maturity
Percentage of Percentage of
Remaining Term to Number of Aggregate Number of Aggregate Aggregate Principal
Scheduled Maturity Receivables Receivables Principal Balance Balance (1)
- ------------------ ----------- ----------- ----------------- -----------
6 months or less......................... [ ] 00.00% [$ . ] 00.00%
7 to 12 months........................... [ ] 00.00% [$ . ] 00.00%
13 to 18 months.......................... [ ] 00.00% [$ . ] 00.00%
19 to 24 months.......................... [ ] 00.00% [$ . ] 00.00%
25 to 30 months.......................... [ ] 00.00% [$ . ] 00.00%
31 to 36 months.......................... [ ] 00.00% [$ . ] 00.00%
37 to 42 months.......................... [ ] 00.00% [$ . ] 00.00%
43 to 48 months.......................... [ ] 00.00% [$ . ] 00.00%
49 to 54 months.......................... [ ] 00.00% [$ . ] 00.00%
55 to 60 months.......................... [ ] 00.00% [$ . ] 00.00%
Greater than 60 months................... [ ] 00.00% [$ . ] 00.00%
Total........................... [ ] 00.00% [$ . ] 00.00%
- ----------------
(1) Percentage may not add to 100% because of rounding.
S-33
Distribution by Remaining Principal Balance of the Initial Receivables
Percentage of Percentage of
Number of Aggregate Number Aggregate Aggregate Principal
Range of Remaining Principal Balances Receivables of Receivables Principal Balance Balance(1)
- ------------------------------------- ----------- ---------------- ----------------- ----------
$0 - 2,500.00......................................... [ , ] [0.00%] [$ . ] [0.00%]
$2,501.01 - 5,000.00.................................. [ , ] [0.00%] [$ . ] [0.00%]
$5,001.01 - 7,500.00.................................. [ , ] [0.00%] [$ . ] [0.00%]
$7,501.01 - 10,000.00................................. [ , ] [0.00%] [$ . ] [0.00%]
$10,001.01 - 12,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$12,501.01 - 15,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$15,001.01 - 17,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$17,501.01 - 20,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$20,001.01 - 22,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$22,501.01 - 25,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$25,001.01 - 27,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$27,501.01 - 30,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$30,001.01 - 32,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$32,501.01 - 35,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$35,001.01 - 37,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$37,501.01 - 40,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$40,001.01 - 42,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$42,501.01 - 45,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$45,001.01 - 47,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$47,501.01 - 50,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$50,001.01 - 52,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$52,501.01 - 55,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$55,001.01 - 57,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$57,501.01 - 60,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$60,001.01 - 62,500.00................................ [ , ] [0.00%] [$ . ] [0.00%]
$62,501.01 - 65,000.00................................ [ , ] [0.00%] [$ . ] [0.00%]
Greater than $65,000.01............................... [ , ] [0.00%] [$ . ] [0.00%]
Totals....................................... [ , ] [0.00%] [$ . ] [0.00%]
- ----------------
(1) Percentages may not add to 100% because of rounding.
S-34
Maturity and Prepayment Considerations
Information regarding maturity and prepayment considerations with respect
to the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes and the Class
A-4 Notes (collectively, the "Class A Notes") and the Certificates (the
"Certificates", and together with the Class A Notes, the "Securities") is set
forth under "Weighted Average Life of the Securities" in the accompanying
prospectus and "Risk Factors--You may experience reduced returns on your
investment resulting from prepayments, repurchases or early termination of the
trust" in the accompanying prospectus. Except as otherwise provided in this
prospectus supplement, no principal payments will be made on the Class A-2 Notes
until the Class A-1 Notes have been paid in full; no principal payments will be
made on the Class A-3 Notes until the Class A-2 Notes have been paid in full;
and no principal payments will be made on the Class A-4 Notes until the Class
A-3 Notes have been paid in full. In addition, no principal payments will be
made on the Certificates until the Class A-1 Notes have been paid in full. We
refer you to "Payments on the Notes" in this prospectus supplement.
Because the rate of payment of principal of each class of Notes depends
primarily on the rate of payment (including prepayments) of the principal
balance of the Receivables, final payment of any class of Notes could occur
significantly earlier or later than their respective final scheduled Payment
Dates set forth under "Payments on the Notes" (each, a "Final Scheduled Payment
Date") in this prospectus supplement. Securityholders will bear the risk of
being able to reinvest principal payments on the Securities at yields at least
equal to the yield on their respective classes of Notes and the Certificates. No
prediction can be made as to the rate of prepayments on the Receivables in
either stable or changing interest rate environments.
Although the Receivables have different APRs, disproportionate rates of
prepayments between Receivables with APRs greater than or less than the Required
Rate (as defined in the accompanying prospectus) will generally not affect your
yield. However, higher rates of prepayments of Receivables with higher APRs will
decrease the amount available to cover delinquencies and defaults on the
Receivables and may decrease the amounts available to be deposited in the
Reserve Account.
Delinquencies, Repossessions and Loan Loss Information
Set forth below is information concerning BMW FS' experience with respect
to its entire portfolio of new and used BMW motor vehicle retail installment
sale contracts, which includes contracts sold by but still being serviced by BMW
FS. Credit losses are an expected cost in the business of extending credit and
are considered in BMW FS' rate-setting process.
Delinquency, repossession and loss experience may be influenced by a
variety of economic, social and geographic conditions and other factors beyond
the control of BMW FS. There is no assurance that BMW FS' delinquency,
repossession and loss experience with respect to its retail installment sale
contracts, or the experience of the trust with respect to the contracts, will be
similar to that set forth below. If economic conditions in the future differ
from those during the periods referenced in the tables below, BMW FS'
delinquency, repossession and loss experience may be adversely affected.
The percentages in the tables below have not been adjusted to eliminate the
effect of the growth of BMW FS' portfolio. Accordingly, the delinquency,
repossession and net loss percentages would be expected to be higher than those
show if a group of receivables were isolated at a period in
S-35
time and the delinquency, repossession and net loss data showed the activity
only for that isolated group over the periods indicated.
The following tables set forth the historical delinquency experience and
net credit loss and repossession experience of BMW FS' portfolio of contracts
for new and used automobiles, motorcycles, light duty trucks and sport utility
vehicles.
In the table below, the period of delinquency for the years ended December
31, 2001, 2000, 1999, 1998, 1997 and 1996 is based on the number of days more
than 20% of a scheduled payment on a cumulative basis is contractually past due.
The information included below under the headings "Delinquencies as a percent of
contracts outstanding - 90 days or more" and "Dollar Delinquencies as a percent
of principal amount outstanding - 90 days or more" excludes vehicles that have
been repossessed. There is no assurance that the behavior of the Receivables
will be comparable to BMW FS' experience shown in the following tables.
Delinquency Experience
At December 31,
---- ---- ---- ---- ---- ----
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Number of contracts at end of
period.......................
Delinquencies as a percent of
contracts outstanding
30-59 days.................
60-89 days.................
90 days or more............
Total......................
Dollar delinquencies as a percent
of principal amount outstanding
30-59 days.................
60-89 days.................
90 days or more............
Total......................
S-36
The information in the table below includes contracts for new and used
automobiles, motorcycles, light duty trucks and sport utility vehicles. All
amounts and percentages, except as indicated, are based on the principal
balances of the contracts net of unearned finance and other charges. Averages
are computed by taking a simple average of year-end outstanding amounts for each
period presented. The information set forth under the heading "Charge-offs"
represents the total aggregate net principal balance of contracts determined to
be uncollectible in the period less proceeds from disposition of related
vehicles, other than recoveries described in the next sentence. The information
set forth under the heading "Recoveries" generally includes amounts received
with respect to contracts previously charged-off, net of the proceeds realized
in connection with the sale of the financed vehicles. The information set forth
under the heading "Number of Repossessions sold" means the number of repossessed
financed vehicles that have been sold by BMW FS in a given period.
Net Credit Loss Experience
(dollars in thousands)
At or for Twelve Months Ended
---- ---- ---- ---- ---- ----
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Principal Amount Outstanding .. $
Average Principal Amount
Outstanding ................. $
Number of Contracts Outstanding
Average Number of Contracts
Outstanding..................
Charge-offs - full period actuals
Recoveries - full period actuals
Net Losses ....................
Number of Repossessions sold as a
percent of the Average Number
of Contracts Outstanding.....
Net Losses as a percent of
Average Principal Amount
Outstanding..................
S-37
Weighted Average Life of the Securities
Prepayments on motor vehicle receivables can be measured relative to a
payment standard or model. The model used in this prospectus supplement, the
Absolute Prepayment Model ("ABS"), represents an assumed rate of prepayment each
month relative to the original number of receivables in a pool of receivables.
ABS further assumes that all the receivables in question are the same size and
amortize at the same rate and that each receivable in each month of its life
will either be paid as scheduled or be paid in full. For example, in a pool of
receivables originally containing 10,000 receivables, a 1% ABS rate means that
1% of the receivables prepay each month. ABS does not purport to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of receivables, including the
Receivables.
As the rate of the payment of principal of each class of Notes will depend
on the rate of payment (including prepayments) of the principal balance of the
Receivables, final payment of any class of Notes and the Certificates could
occur significantly earlier than the respective Final Scheduled Payment Dates.
Reinvestment risk associated with early payment of the Notes and the
Certificates will be borne exclusively by the holders of the Notes and the
Certificates.
The tables captioned "Percent of Initial Class A Note Principal at Various
ABS Percentages" (the "ABS Tables") have been prepared on the basis of the
characteristics of the Receivables described under "The Receivables Pool." The
ABS Tables assume that:
o the Receivables prepay in full at the specified constant percentage of ABS
monthly, with no defaults, losses or repurchases;
o each scheduled monthly payment on each Receivable is scheduled to be made
and is made on the last day of each month and each month has 30 days;
o payments are made on the Notes on each Payment Date, and each Payment Date
is assumed to be the twenty-fifth day of each applicable month;
o the balance in the Reserve Account on each Payment Date is the required
amount described under "Subordination; Reserve Account";
o the amounts in the Pre-Funding Account are fully invested in Subsequent
Receivables on __; and
o except as indicated in the ABS Tables, the Servicer does not exercise its
option to purchase the Receivables on the earliest Payment Date on which
its option may be exercised.
The hypothetical pools each have an assumed cutoff date of [ ], 2003. The ABS
Tables indicate the projected weighted average life of each class of Notes and
the Certificates and sets forth the percent of the initial principal amount of
each class of Notes and the Certificates 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 Initial Receivables and the Subsequent
Receivables have been aggregated into hypothetical pools with all of the
Receivables within each hypothetical pool having the characteristics set forth
in the tables below and that the level scheduled monthly
S-38
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 each pool will be fully amortized by the end of
its remaining term to maturity.
S-39
Initial Receivables
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
Pool Aggregate Principal APR Original Term Stated Remaining Term
---- Balance --- (in Months) (in Months)
------- ----------- -----------
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
1
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
2
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
3
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
4
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
5
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
6
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
7
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
8
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
9
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
10
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
11
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
12
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
13
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
14
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
15
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
16
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
17
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
18
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
19
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
20
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
Total
- ------------ ---------------------- ------------------ ------------------------- -----------------------------
S-40
Subsequent Receivables
- -------------- ---------------------------- -------------- ----------------------- ---------------------------
Pool Aggregate Principal Balance APR Original Term Stated Remaining
---- --------------------------- --- (in Months) (in Months)
---------- -----------
- -------------- ---------------------------- -------------- ----------------------- ---------------------------
1
- -------------- ---------------------------- -------------- ----------------------- ---------------------------
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very 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 Table at the
various constant 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.
Percentage of Initial Class A-1 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.3% 1.5% 1.7%
- ------------ ---- ---- ---- ---- ----
Closing Date
Weighted Average Life (years)(1)(2)..................
Weighted Average Life to Call (years)(1)(3)..........
- -----------------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-41
Percentage of Initial Class A-2 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.3% 1.5% 1.7%
- ------------ ---- ---- ---- ---- ----
Closing Date
Weighted Average Life (years)(1)(2)...................
Weighted Average Life to Call (years)(1)(3)...........
- -------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-42
Percentage of Initial Class A-3 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.3% 1.5% 1.7%
- ------------ ---- ---- ---- ---- ----
Closing Date.........................................
Weighted Average Life (years)(1)(2)...................
Weighted Average Life to Call (years)(1)(3)...........
- -----------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-43
Percentage of Initial Class A-4 Note Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.3% 1.5% 1.7%
- ------------ ---- ---- ---- ---- ----
Closing Date.....................................
Weighted Average Life (years)(1)(2)
Weighted Average Life to Call (years)(1)(3)
*Month of optional purchase(3)
- -------------
(1) The weighed average life of a note is determined by (x) multiplying the
amount of each principal payment on a note by the number of years from the
date of issuance of the note to the related Payment Date, (y) adding the
results and (z) dividing the sum by the original principal amount of the
note.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables ) and should be read in
conjunction with those assumptions.
S-44
Percentage of Certificate Principal at Various ABS Percentages
Payment Date 0.5% 1.0% 1.3% 1.5% 1.7%
- ------------ ---- ---- ---- ---- ----
Closing Date.....................................
Weighted Average Life (years)(1)(2)
Weighted Average Life to Call (years)(1)(3)
*Month of optional purchase(3)
- -------------
(1) The weighed average life of a certificate is determined by (x) multiplying
the amount of each principal payment on a certificate by the number of
years from the date of issuance of the note to the related Payment Date,
(y) adding the results and (z) dividing the sum by the original principal
amount of the certificate.
(2) This calculation assumes that the Servicer does not exercise its option to
purchase the Receivables.
(3) This calculation assumes that the Servicer exercises its option to purchase
the Receivables.
This table has been prepared based on the assumptions in this prospectus
supplement (including the assumptions regarding the characteristics and
performance of the Receivables, which will differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-45
Note and Certificate Factors
The "Note Pool Factor" with respect to any class of Notes will be a
seven-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 1.0000000 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
holder's note by the related Note Pool Factor for that month.
The "Certificate Pool Factor" with respect to the certificates will be a
seven-digit decimal indicating the principal amount of the certificates as of
the close of business on the Payment Date in that month as a fraction of the
respective principal amount thereof as of the Closing Date. The Servicer will
compute the Certificate Pool Factor each month for the certificates. The
Certificate Pool Factor will initially be 1.0000000 and thereafter will decline
to reflect reductions in the principal amount of the certificates. The portion
of the principal amount of the certificates for a given month allocable to a
Certificateholder can be determined by multiplying the original denomination of
the holder's note by the Certificate Pool Factor for that month.
Pursuant to the Transfer and Servicing Agreements, the Securityholders will
receive monthly reports concerning the payments received on the Receivables, the
Pool Balance, the related Note Pool Factors, the Certificate Factor and various
other items of information pertaining to the Trust. Securityholders of record
during each calendar year will be furnished 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 Securityholders" in the accompanying
prospectus.
Use of Proceeds
The Depositor will use the net proceeds from the sale of the Securities to
purchase the Receivables from BMW FS pursuant to the Receivables Purchase
Agreement and to fund the Initial Reserve Account, the Pre-Funding Account and
the Capitalized Interest Account. The net proceeds to be received by the
Depositor from the sale of the Receivables to the Trust will be used by the
Depositor in connection with its acquisition of the Receivables from BMW FS and
to pay other expenses in connection with the issuance of the Notes. BMW FS will
use the proceeds from the sale of the Receivables for general corporate
purposes. In addition, BMW FS or its affiliates may apply all or any portion of
the net proceeds of this offering to the repayment of debt, including
"warehouse" debt secured by the Receivables prior to their sale to the Trust.
One or more of the Underwriters, or their respective affiliates or entities for
which their respective affiliates act as administrator and/or provide liquidity
lines, may have acted as a "warehouse lender" to BMW FS or its affiliates, and
may receive a portion of the proceeds as repayment of that "warehouse" debt.
The Depositor and the Servicer
Information regarding the Depositor and the Servicer is set forth under the
captions "The Depositor" and "The Servicer" in the accompanying prospectus.
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The Notes
General
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the registration statement. A copy of the
final signed Indenture will be filed with the SEC following the issuance of the
Securities. The following summary describes the material terms of the Notes and
the Indenture. The summary does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Notes and the Indenture. Where particular provisions or terms used in the
Indenture are referred to, the actual provisions, which includes definitions of
terms, are incorporated by reference as part of the summary. The following
summary supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the notes of any given series
and the related Indenture set forth in the accompanying prospectus, to which
description reference is hereby made.
Payments of Interest
Each class of Notes will constitute Fixed Rate Securities, as that term is
defined under "Certain Information Regarding the Securities--Fixed Rate
Securities" in the accompanying prospectus. Interest on the principal balances
of the classes of the Notes will accrue at the respective per annum interest
rates set forth on the cover of this prospectus supplement (each, an "Interest
Rate") and will be payable to the Noteholders monthly on the twenty-fifth day of
each month (or, if that date is not a Business Day, on the next succeeding
Business Day) (a "Payment Date") commencing [ ], 2003.
Interest on the outstanding principal amount of Class A-1 Notes will accrue
at the related Interest Rate from and including the most recent Payment Date on
which interest has been paid (or from and including the Closing Date with
respect to the first Payment Date) to but excluding the current Payment Date.
Interest on the Class A-2, Class A-3, Class A-4 Notes and Certificates will
accrue at the related Interest Rate from and including the 25th day of the month
(or from and including the Closing Date with respect to the first Payment Date)
to but excluding the 25th day of the following calendar month.
Interest on the Class A-1 Notes will be calculated on the basis of the
actual number of days in the related Interest Period divided by 360, and
interest on the Class A-2, Class A-3 Notes, Class A-4 Notes and Certificates
will be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest accrued but not paid on any Payment Date will be due on the
next Payment Date, together with interest on that amount at the applicable
Interest Rate, to the extent lawful. Interest payments on the Notes will
generally be made from Available Amounts and from amounts on deposit in the
Reserve Account, after the Servicing Fee and non-recoverable Advances have been
paid. We refer you to "Subordination; Reserve Account--Reserve Account" and
"Payments on the Notes" in this prospectus supplement.
Interest payments to holders of the Class A Notes will have the same
priority. Under specified circumstances, the amount available for interest
payments could be less than the amount of interest payable on the Class A Notes
on any Payment Date, in which case the holders of the Class A Notes will receive
their ratable share (based upon the aggregate amount of interest due to that
class) of the aggregate amount available to be distributed in respect of
interest on the Class A Notes. Interest payments to holders of the Certificates
will be subordinated to interest payments and, in limited circumstances,
principal to holders of the Class A Notes.
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Payments of Principal
The Trust will generally make principal payments to the Noteholders on each
Payment Date in an amount equal to the Principal Distribution Amount. The
"Principal Distribution Amount" with respect to any Payment Date equals the sum
of:
o the First Priority Principal Distribution Amount (as defined in this
prospectus supplement); and
o the Regular Principal Distribution Amount (as defined in this
prospectus supplement).
The Trust will pay principal on the Notes from funds on deposit in the
Collection Account including amounts, if any, from the Reserve Account, in
accordance with the priorities described under "Payments on the Notes--Payment
of Distributable Amounts."
Principal payments on the Notes will generally be made on each Payment
Date, in the following order of priority:
1. to the Class A-1 Notes until paid in full;
2. to the Class A-2 Notes until paid in full;
3. to the Class A-3 Notes until paid in full;
4. to the Class A-4 Notes until paid in full; and
5. to the Certificates until paid in full.
Notwithstanding the foregoing, following the occurrence and during the
continuation of:
o a default in the payment of any interest on any Note of the
Controlling Class (as defined in this prospectus supplement) when the
same becomes due and payable, which default continues for a period of
five days;
o a default in the payment of principal of or any installment of the
principal of any Note when the same becomes due and payable; or
o the bankruptcy of the Trust or the occurrence of other circumstances
relating to the bankruptcy or insolvency of the Trust, as described in
the Indenture
the priority of payments changes. In particular, the Class A Notes will receive
100% of the Principal Distribution Amount until the Notes are paid in full. The
trust will make no distributions of principal or interest on the Certificates
until payment in full of principal and interest on the Class A-1 Notes. In
addition, principal payments on the Class A Notes will be made first to the
holders of the Class A-1 Notes until they have been paid in full; thereafter
principal payments on the Class A Notes will be made to the holders of the Class
A-2 Notes, the Class A-3 Notes and the Class A-4 Notes (together with the
holders of the Class A-1 Notes, the "Noteholders") on a pro rata basis based on
the principal balance of that Class of outstanding Notes. Beginning on the
Payment Date on which the Class A Notes have been paid in full, the remainder of
the Principal Distribution Amount, if any, and on each subsequent Payment Date,
100% of the Principal Distribution Amount,
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will be paid to the holders of record of the Certificates (the
"Certificateholders") until the Certificates have been paid in full.
The actual Payment Date on which the outstanding principal amount of any
class of Notes is paid in full may be significantly earlier than its Final
Scheduled Payment Date based on a variety of factors, including the factors
described under "Weighted Average Life of the Securities" in the accompanying
prospectus.
If the principal amount of a class of Notes has not been paid in full on or
prior to its Final Scheduled Payment Date, the Noteholders' Principal
Distribution Amount for that Payment Date will, to the extent the remaining
Available Amounts are sufficient, include an amount sufficient to reduce the
unpaid principal amount of that class of Notes to zero on that Payment Date. We
refer you to "Payment on the Notes--Payment of Distributable Amounts" in this
prospectus supplement.
Optional Prepayment
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 10% or less of the sum of the Initial Pool Balance and
the amount on deposit in the Pre-Funding Account on the Closing Date, Class A-4
and Certificateholders will receive an amount in respect of the Class A-4 and
Certificates equal to the outstanding principal balance of the Class A-4 and
Certificates, together with accrued but unpaid interest at the related Interest
Rate. The "Pool Balance" on any Payment Date will equal the aggregate principal
balance of the Receivables at the end of the related Collection Period, after
giving effect to all payments of principal received from Obligors and Purchased
Amounts.
Indenture
Events of Default; Rights upon Event of Default. Upon an Event of Default,
the Controlling Class of Noteholders will have the rights set forth in the
prospectus under "The Notes--Indenture--Events of Default; Rights Upon Event of
Default." The Indenture Trustee may sell the Receivables subject to the
conditions set forth in the Indenture following an Event of Default, including a
default in the payment of any principal of or a default for five days or more in
the payment of any interest on any Class A Note. In the case of an Event of
Default not involving any default in payment of principal of or interest on a
Class A Note, the Indenture Trustee is prohibited from selling the Receivables
unless one of the conditions set forth in the accompanying prospectus under "The
Notes--Indenture--Events of Default and--Rights Upon Event of Default" has been
satisfied. Following the occurrence of certain Events of Default under the
Indenture, the trust will make no distributions of principal or interest on the
Certificates until payment in full of principal and interest on the Class A
Notes. In addition, payments of principal on the Class A Notes will be made
first to the Class A-1 Notes until the Class A-1 Notes are repaid in full, and
then pro rata to the Class A-2, Class A-3 and Class A-4 Notes until each
principal amount is paid in full. If there are any amounts remaining, those
amounts will be used to pay interest and principal on the Certificates until the
principal amount is paid in full.
Notices
Noteholders will be notified in writing by the Indenture Trustee of any
Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon a Responsible Officer (as defined in
the Transfer and Servicing Agreements) obtaining actual knowledge of these
events.
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If Notes are issued other than in book-entry form, those notices will be
mailed to the addresses of Noteholders as they appear in the register maintained
by the Indenture Trustee prior to mailing. Those notices will be deemed to have
been given on the date of that publication or mailing.
Governing Law
The Indenture and the Notes are governed by and shall be construed in
accordance with the laws of the State of New York applicable to agreements made
in and to be performed wholly within that jurisdiction.
The Certificates
General
The certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the registration
statement. A copy of the final signed Trust Agreement will be filed with the SEC
following the issuance of the securities. The certificates will evidence
undivided ownership interests in the Trust created pursuant to the Trust
Agreement.
The following summary describes material terms of the certificates and the
Trust Agreement. The summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, all the provisions of the
certificates and the Trust Agreement. The following summary supplements, and to
the extent inconsistent therewith replaces, the description of the general terms
and provisions of the certificates of any given series and the related Trust
Agreement set forth in the accompanying prospectus, to which description
reference is hereby made.
Payments of Interest
Interest on the Certificate Balance will accrue during each Interest Period
at ___% per annum (the "Pass Through Rate") and will be payable to the
Certificateholders on the related Payment Date.
The certificates will constitute Fixed Rate Securities, as that term is
defined under "Certain Information Regarding the Securities--Fixed Rate
Securities" in the accompanying prospectus. Interest due on a Payment Date will
accrue during the related Interest Period and will be calculated on the basis of
a 360-day year consisting of twelve 30-day months. Interest distributions with
respect to the certificates generally will be made from Available Amounts after:
1. payment of the Servicing Fee; and
2. Class A Noteholders' interest distribution;
3. [Principal Distribution Amount for the Class A-1 Notes]; and
4. depositing of funds in the Reserve Account so that the amount on
deposit in the Reserve Account equals the Specified Reserve Account
Balance.
We refer you to "Payments on the Notes--Payment of Distributable Amounts"
in this prospectus supplement.
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Optional Prepayment
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 10% or less of the sum of the Pool Balance and the
amount on deposit in the Pre-Funding Account on the Closing Date,
Certificateholders will receive an amount in respect of the Certificates equal
to the outstanding Certificate Balance together with accrued but unpaid interest
at the Pass-Through Rate after the Notes have been retired, which distribution
shall effect an early retirement of Certificates.
Interest payments due for any Payment Date but not paid on that Payment
Date will be due on the next Payment Date increased by an amount equal to
interest accrued on that amount at the Pass Through Rate (to the extent lawful).
Payments of Principal
No principal payments will be made on the certificates until the Class A-1
Notes have been paid in full. Thereafter, principal payments of the certificates
will be made on each Payment Date from Available Amounts after payment of
interest on the certificates.
Notwithstanding the foregoing, on each Payment Date after the acceleration
of the notes following an Event of Default, the certificates will not receive
any of the Principal Distributable Amount until the notes have been paid in
full.
Notices
Certificateholders will be notified in writing by the Owner Trustee of any
Event of Default, Servicer Default or termination of, or appointment of a
successor to, the Servicer promptly upon an specified officer of the Owner
Trustee obtaining actual knowledge of these events. Except for the monthly and
annual reports to Certificateholders described this prospectus supplement, the
Owner Trustee is not obligated under the Trust Agreement to forward any other
notices to the Certificateholders. There are no provisions in the Trust
Agreement for the regular or special meetings of Certificateholders.
Governing Law
The Trust Agreement and the certificates are governed by and shall be
construed in accordance with the laws of the State of Delaware applicable to
agreements made in and to be performed wholly within that jurisdiction.
Payments on the Securities
On or before the 18th calendar day of each month (or, if the 18th day is
not a Business Day, the next succeeding Business Day (each a "Determination
Date")), the Servicer will inform the Owner Trustee and the Indenture Trustee
of, among other things, the amount of funds collected on or in respect of the
Receivables, the amount of Advances to be made by and reimbursed to the Servicer
and the Servicing Fee and other servicing compensation payable to the Servicer,
in each case with respect to the immediately preceding Collection Period. On or
prior to each Payment Date, the Servicer will also determine the following:
1. Available Amounts;
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2. Class A Noteholders' interest distribution;
3. Certificateholders' interest distribution;
4. Principal Distribution Amount; and
5. based on the available funds and other amounts available for payment
on the related Payment Date as described below, the amount to be
distributed to the Class A Noteholders and Certificateholders.
The Indenture Trustee or the Owner Trustee, as the case may be, will make
payments to the Noteholders and Certificateholders out of the amounts on deposit
in the Collection Account. The amounts to be distributed to the Noteholders and
Certificateholders will be determined in the manner described below.
Calculation of Available Amounts
The amount of funds available for distribution on a Payment Date will
generally equal the sum of Available Interest and Available Principal
(collectively, "Available Amounts").
"Available Interest" for a Payment Date will equal the sum of the following
amounts (without duplication) allocable to interest received or allocated by the
Servicer on or in respect of the Receivables during the related Collection
Period:
1. that portion of all collections on Receivables allocable to interest
(including the amount, if any, of Advances for that Collection period,
but excluding the amount, if any, of reimbursements of Advances
previously made to the Servicer);
2. the Purchase Amount of each Receivable that became a Purchased
Receivable to the extent attributable to accrued interest on that
Receivable;
3. Recoveries for that Collection Period;
4. investment earnings on the Trust Accounts (other than the Collection
Account) for the related Payment Date;
5. net Liquidation Proceeds for that Collection Period to the extent
allocable to interest;
6. net Investment Losses deposited by the Servicer; and
7. Capitalized Interest Payments.
"Available Principal" for a Payment Date will equal the sum of the
following amounts, without duplication, with respect to the related Collection
Period:
1. the portion of all collections on Receivables allocable to principal;
2. net Liquidation Proceeds for that Collection Period to the extent
allocable to principal;
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3. that portion allocable to principal of the Purchase Amount of all
Receivables that became Purchased Receivables during or in respect of
that Collection Period; and
4. on the Payment Date immediately following the end of the Funding
Period, the remaining Pre-Funded Amount not used to acquire Subsequent
Receivables.
Available Interest and Available Principal on any Payment Date will exclude
the following amounts:
1. amounts received on a particular Receivable (other than a Liquidated
Receivable) to the extent that the Servicer has previously made an
unreimbursed Advance in respect of that Receivable; and
2. net Liquidation Proceeds with respect to a particular Receivable to
the extent of unreimbursed Advances in respect of that Receivable.
"Liquidation Proceeds" means, with respect to any Receivable that becomes a
Liquidated Receivable, the moneys collected in respect of that Liquidated
Receivable, from whatever source, during or after the Collection Period in which
the Receivable became a Liquidated Receivable, including liquidation of the
related Financed Vehicle, net of the sum of any out-of-pocket expenses of the
Servicer reasonably allocated to the liquidation and any amounts required by law
to be remitted to the Obligor on the Liquidated Receivable.
A "Liquidated Receivable" means a Receivable with respect to which the
earliest of the following shall have occurred:
o the related Financed Vehicle has been repossessed and liquidated;
o the related Financed Vehicle has been repossessed in excess of 90 days
and has not yet been liquidated;
o the Servicer has determined in accordance with its collection policies
that all amounts that it expects to receive with respect to the
Receivable have been received; or
o the end of the Collection Period in which the Receivable becomes more
than 150 days or more past due.
"Purchased Amount" means any Administrative Purchase Payments or Warranty
Purchase Payments made with respect to Purchased Receivables.
"Purchased Receivable" means a Warranty Receivable or an Administrative
Receivable, respectively.
"Recoveries" means, with respect to any Receivable that becomes a
Liquidated Receivable, monies collected in respect of that Liquidated
Receivable, from whatever source, during any Collection Period following the
Collection Period in which the Receivable became a Liquidated Receivable, net of
the sum of any amounts expended by the Servicer for the account of the Obligor
and any amounts required by law to be remitted to the Obligor.
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Payment of Distributable Amounts
Prior to each Payment Date, the Servicer will calculate the amount to be
distributed to the Class A Noteholders and Certificateholders. On each Payment
Date, the Servicer will allocate amounts on deposit in the Collection Account
with respect to the related Collection Period as described below and will
instruct the Indenture Trustee to make the following payments and distributions
from Available Amounts on deposit in the Collection Account, and in the event of
a shortfall in meeting the payments described in clauses (1) through (5) below
(an "Available Amounts Shortfall") amounts withdrawn from the Reserve Account,
in the following amounts and order of priority:
1. to the Servicer, the Servicing Fee, including any unpaid Servicing
Fees with respect to one or more prior Collection Periods, and
non-recoverable Advances;
2. to the Class A Noteholders, (a) the aggregate amount of interest
accrued for the related Interest Period on each of the Class A Notes
at their respective interest rates on the principal outstanding as of
the previous Payment Date after giving effect to all payments of
principal to the Class A Noteholders on the preceding Payment Date;
and (b) the excess, if any, of the amount of interest payable to the
Class A Noteholders on prior Payment Dates over the amounts actually
paid to the Class A Noteholders on those prior Payment Dates, plus
interest on that shortfall to the extent permitted by law;
3. to the Principal Distribution Account, the First Priority Principal
Distribution Amount, if any;
4. to the Certificateholders, (a) the aggregate amount of interest
accrued for the related Interest Period on each of the Certificates at
the interest rate on the Certificates on the principal outstanding as
of the previous Payment Date after giving effect to all payments of
principal to the Certificates on the preceding Payment Date; and (b)
the excess, if any, of the amount of interest payable to the
Certificates on prior Payment Dates over the amounts actually paid to
the Certificateholders on those prior Payment Dates, plus interest on
that shortfall to the extent permitted by law;
5. to the Principal Distribution Account, the Regular Principal
Distribution Amount;
6. to the Reserve Account, from Available Amounts remaining (this amount
being the "Excess Amount"), the amount necessary to cause the amount
on deposit in that account to equal the Specified Reserve Account
Balance;
7. to the Indenture Trustee and the Owner Trustee, any accrued and unpaid
Trust Fees and Expenses, in each case to the extent the fees and
expenses have not been previously paid by the Servicer; provided that,
until the Notes have been paid in full, the annual amount paid to the
Trustees out of the Available Amount allocation described in this
clause (7) shall not exceed [$10,000;] and
8. any Available Amounts remaining, to the Depositor.
The Noteholders' Principal Distribution Amount will be allocated among the
Notes as described above under "The Notes--Payments of Principal."
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For the purposes of this prospectus supplement, the following terms will
have the following meanings:
The "First Priority Principal Distribution Amount" will mean, with respect
to any Payment Date, an amount equal to the excess, if any of:
o the aggregate outstanding principal amount of the Class A Notes as of
the preceding Payment Date (after giving effect to any principal
payments made on the Class A Notes on that preceding Payment Date)
over
o the Pool Balance at the end of the Collection Period preceding that
Payment Date plus amounts on deposit in the Pre-Funding Account less
the Yield Supplement Overcollateralization Amount with respect to such
Payment Date;
provided however, that the First Priority Principal Distribution Amount shall
not exceed the sum of the aggregate outstanding principal amount of all of the
Notes on that Payment Date (after giving effect to any principal payments made
on the Notes on that preceding Payment Date); and provided further, that the
First Priority Principal Distribution Amount on and after the Final Scheduled
Payment Date of a class of Class A Notes shall not be less than the amount that
is necessary to reduce the outstanding principal amount of that class of Class A
Notes and all earlier maturing classes of Class A Notes to zero.
"Interest Period" means:
o with respect to the Class A-1 Notes, the period from and including the
most recent Payment Date on which interest has been paid (or, in the
case of the first Payment Date, the Closing Date) to but excluding the
next succeeding Payment Date; and
o with respect to the Class A-2, Class A-3, Class A-4 Notes and
Certificates, the period from and including the 25th day of the
calendar month (or, in the case of the first Payment Date, from and
including the Closing Date) to but excluding the 25th day of the next
calendar month.
The "Principal Distribution Account" will mean the administrative
subaccount of the Note Distribution Account established and maintained as the
Principal Distribution Account pursuant to the Sale and Servicing Agreement.
The "Principal Distribution Amount" will mean, with respect to any Payment
Date, the sum of the First Priority Principal Distribution Amount and the
Regular Principal Distribution Amount with respect to that Payment Date.
The "Regular Principal Distribution Amount" will: mean, with respect to any
Payment Date, an amount not less than zero equal to the excess, if any of:
o an amount equal to (i) the aggregate outstanding principal amount of
all the Notes as of the preceding Payment Date (after giving effect to
any principal payments made on the Notes on that preceding Payment
Date) or the Closing Date, as the case may be, minus (ii) the sum of
the Pool Balance at the end of the Collection Period preceding that
Payment Date plus amounts on deposit in the Pre-Funding Account
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less the Yield Supplement Overcollateralization Amount with respect to
that Payment Date, over
o the First Priority Principal Distribution Amount, if any, with respect
to that Payment Date;
provided however, that the Regular Principal Distribution Amount shall not
exceed the sum of the aggregate outstanding principal amount of all of the Notes
on that Payment Date (after giving effect to any principal payments made on the
Notes on that preceding Payment Date in respect of the First Priority Principal
Distribution Amount, if any).
"Trust Fees and Expenses" will mean all accrued and unpaid Trustees' fees
and any amounts due to the Trustees for reimbursement of expenses or in respect
of indemnification and other administrative fees of the Trust.
Credit Enhancement
The protection afforded to the Noteholders will be effected both by the
preferential right of the Noteholders to receive, to the extent described in
this prospectus supplement, current distributions on the Receivables, the
establishment of the Reserve Account and the subordination of the Depositor's
right to receive excess interest. The protection afforded to the
Certificateholders will be effected by the establishment of the Reserve Account
and the subordination of the Depositor's right to receive excess interest.
Subordination
The rights of the Certificateholders to receive any distributions of
interest or principal is subordinated to payments of interest on the Class A
Notes and, in limited circumstances, payments of principal of the Class A Notes.
To the extent that the Pool Balance plus the amount on deposit in the
Pre-Funding Account less the Yield Supplement Overcollateralization Amount with
respect to a Payment Date has decreased to a level which is less than the
aggregate outstanding principal balance on the Class A Notes, a First Priority
Principal Distribution Amount will be payable prior to the payment of interest
on or principal of the Certificates. The Depositor is entitled to receive
payments of interest collected on the Receivables which are not used by the
trust to make other required payments. The Depositor's right to receive this
excess interest is subordinated to all other payments required to be made on any
Payment Date.
Reserve Account
The Reserve Account will be a segregated account in the name of the
Indenture Trustee. The Reserve Account will be created with an initial deposit
by the Depositor on the Closing Date of an amount equal to $[ ] (the "Reserve
Account Initial Deposit"). The Reserve Account will thereafter be funded by the
deposit in the Reserve Account of all Excess Amounts, if any, for each Payment
Date to the extent necessary to restore or bring the amounts on deposit in the
Reserve Account to the Specified Reserve Account Balance.
Amounts held from time to time in the Reserve Account will continue to be
held for the benefit of Securityholders and may be invested in Eligible
Investments. Investment income on those investments (net of losses and expenses)
will be paid to the Depositor, upon the direction of the Servicer, to the extent
that funds on deposit in the Reserve Account exceed the Specified
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Reserve Account Balance. If the amount on deposit in the Reserve Account on any
Payment Date (after giving effect to all deposits to and withdrawals from the
Reserve Account on that Payment Date) is greater than the Specified Reserve
Account Balance for that Payment Date, subject to limitations set forth in the
Transfer and Servicing Agreements, the Indenture Trustee will include the amount
of the excess in the amounts to be distributed to the Depositor pursuant to
clause (8) in the first paragraph under "Payments on the Securities--Payment of
Distributable Amounts" in this prospectus supplement. The Noteholders will not
have any rights in, or claims to, amounts distributed to the Certificateholders
or to the Depositor.
The "Specified Reserve Account Balance" with respect to any Payment Date
will be an amount equal to [ ]% of the sum of the Pool Balance and the amount,
if any, on deposit in the Pre-Funding Account as of the end of the related
Collection Period. In no event, however, will the Specified Reserve Account
Balance on any Payment Date be less than $[ ].
The Servicer may, from time to time after the date of this prospectus
supplement, request each rating agency to approve a formula for determining the
Specified Reserve Account Balance that is different from those described above
or change the manner by which the Reserve Account is funded. If each rating
agency delivers a letter to the Owner Trustee to the effect that the use of any
new formula will not result in a qualification, reduction or withdrawal of its
then-current rating of any class of the Notes, then the Specified Reserve
Account Balance will be determined in accordance with the new formula. The Sale
and Servicing Agreement will accordingly be amended, without the consent of any
Noteholder, to reflect the new calculation.
Amounts held from time to time in the Reserve Account will be held for the
benefit of the Noteholders and Certificateholders. On each Payment Date, funds
will be withdrawn from the Reserve Account to the extent of any Available
Amounts Shortfall with respect to that Payment Date and will be deposited in the
Note Distribution Account for distribution to the Noteholders. Following payment
of all amounts due on the notes on any payment date, funds will be withdrawn
from the Reserve Fund to the extent that the remaining Available Amounts are
insufficient to make all payments due on the Certificates on such Payment Date.
None of the Securityholders, the Indenture Trustee, the Owner Trustee or
the Depositor will be required to refund any amounts properly distributed or
paid to them, whether or not there are sufficient funds on any subsequent
Payment Date to make full distributions to the Noteholders.
The Reserve Account and the subordination of the Certificates are intended
to enhance the likelihood of receipt by Class A Noteholders of the full amount
of principal and interest due them and to decrease the likelihood that the Class
A Noteholders will experience losses. However, the Reserve Account could be
depleted. If the amount required to be deposited into or required to be
withdrawn from the Reserve Account to cover shortfalls in collections on the
Receivables exceeds the amount of available cash in the Reserve Account,
Noteholders could incur losses or suffer a temporary shortfall in the amounts
distributed to the Noteholders.
Yield Supplement Overcollateralization Amount
On the Closing Date, the sum of the Pool Balance and the amount on deposit
in the Pre-Funding Account will exceed the initial principal amount of the
Notes, by [ ] (the "Initial Yield Supplement Overcollateralization Amount"),
which is approximately [ ]% of the sum of the aggregate principal balance of the
Initial Receivables as of the Initial Cutoff Date and the amount on deposit in
the Pre-Funding Account on the Closing Date. The Yield Supplement
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Overcollateralization Amount is intended to compensate for the low APRs on some
of the Receivables.
With respect to any Payment Date, the "Yield Supplement
Overcollateralization Amount" is the amount specified below with respect to that
Payment Date:
- ------------------------------ ------------------------- -----------------------
Closing Date
- ------------------------------ ------------------------- -----------------------
April 2003 [ ]
- ------------------------------ ------------------------- -----------------------
May 2003 [ ]
- ------------------------------ ------------------------- -----------------------
June 2003 [ ]
- ------------------------------ ------------------------- -----------------------
July 2003 [ ]
- ------------------------------ ------------------------- -----------------------
August 2003 [ ]
- ------------------------------ ------------------------- -----------------------
September 2003 [ ]
- ------------------------------ ------------------------- -----------------------
October 2003 [ ]
- ------------------------------ ------------------------- -----------------------
November 2003 [ ]
- ------------------------------ ------------------------- -----------------------
December 2003 [ ]
- ------------------------------ ------------------------- -----------------------
January 2004 [ ]
- ------------------------------ ------------------------- -----------------------
February 2004 [ ]
- ------------------------------ ------------------------- -----------------------
March 2004 [ ]
- ------------------------------ ------------------------- -----------------------
April 2004 [ ]
- ------------------------------ ------------------------- -----------------------
May 2004 [ ]
- ------------------------------ ------------------------- -----------------------
June 2004 [ ]
- ------------------------------ ------------------------- -----------------------
July 2004 [ ]
- ------------------------------ ------------------------- -----------------------
August 2004 [ ]
- ------------------------------ ------------------------- -----------------------
September 2004 [ ]
- ------------------------------ ------------------------- -----------------------
October 2004 [ ]
- ------------------------------ ------------------------- -----------------------
November 2004 [ ]
- ------------------------------ ------------------------- -----------------------
December 2004 [ ]
- ------------------------------ ------------------------- -----------------------
January 2005 [ ]
- ------------------------------ ------------------------- -----------------------
February 2005 [ ]
- ------------------------------ ------------------------- -----------------------
March 2005 [ ]
- ------------------------------ ------------------------- -----------------------
April 2005 [ ]
- ------------------------------ ------------------------- -----------------------
May 2005 [ ]
- ------------------------------ ------------------------- -----------------------
June 2005 [ ]
- ------------------------------ ------------------------- -----------------------
July 2005 [ ]
- ------------------------------ ------------------------- -----------------------
August 2005 [ ]
- ------------------------------ ------------------------- -----------------------
September 2005 [ ]
- ------------------------------ ------------------------- -----------------------
October 2005 [ ]
- ------------------------------ ------------------------- -----------------------
November 2005 [ ]
- ------------------------------ ------------------------- -----------------------
December 2005 [ ]
- ------------------------------ ------------------------- -----------------------
January 2006 [ ]
- ------------------------------ ------------------------- -----------------------
February 2006 [ ]
- ------------------------------ ------------------------- -----------------------
March 2006 [ ]
- ------------------------------ ------------------------- -----------------------
April 2006 [ ]
- ------------------------------ ------------------------- -----------------------
May 2006 [ ]
- ------------------------------ ------------------------- -----------------------
June 2006 [ ]
- ------------------------------ ------------------------- -----------------------
July 2006 [ ]
- ------------------------------ ------------------------- -----------------------
August 2006 [ ]
- ------------------------------ ------------------------- -----------------------
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- ------------------------------ ------------------------- -----------------------
Closing Date
- ------------------------------ ------------------------- -----------------------
September 2006 [ ]
- ------------------------------ ------------------------- -----------------------
October 2006 [ ]
- ------------------------------ ------------------------- -----------------------
November 2006 [ ]
- ------------------------------ ------------------------- -----------------------
December 2006 [ ]
- ------------------------------ ------------------------- -----------------------
January 2007 [ ]
- ------------------------------ ------------------------- -----------------------
February 2007 [ ]
- ------------------------------ ------------------------- -----------------------
March 2007 [ ]
- ------------------------------ ------------------------- -----------------------
April 2007 [ ]
- ------------------------------ ------------------------- -----------------------
May 2007 [ ]
- ------------------------------ ------------------------- -----------------------
The Yield Supplement Overcollateralization Amount has been calculated for
each Payment Date as the sum of the amount for each Receivable equal to the
excess, if any, of (x) the scheduled payments due on the Receivable for each
future Collection Period discounted to present value as of the end of the
preceding Collection Period at the APR of that Receivable over (y) the scheduled
payments due on the Receivable for each future Collection Period discounted to
present value as of the end of the preceding Collection Period at [ ]%. For
purposes of the preceding definition, future scheduled payments on the
Receivables are assumed to be made on their scheduled due dates without any
delay, defaults or prepayments.
Description of the Transfer and Servicing Agreements
The Transfer and Servicing Agreements
The following summary of the Indenture, the Sale and Servicing Agreement,
the Administration Agreement and the Trust Agreement (collectively, 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 supplement 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 signed Transfer and Servicing Agreements will be
filed with the SEC following the issuance of the Notes. Any description of the
Transfer and Servicing Agreements in this prospectus supplement supplements, and
to the extent inconsistent replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth in the
accompanying prospectus, to which description reference is hereby made.
Sale and Assignment of Receivables; Subsequent Receivables
Information with respect to the conveyance of the Initial Receivables from
the Depositor to the Trust on the Closing Date and the Subsequent Receivables
from the Depositor to the Trust on the Subsequent Closing Date pursuant to the
Sale and Servicing Agreement is set forth under "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables; Subsequent Receivables
" in the accompanying prospectus.
Accounts
In addition to the accounts referred to under "Description of the Transfer
and Servicing Agreements--Accounts" in the accompanying prospectus, the Servicer
will also establish and will
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maintain with the Indenture Trustee the Reserve Account in the name of the
Indenture Trustee on behalf of the Noteholders [and the Certificateholders].
Collections
The Transfer and Servicing Agreements generally require that the Servicer
deposit all payments on 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, if each condition to
making monthly deposits as may be required by the Sale and Servicing Agreement
(including the satisfaction of specified ratings criteria by the Servicer or the
Servicer obtaining a letter of credit or similar agreement and the absence of
any Servicer Default) is satisfied, the Servicer may retain those amounts until
the related Deposit Date. The Servicer or the Depositor, as the case may be,
will remit the aggregate Warranty Purchase Payments and Administrative Purchase
Payments of Receivables to be purchased from the Trust into the Collection
Account on or before each Deposit Date. 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. We refer you to "Description of the Transfer and Servicing
Agreements--Collections" in the accompanying prospectus.
"Eligible Investments" are specified in the Trust Agreement and will be
limited to investments which meet the criteria of each rating agency from time
to time as being consistent with its then-current ratings of the Securities.
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 interest accrued to date, second to principal
until the principal balance is brought current, third to reduce the unpaid late
charges as provided in the Receivable and finally to prepay principal of the
Receivable. We refer you to "Description of the Transfer and Servicing
Agreements--Collections" in the accompanying prospectus.
Collections on or in respect of a Receivable made during a Collection
Period which are not late fees, prepayment charges, extension fees or certain
other similar fees or charges will be applied first to any outstanding Advances
made by the Servicer with respect to that Receivable, and then to the related
Scheduled Payment. Any collections on or in respect of a Receivable remaining
after such applications will be considered an "Excess Payment." Excess Payments
constituting a prepayment in full of the related Receivable will be applied as a
partial prepayment (a "Prepayment").
Pre-Funding Account
On the Closing Date, a cash amount equal to approximately $[ ] (the
"Pre-Funded Amount") will be deposited into an account (the "Pre-Funding
Account") which will be established in the name of the Indenture Trustee. The
Pre-Funded Amount will be equal to approximately [ ]% of the aggregate principal
amount of the Securities. The Pre-Funding Account will be an asset of the Trust
and will be pledged to the Indenture Trustee pursuant to the Indenture. The
Pre-Funded Amount will be funded from the sale of the Securities and is expected
to be used to acquire
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Subsequent Receivables. The "Funding Period" is the period from and including
the Closing Date until the earliest of:
o the Determination Date on which the amount on deposit in the
Pre-Funding Account is $100,000 or less;
o the occurrence of a Servicer Default (as defined in the Sale and
Servicing Agreement) or an Event of Default under the Indenture; and
o the last day of the Collection Period in [ ] 2003.
The Pre-Funded Amount will be reduced during the Funding Period by the amount
withdrawn from the Pre-Funding Account used to purchase Subsequent Receivables
in accordance with the Sale and Servicing Agreement and by the amount withdrawn
from the Pre-Funding Account deposited in the Reserve Account in connection with
the purchase of the Subsequent Receivables. Amounts held in the Pre-Funding
Account may be invested in Eligible Investments. Any earnings on amounts on
deposit in the Pre-Funding Account will be included in Available Interest on the
next Payment Date pursuant to the Sale and Servicing Agreement. Any Pre-Funded
Amount remaining at the end of the Funding Period will be payable as a principal
distribution to the Noteholders sequentially to the earliest maturing class of
Class A Notes then outstanding as a partial mandatory redemption or prepayment
on the immediately following Payment Date. We refer you to "Description of
Transfer and Servicing Agreements-Accounts" in the accompanying prospectus.
Capitalized Interest Account
On the Closing Date, approximately $[ ] will be deposited in an account
(the "Capitalized Interest Account") which will be established in the name of
the Indenture Trustee. The Capitalized Interest Account will be an asset of the
Trust, and will be pledged to the Indenture Trustee pursuant to the Indenture.
The amount so deposited in the Capitalized Interest Account, including
reinvestment income thereon, will be deposited to the Collection Account as a
collection on each Payment Date up to and including the Mandatory Redemption
Date in an amount equal to the interest accrued at the Weighted Average Security
Rate less 2.5% on the amount on deposit in the Pre-Funding Account (the
"Capitalized Interest Payments"). Any amounts on deposit in the Capitalized
Interest Account in excess of the required amount on each Payment Date or on
deposit in the Capitalized Interest Account at the end of the Funding Period
will be paid to the Depositor. The "Weighted Average Security Rate" shall be the
percentage equivalent of a fraction, the numerator of which is the sum of:
o the product of the Class A-1 Rate times the Initial Class A-1 Note
Balance;
o the product of the Class A-2 Rate times the Initial Class A-2 Note
Balance;
o the product of the Class A-3 Rate times the Initial Class A-3 Note
Balance;
o the product of the Class A-4 Rate times the Initial Class A-4 Note
Balance; and
o the product of the Pass-Through Rate times the Initial Certificates
Balance, and
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the denominator of which is the sum of: the Initial Class A-1 Note Balance, the
Initial Class A-2 Note Balance, the Initial Class A-3 Note Balance, the Initial
Class A-4 Note Balance and the Initial Certificate Balance.
Note Distribution Account
On or prior to the Closing Date, the Indenture Trustee will establish and
maintain initially with itself an account 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 "Note Distribution Account). The Note Distribution Account will be
maintained at an Eligible Institution.
Certificate Distribution Account
The Servicer will establish an account in the name of the Owner Trustee
(the "Certificate Distribution Account") into which amounts released from the
Collection Account and the Reserve Fund for distribution to the
Certificateholders will be deposited and from which all distributions to the
Certificateholders will be made. The Certificate Distribution Account will be
maintained at an Eligible Institution.
Advances
On or before the Business Day prior to each Payment Date (the "Deposit
Date"), the Servicer will make a payment into the Collection Account for each
Receivable of an amount equal to the product of the principal balance of the
Receivable as of the first day of the related Collection Period and one-twelfth
of its APR minus the amount of interest actually received on the Receivable
during the Collection Period (an "Advance"). If the calculation results in a
negative number, an amount equal to the negative amount will be paid to the
Servicer in reimbursement of outstanding Advances. 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)
will, up to the amount of outstanding Advances in respect that Receivable, be
withdrawn from the Collection Account and paid to the Servicer in reimbursement
of the outstanding Advances. The Servicer will not be required to make any
Advances, other than the Advance of an interest shortfall arising from a prepaid
Receivable, to the extent that it does not expect to recoup the Advance from
subsequent collections or recoveries. The Servicer will make all Advances by
depositing into the Collection Account Advances in respect of a Collection
Period on the Business Day immediately preceding the related Payment Date. We
refer you to "Description of the Transfer and Servicing Agreements--Advances" in
the accompanying prospectus.
Servicing Compensation
The servicing fee for the calendar month immediately preceding any Payment
Date (a "Collection Period") will be one-twelfth of 1.00% (the "Servicing Rate")
of the Pool Balance as of the first day of the related Collection Period or, in
the case of the first Payment Date, the Pool Balance as of the Initial Cutoff
Date (the "Servicing Fee"). The Servicing Fee, together with any previously
unpaid Servicing Fee, will be paid on each Payment Date solely to the extent of
Available Interest. The Servicer will be entitled to collect and retain as
additional servicing compensation in respect of each Collection Period any late
fees, prepayment charges and any other administrative fees and expenses or
similar charges collected during that Collection Period, plus any investment
earnings or interest earned during that Collection Period from the investment of
monies
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on deposit in the Collection Account and the Note Distribution Account. We refer
you to "Description of the Transfer and Servicing Agreements--Collections" in
this prospectus supplement and "Description of the Transfer and Servicing
Agreements--Servicing Compensation" in the accompanying prospectus. The Servicer
will be paid the Servicing Fee for each Collection Period on the following
Payment Date related to that Collection Period. However, if it is acceptable to
each rating agency without a reduction in the rating of each class of Notes, 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
Receivables for that Collection Period. The Servicing Fee will be paid from
Available Interest in accordance with the priority of payments set forth under
"Payment on the Notes-Payment of Distributable Amounts".
Net Deposits
As an administrative convenience and as long as specified conditions are
satisfied, for so long as BMW FS is the Servicer, BMW FS will be permitted to
make the deposit of collections, aggregate Advances and amounts deposited in
respect of purchases of Receivables by the Depositor or the Servicer 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, however, will
account to the Owner Trustee and to the Noteholders as if all of the foregoing
deposits and payments were made individually. We refer you to "Description of
the Transfer and Servicing Agreements--Net Deposits" in the accompanying
prospectus.
Optional Purchase
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 shall have declined
to 10% or less of the sum of the Initial Pool Balance plus the amount on deposit
in the Pre-Funding Account on the Closing Date, as described in the accompanying
prospectus under "Description of the Transfer and Servicing
Agreements--Termination." The "Redemption Price" for the outstanding Notes will
be equal to the unpaid principal amount of the outstanding Notes plus accrued
and unpaid interest on the Notes on the date of the optional purchase.
Removal of Servicer
The Indenture Trustee or Noteholders evidencing more than 50% of the voting
interests of the Class A Notes then outstanding (or if the Class A Notes have
been paid in full, by holders of Certificates then outstanding evidencing more
than 50% of the voting interests of the Certificates), may terminate the rights
and obligations of the Servicer under the Sale and Servicing Agreement upon the
following events ("Servicer Defaults"):
1. any failure by the Servicer to deliver to the applicable Trustee for
deposit in any Account any required payment or to direct the Indenture
Trustee to make the required payments from any Account and that
failure continues unremedied for five Business Days after discovery of
that failure by the Servicer or after the receipt by the Servicer of
notice of that failure;
2. any failure by the Servicer to duly observe or perform in any material
respect any other covenants or agreements in the Sale and Servicing
Agreement, which failure
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materially and adversely affects the rights of the Noteholders, and
which failure continues unremedied for 60 days after written notice of
that failure is given to the Servicer by (a) the Indenture Trustee or
(b) the holders of Notes representing more than 50% of the outstanding
amount of the notes; and
3. the occurrence of an Insolvency Event (as defined in the attached
prospectus) of the Servicer.
Under those circumstances, 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 under the Sale and Servicing Agreement. The
Indenture Trustee or 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 similar compensation
arrangements. If, however, a bankruptcy trustee or similar official has been
appointed for the Servicer, and no Servicer Default other than the appointment
of a bankruptcy trustee or similar official has occurred, that trustee or
official may have the power to prevent the Indenture Trustee or the Noteholders
(or Certificateholders) from effecting a transfer of servicing. In the event
that the Indenture Trustee is unwilling or unable so to act, it may appoint or
petition a court of competent jurisdiction to appoint a successor servicer. The
Indenture Trustee may make arrangements for compensation to be paid, which in no
event may be greater than the servicing compensation paid to the Servicer under
the Sale and Servicing Agreement. Notwithstanding termination under this
section, the Servicer shall be entitled to payment of amounts payable to it
prior to termination, for services rendered prior to termination. Upon payment
in full of the principal and interest on the Class A Notes, the
Certificateholders will succeed to the rights of the Class A Noteholders with
respect to removal of the Servicer.
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 certificates (other than the
authentication of the certificates), the Notes 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. If no Servicer
Default has occurred, 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, in which case it
will only be required to examine them to determine whether they conform to the
requirements of the Trust Agreement. The Trust Agreement says that the Owner
Trustee will not be responsible for knowing about any event unless an officer of
the Owner Trustee has actual knowledge of the event or has received written
notice of the event.
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 Depositor or the Servicer of any funds paid to the
Depositor or the Servicer in respect of the Notes or the Receivables, 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 or Servicer 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
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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 says that the Indenture Trustee will not be responsible
for knowing about any event unless an officer of the Indenture Trustee has
actual knowledge of the event or has received written notice of the event.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or to make any investigation of
matters arising under the Indenture or to institute, conduct or defend any
litigation under the Indenture or in relation to the Indenture or that
litigation at the request, order or direction of any of the Noteholders, unless
those Noteholders have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred by
the Indenture Trustee in connection with the exercise of those rights. No
Noteholder will have any right under the Indenture to institute any proceeding
with respect to the Indenture, other than with respect to the failure by the
Depositor or the Servicer, as applicable, to remit payment. A Noteholder's right
to institute any proceeding with respect to the Indenture Trustee is conditioned
upon the Noteholder providing the Indenture Trustee with written notice of the
Event of Default and the holders of the outstanding amount of Notes evidencing
not less than 25% of the voting interests of the Notes, voting together as a
single class, have made written request upon the Indenture Trustee to institute
that proceeding in its own name as the Indenture Trustee under the Indenture. No
proceeding shall commence unless the Noteholders have offered to the Indenture
Trustee reasonable indemnity and the Indenture Trustee for 60 days has neglected
or refused to institute that proceeding.
The Owner Trustee and the Indenture Trustee
Wilmington Trust Company will be the Owner Trustee under the Trust
Agreement. JPMorgan Chase Bank 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 Servicer and the Owner Trustee or the Servicer and the Indenture Trustee, in
each case acting jointly (or in some instances, the Owner Trustee or the
Indenture Trustee acting alone), will have the power to appoint co-trustees or
separate trustees of all or any part of the Trust. 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 by the Sale and
Servicing Agreement and the Trust Agreement or the Indenture Trustee by the
Indenture 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 and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor Owner Trustee
or Indenture Trustee, as applicable. The Servicer may also remove the Owner
Trustee or the Indenture Trustee if either ceases to be eligible to continue as
trustee under the Trust Agreement or the Indenture, as the case may be, becomes
legally unable to act or becomes insolvent. In those circumstances, the Servicer
will be obligated to appoint a successor Owner Trustee or Indenture Trustee, as
applicable. Any resignation
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or removal of the Owner Trustee or the Indenture Trustee and appointment of a
successor Owner Trustee or Indenture Trustee, as applicable, will not become
effective until acceptance of the appointment by the successor.
The Servicer will be obligated to pay the fees of the Owner Trustee and the
Indenture Trustee in connection with their duties under the Trust Agreement and
Indenture, respectively. The Owner Trustee and the Indenture Trustee will be
entitled to indemnification by BMW FS and the Depositor for, and will be held
harmless against, any loss, liability, fee, disbursement or expense incurred by
the Owner Trustee or the Indenture Trustee not resulting from its own willful
misfeasance, bad faith or negligence (other than by reason of a breach of any of
its representations or warranties set forth in the Trust Agreement or the
Indenture, as the case may be). The Depositor will be obligated to indemnify the
Owner Trustee and the Indenture Trustee for specified taxes that may be asserted
in connection with the transaction.
Material Income Tax Consequences
The following is a general discussion of the material federal income tax
and California tax considerations of the purchase, ownership and disposition of
the Notes. The discussion is based upon law, regulations, rulings and decisions
now in effect, all of which are subject to change. The discussion below does not
purport to deal with all federal tax considerations applicable to all categories
of investors. It is recommended that investors consult their own tax advisors in
determining the federal, state, local and any other tax consequences to them of
the purchase, ownership and disposition of the Notes.
We refer you to the discussions under "Material Income Tax
Consequences--Tax Treatment of Owner Trusts" and "--Material State Tax
Consequences with respect to Owner Trusts" in the accompanying prospectus.
Tax Characterization of the Trust
In the opinion of Weil, Gotshal & Manges LLP, tax counsel to the Trust, (i)
the Notes will be characterized as debt for tax purposes, and (ii) the Trust
will not be characterized as an association (or a publicly traded partnership)
taxable as a corporation for federal income tax purposes.
If the Trust were taxable as a corporation for federal income tax purposes,
it would be subject to corporate income tax on its taxable income. The Trust's
taxable income would include all its income on the related Receivables, which
may be reduced by its interest expense on the Notes. Any imposition of corporate
income tax could materially reduce cash available to make payments on the Notes,
and the beneficial owners of the Certificates could be liable for any corporate
income tax that is unpaid by the Trust.
Treatment of the Notes as Indebtedness
The Depositor, any Certificateholder and the beneficial owners of the Notes
(the "Note Owners") will agree by their purchase of the Notes, to treat the
Notes as debt for federal income tax purposes. The Depositor and the Servicer
and any subsequent holder of Certificates will agree to treat the Trust
o as a partnership for purposes of federal and state income tax,
franchise tax and any other tax measured in whole or in part by
income, with the assets of the partnership being the assets held by
the Trust, the partners of the partnership being the Certificate
Owner, and the Notes being debt of the partnership, or
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o if a single beneficial owner owns all of the Certificates and none
of the Notes are characterized as equity interests in the Trust, as
disregarded as an entity separate from the Certificate Owner for
purpose of federal and state income tax, franchise tax and any other
tax measured in whole or in part by income, with the assets of the
Trust and the Notes treated as assets and indebtedness of the
Certificate Owner.
However, the proper characterization of the arrangement involving the Trust, the
Notes, the Depositor and the Servicer is not clear because there is no authority
on transactions closely comparable to the transaction described in this
prospectus supplement.
Treatment of the Certificates
[to come]
ERISA Considerations
Section 406 of ERISA and Section 4975 of the Code prohibit pension,
profit-sharing and other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans (each, a "Benefit Plan"),
from engaging in specified transactions, such as direct or indirect sales or
exchanges or extensions of credit with persons that are "parties in interest"
under ERISA or "disqualified persons" under the Code with respect to those
Benefit Plans. 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. Title I of ERISA also requires that fiduciaries of a Benefit Plan
subject to ERISA make investments that are prudent, diversified (except if
prudent not to do so) and in accordance with governing, plan documents.
If the assets of the trust were deemed to be assets of a Benefit Plan,
transactions involving the trust, which are described in Section 406 of ERISA or
Section 4975 of the Code, might be deemed to constitute prohibited transactions
for which an exemption is not available. Under a regulation issued by the United
States Department of Labor (the "Plan Assets Regulation"), the assets of the
trust would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
trust and none of the exceptions contained in the Plan Assets Regulation were
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. The debt
treatment of the Notes for ERISA purposes could change if the trust incurred
losses.
However, even if the Notes are treated as debt for purposes of the Plan
Assets Regulation, the acquisition or holding of Notes by or on behalf of a
Benefit Plan could be considered to give rise to a prohibited transaction if the
trust or any of its affiliates is or becomes a party in interest or a
disqualified person with respect to a Benefit Plan. In that instance, certain
exemptions from the prohibited transaction rules could be applicable depending
on the type and circumstances of the plan fiduciary making the decision to
acquire a note. Included among these exemptions are: Prohibited Transaction
Class Exemption ("PTCE") 90- 1, regarding investments by insurance company
pooled separate accounts; PTCE 95-60, regarding investments by insurance company
general accounts;
S-67
PTCE 91-38, regarding investments by bank collective investment finds; PTCE
96-23, regarding transactions affected by "in-house asset managers"; and PTCE
84-14, regarding transactions effected by "qualified professional asset
managers." Each investor using the assets of a Benefit Plan which acquires the
Notes, or to whom the Notes are transferred, will be deemed to have represented
that the acquisition and continued holding of the Notes will be covered by one
of the exemptions listed above or by another Department of Labor prohibited
transaction class exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements; however, those plans may be subject to
comparable federal, state or local law restrictions.
A plan fiduciary considering the purchase of Notes should consult its tax
and/or legal advisors regarding whether the assets of the trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other related issues and their potential consequences.
The sale of Notes to a Benefit Plan is in no respect a representation that
this investment meets all relevant legal requirements with respect to
investments by Benefit Plans generally or by a particular Benefit Plan, or that
this investment is appropriate for Benefit Plans generally or any particular
Benefit Plan.
[Add Certificates Disclosure]
Underwriting
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement"), the Depositor has agreed to cause the Trust to
sell to each of the underwriters named below (collectively, the "Underwriters"),
and each of the Underwriters has severally but not jointly agreed to purchase,
the principal amount of Notes and Certificates set forth opposite its name
below:
Underwriters Class A-1 Notes Class A-2 Notes Class A-3 Notes Class A-4 Notes Certificates
- ------------ --------------- --------------- --------------- --------------- ------------
[ ]............... $ $ $ $ $
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
[ $ $ $ $ $
]........................
Total.................... $ $ $ $ $
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth in the Underwriting Agreement, to purchase all of
the Notes and the Certificates. This obligation of the Underwriters is subject
to specified conditions precedent set forth in the Underwriting Agreement.
The Depositor has been advised by the Underwriters that they propose to
offer the Notes and the Certificates to the public initially at the prices set
forth on the cover of this prospectus supplement, and to specified dealers at
these prices less the concessions and reallowance discounts set forth below:
S-68
Class Selling Concession Reallowance Discount
A-1.......................................... % %
A-2.......................................... % %
A-3.......................................... % %
A-4.......................................... % %
Certificates................................. % %
The Depositor and BMW FS have agreed to indemnify the Underwriters against
specified liabilities, including liabilities under the Securities Act or to
contribute to payments which the Underwriters may be required to make in respect
thereof. However, in the opinion of the SEC, certain indemnification provisions
for liability arising under the federal securities law are contrary to public
policy and therefore unenforceable. In the ordinary course of their respective
businesses, the Underwriters and their respective affiliates have engaged and
may engage in investment banking and/or commercial banking transactions with BMW
FS and its affiliates.
The Notes and Certificates 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 and Certificates as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Notes and Certificates, and that 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 and the Certificates.
The Trust may, from time to time, invest funds in the Accounts in Eligible
Investments acquired from the Underwriters.
The Underwriters have advised the Depositor that, pursuant to Regulation M
under the Securities Act, the Underwriters may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, which may have the effect of stabilizing or maintaining the market price
of the Notes of any class and the Certificates at levels above those that might
otherwise prevail in the open market. A "stabilizing bid" is a bid for or the
purchase of the Notes of any class and the Certificates on behalf of the
Underwriters for the purpose of fixing or maintaining the price of those Notes.
A "syndicate covering transaction" is the bid for or the purchase of those Notes
of any class and the Certificates on behalf of the Underwriters to reduce a
short position incurred by the Underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting one of the Underwriters to reclaim
the selling concession otherwise accruing to another Underwriter or syndicate
member in connection with this offering if the Notes of any class and the
Certificates originally sold by the other Underwriter or syndicate member are
purchased by the reclaiming Underwriter in a syndicate covering transaction and
has therefore not been effectively placed by the other Underwriter or syndicate
member.
Stabilizing bids and syndicate covering transactions may have the effect of
causing the price of the Notes of any class and the Certificates to be higher
than it might be in the absence of stabilizing bids and syndicate covering
transactions, and the imposition of penalty bids might also have an effect on
the price of any note to the extent that it discourages resale of that note.
Neither the Depositor nor the Underwriters makes any representation or
prediction as to the direction or magnitude of any of that effect on the prices
for the Notes. Neither the Depositor nor the Underwriters makes any
representation that the Underwriters will engage in any of those
S-69
transactions or that, once commenced, any of those transactions will not be
discontinued without notice.
It is expected that delivery of the Notes and the Certificates will be made
against payment for the Notes on or about the Closing Date, which is the [ ]
business day following the date of this prospectus supplement. Rule 15c6-1 of
the Commission under the Exchange Act of 1934 generally requires trades in the
secondary market to settle in three business days, unless the parties to any
such trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Notes and the Certificates on the date of this prospectus supplement will be
required, by virtue of the fact that the Notes and the Certificates initially
will settle [ ] business days after the date of this prospectus supplement, to
specify an alternate settlement cycle at the time of any such trade to prevent a
failed settlement. It is suggested that purchasers of Notes or the
Certificateholders who wish to trade Notes or Certificates on the date of this
prospectus supplement consult their own advisors.
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 the prospectus.
Each Underwriter will represent that:
o it has not offered or sold and will not offer or sell, prior to the
date six months after their date of issuance, any Notes or
Certificates to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
in and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations
1995;
o it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United
Kingdom; and
o it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the
issuance of the Notes or the person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1997 or is a person to whom the
document can otherwise lawfully be issued or passed on.
S-70
Notice to Canadian Residents
Resale Restrictions
The distribution of the Notes and Certificates in Canada is being made only
on a private placement basis exempt from the requirement that the Depositor, on
behalf of the Trust, prepare and file a prospectus with the securities
regulatory authorities in each province where trades of Notes or Certificates
are effected. Accordingly, any resale of the Notes in Canada must be made in
accordance with applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in accordance
with available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Notes and
Certificates.
Representations of Purchasers
Each purchaser of Notes and Certificates in Canada who receives a purchase
confirmation will be deemed to represent to the Depositor, the Servicer, the
related trustee, the Trust and the dealer from whom such purchase confirmation
is received that (i) such purchaser is entitled under applicable provincial
securities laws to purchase such Notes or Certificates without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "--Resale Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Notes and Certificates to whom the Securities Act (British
Columbia) applies is advised that such purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Notes and Certificates acquired by such purchaser pursuant to this offering.
Such report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/17, a copy of which may be obtained from the
Depositor. Only one such report must be filed in respect of Notes and
Certificates acquired on the same date and under the same prospectus exemption.
S-71
Taxation and Eligibility for Investment
Canadian purchasers of Notes and Certificates should consult their own
legal and tax advisors with respect to the tax consequences of an investment in
the Notes and Certificates or in their particular circumstances and with respect
to the eligibility of the Notes and Certificates or for investment by the
purchaser under relevant Canadian legislation.
Legal Opinions
In addition to the legal opinions described in the accompanying prospectus,
legal matters relating to the Notes and Certificates and federal income tax and
other matters will be passed upon for the Trust by Weil, Gotshal & Manges LLP.
Certain legal matters will be passed upon for the Underwriters by [ ].
S-72
Index of Terms
ABS................................................38
ABS Tables.........................................38
Administration Agreement...........................25
Advance............................................62
Available Amounts..................................52
Available Amounts Shortfall........................54
Available Interest.................................52
Available Principal................................52
Benefit Plan.......................................67
BMW AG.............................................10
BMW Center Recourse................................25
BMW Centers........................................25
BMW FS.............................................25
BMW Group..........................................10
Capitalized Interest Account.......................61
Capitalized Interest Payments......................61
Certificate Distribution Account...................62
Certificate Pool Factor............................46
Certificateholders.................................49
Certificates....................................10,35
Class A Notes......................................35
Clearstream, Luxembourg...........................A-1
Closing Date.......................................27
Collection Period..................................62
Deposit Date.......................................62
Depositor..........................................25
Determination Date.................................51
DTC...............................................A-1
Euroclear.........................................A-1
Excess Amount......................................54
Final Scheduled Payment Date.......................35
Financed Vehicles..................................27
First Priority Distribution Amount.................55
Funding Period..................................11,61
Global Securities.................................A-1
Indenture Trustee..................................25
Initial Cutoff Date................................27
Initial Pool Balance...............................27
Initial Receivables.............................10,27
Initial Yield Supplement Overcollateralization
Amount .......................................17,57
Interest Period....................................55
Interest Rate......................................47
Liquidation Proceeds...............................53
Note Distribution Account..........................62
Note Owners........................................66
Note Pool Factor...................................46
Noteholders........................................48
Obligor............................................27
Owner Trustee......................................25
Payment Date.......................................47
penalty bid........................................69
Plan Assets Regulation.............................67
Pre-Funded Amount..................................60
Pre-Funding Account.............................11,60
Principal Distribution Account.....................55
Principal Distribution Amount...................48,55
Prepayment.........................................60
PTCE...............................................67
Purchased Amount...................................53
Purchased Receivable...............................53
Receivables........................................27
Receivables Purchase Agreement.....................27
Recoveries.........................................53
Redemption Price...................................63
Regular Principal Distribution Amount..............55
Reserve Fund Initial Deposit.......................56
Sale and Servicing Agreement.......................25
Securities......................................10,35
Seller.............................................27
Servicer...........................................25
Servicer Defaults..................................63
Servicing Fee......................................62
Servicing Rate.....................................62
Specified Reserve account balance..................57
stabilizing bid....................................69
Subsequent Purchase Agreement......................28
Subsequent Receivables..........................11,27
Subsequent Transfer Agreement......................28
Subsequent Transfer Date...........................28
syndicate covering transaction.....................69
Trust..............................................25
Trust Agreement....................................25
Trust Fees and Expenses............................56
Trustees...........................................26
Underwriters.......................................68
Underwriting Agreement.............................68
Weighted Average Security Rate.....................61
Yield Supplement Overcollateralization Amount......58
S-73
Annex A
Global Clearance, Settlement and
Tax Documentation Procedures
Except in specified circumstances, the globally offered Class A Notes (the
"Global Securities") will be available only in book-entry form. Investors in the
Global Securities may hold the Global Securities through The Depository Trust
Company ("DTC"), Clearstream Banking, societe anonyme ("Clearstream,
Luxembourg") or the Euroclear System ("Euroclear. The Global Securities will be
tradable as home market instruments in both the European and U.S. domestic
markets. Initial settlement and all secondary trades will settle in same-day
funds.
Secondary market trading between investors holding Global Securities
through Clearstream, Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., three calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedure applicable to
U.S. corporate debt obligations and prior asset-backed securities issues.
Secondary cross-market trading between Clearstream, Luxembourg or Euroclear
and DTC Participants holding securities will be effected on a
delivery-against-payment basis through the depositaries of Clearstream,
Luxembourg and Euroclear (in that capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless those holders meet specified requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Clearstream, Luxembourg and
Euroclear will hold positions on behalf of their participants through their
depositaries, which in turn will hold those positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will follow
DTC settlement practice. Investor securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream,
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global Securities will be
credited to securities custody accounts on the settlement date against payment
in same-day funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
A-1
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior
asset-backed securities issues in same-day funds.
Trading between Clearstream, Luxembourg and/or Euroclear Participants.
Secondary market trading between Clearstream, Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC Depositor and Clearstream, Luxembourg or Euroclear
Participants. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream, Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream,
Luxembourg or Euroclear through a Clearstream, Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement.
Clearstream, Luxembourg or Euroclear will instruct the respective Depositary, as
the case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of the
actual number of days in that accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
Payment will then be made by the respective Depositary to the DTC Participant's
account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing
system and by the clearing system, in accordance with its usual procedures, to
the Clearstream, Luxembourg Participant's or Euroclear Participant's account.
The securities credit will appear the next day (European time) and the cash debt
will be back-valued to, and the interest on the Global Securities will accrue
from, the value date (which would be the preceding day when settlement occurred
in New York). If settlement is not completed on the intended value date (i.e.,
the trade fails), the Clearstream, Luxembourg or Euroclear cash debt will be
valued instead as of the actual settlement date.
Clearstream, Luxembourg Participants and Euroclear Participants will need
to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream,
Luxembourg or Euroclear. Under this approach, they may take on credit exposure
to Clearstream, Luxembourg or Euroclear until the Global Securities are credited
to their accounts one day later.
As an alternative, if Clearstream, Luxembourg or Euroclear has extended a
line of credit to them, Clearstream, Luxembourg Participants or Euroclear
Participants can elect not to pre-position funds and allow that credit line to
be drawn upon to finance settlement. Under this procedure, Clearstream Bank
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they clear the overdraft when the Global
Securities are credited to their accounts. However, interest on the Global
Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one-day period may
substantially reduce or offset the amount of those overdraft charges, although
this result will depend on each Clearstream, Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Clearstream, Luxembourg
Participants or Euroclear Participants. The sale
A-2
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC Participants a cross-market transaction will settle no differently than
a trade between two DTC Participants.
Trading between Clearstream, Luxembourg or Euroclear Depositor and DTC
Purchaser. Due to time zone differences in their favor, Clearstream, Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective Depositary, to a DTC
Participant. The seller will send instructions to Clearstream, Luxembourg or
Euroclear through a Clearstream, Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases, Clearstream,
Luxembourg or Euroclear will instruct the Relevant Depositary, as appropriate,
to deliver the Global Securities to the DTC Participant's account against
payment. Payment will include interest accrued on the Global Securities from and
including the last coupon payment to and excluding the settlement date on the
basis of the actual number of days in that accrual period and a year assumed to
consist of 360 days. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. The payment will then be reflected in the account of the Clearstream,
Luxembourg Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream, Luxembourg Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Clearstream,
Luxembourg Participant or Euroclear Participant have a line of credit with its
respective clearing system and elect to be in debt in anticipation of receipt of
the sale proceeds in its account, the back valuation will extinguish any
overdraft incurred over that one-day period. If settlement is not completed on
the intended value date (i.e., the trade fails), receipt of the cash proceeds in
the Clearstream, Luxembourg Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream, Luxembourg or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream,
Luxembourg Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(1) borrowing through Clearstream, Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream, Luxembourg or Euroclear accounts) in accordance with the
clearing system's customary procedures;
(2) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream,
Luxembourg or Euroclear account in order to settle the sale side of
the trade; or
(3) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream,
Luxembourg Participant or Euroclear Participant.
Material U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest (including
A-3
original issue discount) on registered debt issued by U.S. Persons (as defined
in the accompanying prospectus), unless (1) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between that beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (2) that beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8BEN). Beneficial owners of Global
Securities that are Non-U.S. Persons generally can obtain a complete exemption
from the withholding tax by filing a signed Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Withholding). If the information
shown on Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of
that change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). A Non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, generally can obtain an exemption
from the withholding tax by filing Form W-ECI (Certificate of Foreign Person's
Claim for Exemption from Withholding on Income Effectively Connected with the
Conduct of a Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form W-8BEN). Non-U.S. Persons residing in a country that has a tax treaty with
the United States generally can obtain an exemption or reduced tax rate
depending on the treaty terms) by filing Form W-8BEN. Form W-8BEN may be filed
by the Class B Noteowners or their authorized agents.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of a
Global Security files by submitting the appropriate form to the person through
whom it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). A Form W-8BEN on which the beneficial owner
of a Global Security provides a U.S. taxpayer identification number generally
remains in effect until a change in circumstances causes any of the information
on the form to be incorrect. A W-8BEN on which a U.S. taxpayer identification is
not provided and a Form W-8ECI generally remain in effect for three calendar
years, absent a change in circumstances causing any information on the form to
be incorrect.
The term "Non-U.S. Person" means any person who is not a U.S. Person (as
defined in the accompanying prospectus).
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities. It is
suggested that investors consult their tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
A-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Expenses in connection with the offering of the Notes being registered
hereby are estimated as follows:
SEC registration fee................................. $[ ]
Legal fees and expenses.............................. $750,000 *
Accounting fees and expenses......................... $ 70,000 *
Rating agency fees................................... $375,000 *
Trustee's fees and expenses.......................... $ 30,000 *
Printing............................................. $ 50,000 *
Miscellaneous........................................ 0
Total............................................. 2,150,000 *
* All amounts, except the SEC Filing Fee are estimates for expenses
incurred or to be incurred in connection with the issuance and
distribution of one or more series of securities based upon an
aggregate principal amount assumed for these purposes to be equal
to the aggregate principal amount of securities previously registered
on the Registration Statement on Form S-3 (File No. 333-56082) of the
Registrant.
Item 15. Indemnification of Directors and Officers.
Section 18-108 of the Limited Liability Company Act of Delaware
empowers a limited liability company, subject to such standards and
restrictions, if any, as are set forth in its limited liability company
agreement, to indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever. The Limited
Liability Company Agreement ("LLC Agreement"), of BMW FS Securities LLC (the
"Depositor") provides that the Depositor shall defend, indemnify and save
harmless each of its members from and against all claims, losses, damages,
costs, expense, demands, liabilities, obligations, liens, encumbrances, rights
of action or attorneys' fees sustained by reason of any act performed, or
omitted to be performed, in good faith and without gross negligence or willful
misconduct, within the scope of its authority expressly conferred by the LLC
Agreement, to the fullest extent permitted by applicable law in effect on the
date of the LLC Agreement and to such greater extent as applicable law may
thereafter from time to time permit. Such indemnity shall not be construed to
limit or diminish the coverage of each member under any insurance obtained by
the Depositor and payment shall not be a condition precedent to any
indemnification provided in the LLC Agreement.
Reference is also made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto among the Depositor, BMW Financial Services, NA, LLC, J.P.
Morgan Securities Inc. and the other underwriters named therein (see Exhibit
1.1), which provides for indemnification by the Depositor in certain
circumstances.
II-1
Item 16. Exhibits.
* 1.1 Form of Underwriting Agreement (1)
* 3.1 Certificate of Formation of BMW FS Securities LLC (1)
* 3.2 Limited Liability Company Agreement of BMW FS Securities LLC between
BMW Financial Services NA, LLC and BMW FS Receivables Corporation (1)
* 3.3 Form of Trust Agreement (1)
* 4.1 Form of Indenture (including forms of Notes) (1)
5.1 Opinion of Weil, Gotshal & Manges LLP with respect to legality
8.1 Opinion of Weil, Gotshal & Manges LLP with respect to federal income
tax matters
* 10.1 Form of Amended and Restated Trust Agreement between BMW FS
Securities LLC and Wilmington Trust Company (1)
* 10.2 Form of Sale and Servicing Agreement among BMW Financial Services NA,
LLC, BMW Vehicle Owner Trust [ ]-A and JPMorgan Chase Bank (1)
* 10.3 Form of Owner Trust Administration Agreement among BMW Financial
Services NA, LLC, JPMorgan Bank and BMW Vehicle Owner
Trust [ ]-A (1)
* 10.4 Form of Receivables Purchase Agreement between BMW FS Securities LLC,
and BMW Financial Services NA, LLC (1)
23.1 Consent of Weil, Gotshal & Manges LLP (included in Exhibits 5.1 and
8.1)
24.1 Power of Attorney (included on Signature Pages)
* 25.1 Statement of Eligibility and Qualification of the Indenture Trustee
on Form T-1 (1)
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* previously filed; incorporated by reference
(1) Incorporated by reference to Amendment No. 2 to Registration
Statement on Form S-3 (Reg. No. 333--56802), filed with the
SEC by the Registrant on May 4, 2001.
Item 17. Undertakings.
The Registrant hereby undertakes as follows:
To provide to the Underwriters at the closing date specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to provide prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is therefore unenforceable. In the event that a claim
for indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act will be deemed to be part of this registration statement as of the
time it was declared effective.
For purposes of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus will be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant BMW FS Securities LLC certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement on Form S-3 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Woodcliff Lake, State of New Jersey, on the 13th day of March 2003.
BMW FS SECURITIES LLC,
a Delaware limited liability company
By: /s/ John M. Christman
----------------------------------------------
John M. Christman
President
By: /s/ Norbert Mayer
-----------------------------------------------
Norbert Mayer
Treasurer
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Know all men by these presents, that each person whose signature appears
below constitutes and appoints Norbert Mayer as his true and lawful
attorney-in-fact and agent, with full powers of substitution, for him and in his
name, place and stead, in any and all capacities, to sign and file this
Registration Statement and any and all amendments, including post-effective
amendments and increases to this Registration Statement, with the Securities and
Exchange Commission granting to said attorney-in-fact power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-3 has been signed by the following persons
in the capacities and on the dates indicated.
Signature Title
/s/ John M. Christman Member of the Management Committee of March 13, 2003
- -------------------------------- the Managing Member of
John M. Christman BMW FS Securities LLC and President of
BMW FS Securities LLC
(Principal Executive Officer)
/s/ Gerald Holtzman Vice President of Finance of March 13, 2003
- -------------------------------- BMW FS Securities LLC
Gerald Holtzman (Principal Financial
and Accounting Officer)
/s/ Norbert Mayer Treasurer of March 13, 2003
- -------------------------------- BMW FS Securities LLC
Norbert Mayer
/s/ Robert E. Devine Member of the Management Committee of March 13, 2003
- -------------------------------- the Managing Member of
Robert E. Devine BMW FS Securities LLC
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