As Filed with the Securities and Exchange Commission on February 4, 2005.
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)
(Exact name of registrant as specified in its charter)
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)
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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
================================================ ================ ================= ================= ================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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.
333-103795) of the Registrant will be carried forward. As of the date that
this Registration Statement was filed, $398,397,000 of securities remained
unsold under the Registration Statement on Form S-3 (File No. 333-103795).
All SEC filing fees relating to the Registration Statement on Form S-3
(File No. 333-103795) 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. 333-103795) of the Registrant
This Registration Statement, which is a new Registration Statement, also
constitutes post-effective Amendment No. 2 to Registration Statement No.
333-103795 and such post-effective amendment shall hereafter become effective
concurrently with the effectiveness of this Registration Statement and in
accordance with Section 8(c) of the Securities Act of 1933.
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PAGE BEFORE PROSPECTUS
INTRODUCTORY NOTE
THIS REGISTRATION STATEMENT CONTAINS (I) A FORM OF PROSPECTUS RELATING TO
THE OFFERING OF ONE OR MORE SERIES OF ASSET BACKED NOTES AND/OR ASSET BACKED
CERTIFICATES BY VARIOUS TRUSTS CREATED FROM TIME TO TIME BY BMW FS SECURITIES
LLC. AND (II) TWO FORMS OF PROSPECTUS SUPPLEMENT RELATING TO THE OFFERING BY
EACH SEPARATE TRUST OF A PARTICULAR SERIES OF ASSET BACKED NOTES OR OF ASSET
BACKED NOTES AND ASSET BACKED CERTIFICATES DESCRIBED IN THE PROSPECTUS
SUPPLEMENTS. EACH FORM OF PROSPECTUS SUPPLEMENT RELATES ONLY TO THE SECURITIES
DESCRIBED THEREIN AND IS A FORM WHICH MAY BE USED, AMONG OTHERS, BY BMW FS
SECURITIES LLC TO OFFER ASSET BACKED NOTES AND/OR ASSET BACKED CERTIFICATES
UNDER THIS REGISTRATION STATEMENT.
Information contained herein is subject to completion or amendment. A
registration statement relating to these Securities has been filed with the
Securities and Exchange Commission. These Securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these Securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
BMW VEHICLE OWNER TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
BMW FS SECURITIES LLC,
DEPOSITOR
BMW FINANCIAL SERVICES NA, LLC,
SERVICER
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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 estate will consist of:
o a pool of retail installment sale contracts and/or
promissory notes 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 estate 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 9 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS OR THE APPLICABLE PROSPECTUS SUPPLEMENT IS TRUTHFUL 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.
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The date of this prospectus is _______, 2005.
TABLE OF CONTENTS
PAGE
Important Notice about Information Presented in this Prospectus and the Accompanying Prospectus Supplement..................1
Incorporation of Certain Documents by Reference.............................................................................1
Copies of the Documents.....................................................................................................1
Summary of Terms............................................................................................................3
Trust.......................................................................................................................3
Depositor...................................................................................................................3
Servicer....................................................................................................................3
Trustee.....................................................................................................................3
Indenture Trustee...........................................................................................................3
Securities Offered..........................................................................................................3
The Receivables.............................................................................................................4
The Trust Property..........................................................................................................5
Credit and Cash Flow Enhancement............................................................................................5
Servicing Fee...............................................................................................................6
Advances .................................................................................................................6
Optional Purchase...........................................................................................................7
Tax Status .................................................................................................................7
ERISA Considerations........................................................................................................8
Risk Factors................................................................................................................9
Formation of the Trusts....................................................................................................17
Property of the Trusts.....................................................................................................17
The Receivables............................................................................................................18
Use of Proceeds............................................................................................................19
The Trustee................................................................................................................19
The Depositor..............................................................................................................20
The Servicer...............................................................................................................20
BMW FS' Financing Program..................................................................................................20
General....................................................................................................................20
Underwriting...............................................................................................................21
Dealer Agreements..........................................................................................................22
Servicing..................................................................................................................22
Physical Damage and Liability Insurance....................................................................................22
Certified Pre-Owned Program................................................................................................23
Where Can You Find More Information About Your Securities..................................................................23
Delinquencies, Repossessions and Net Losses................................................................................23
Weighted Average Lives of the Securities...................................................................................23
Pool Factors and Trading Information.......................................................................................25
The Notes..................................................................................................................25
General....................................................................................................................25
Principal and Interest on the Notes........................................................................................26
The Indenture..............................................................................................................26
The Certificates...........................................................................................................31
General....................................................................................................................31
Payments of Principal and Interest.........................................................................................31
Certain Information Regarding the Securities...............................................................................32
Fixed Rate Securities......................................................................................................32
Floating Rate Securities...................................................................................................32
Indexed Securities.........................................................................................................40
Interest Rate Swaps........................................................................................................41
Variable Funding Note......................................................................................................41
Pro-Rata Pay/Subordinate Securities........................................................................................42
Revolving Period...........................................................................................................42
Book-Entry Registration....................................................................................................42
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Definitive Securities......................................................................................................46
Description of the Transfer and Servicing Agreements.......................................................................46
Sale and Assignment of Receivables.........................................................................................47
Accounts...................................................................................................................49
Servicing Procedures.......................................................................................................50
Insurance on Financed Vehicles.............................................................................................51
Collections................................................................................................................51
Advances...................................................................................................................52
Servicing Compensation.....................................................................................................52
Yield Supplement Account...................................................................................................53
Distributions on the Securities............................................................................................54
Credit and Cash Flow Enhancement...........................................................................................54
Net Deposits...............................................................................................................55
Statements to Trustees and the Trust.......................................................................................56
Statements to Securityholders..............................................................................................56
Evidence as to Compliance..................................................................................................57
Certain Matters Regarding the Servicer.....................................................................................57
Servicer Default...........................................................................................................58
Rights Upon Servicer Default...............................................................................................58
Waiver of Past Defaults....................................................................................................59
Amendment..................................................................................................................59
List of Securityholders....................................................................................................60
Insolvency Event...........................................................................................................60
Payment of Notes...........................................................................................................60
Termination................................................................................................................60
Administration Agreement...................................................................................................61
Certain Legal Aspects of the Receivables...................................................................................61
General....................................................................................................................61
Security Interests.........................................................................................................61
Repossession...............................................................................................................63
Notice of Sale; Redemption Rights..........................................................................................63
Deficiency Judgments and Excess Proceeds...................................................................................64
Certain Bankruptcy Considerations..........................................................................................64
Consumer Protection Laws...................................................................................................65
Other Limitations..........................................................................................................66
Material Income Tax Consequences...........................................................................................67
Tax Treatment of Owner Trusts..............................................................................................67
Tax Consequences to Owners of the Notes....................................................................................68
Tax Consequences to Owners of the Certificate..............................................................................70
Tax Treatment of Grantor Trusts............................................................................................75
Reportable Transaction Disclosure..........................................................................................81
State and Local Tax Considerations.........................................................................................81
ERISA Considerations.......................................................................................................81
Plan of Distribution.......................................................................................................82
Legal Opinions.............................................................................................................83
Index of Terms.............................................................................................................84
ii
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
84 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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission ("SEC") allows us to
"incorporate by reference" information filed with it by BMW FS Securities LLC on
behalf of a trust, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this prospectus. Information that we file later with
the SEC will automatically update the information in this prospectus. In all
cases, you should rely on the later information over different information
included in this prospectus or the related prospectus supplement. We incorporate
by reference any future annual, monthly or special SEC reports and proxy
materials filed by or on behalf of a trust until we terminate our offering of
the securities by that trust.
COPIES OF THE DOCUMENTS
You may receive a free copy of any or all of the documents
incorporated by reference in this prospectus or incorporated by reference into
the accompanying prospectus supplement if:
o you received this prospectus and the prospectus supplement
and
o you request such copies from BMW FS Securities LLC at 300
Chestnut Ridge Road, Woodcliff Lake, New Jersey 07677 and
its telephone number is (201) 307-4000.
1
This offer only includes the exhibits to such documents if such
exhibits are specifically incorporated by reference in such documents. You may
also read and copy these materials at the public reference facilities of the SEC
in Washington, D.C. located at 450 Fifth Street, N.W., Washington, D.C. 20549
(telephone 1-800-732-0330).
2
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 passenger cars,
BMW light trucks, BMW motorcycles and BMW
parts and accessories ("BMW Products") and
MINI passenger cars and MINI parts and
accessories ("MINI Products") in the United
States and is a wholly owned subsidiary of
Bayerische Motoren Werke Aktiengesellschaft,
a German corporation ("BMW AG").
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
3
2. the interest rate (which may be
fixed, variable, 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 or by entering into promissory notes
with BMW Bank of North America. These
contracts and promissory notes 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
4
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 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 Accounts;
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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 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 accounts;
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
6
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 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 Trust--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
7
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.
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. The
limitations to, and the requirements for,
such purchase will be set forth in the
related prospectus supplement.
Certificates--Certificates issued by a
grantor trust or by owner trusts will not be
eligible for purchase by an employee benefit
plan, governmental plan, foreign 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.
8
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
UPON PAYMENTS FROM THE TRUST'S
ASSETS WHICH MAY NOT BE SUFFICIENT
TO MAKE FULL PAYMENTS ON YOUR
SECURITIES. The securities represent interests solely in
the trust or indebtedness of the trust and
will not be insured or guaranteed by BMW
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 Account,
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" in this prospectus.
YOU MAY EXPERIENCE REDUCED RETURNS
ON YOUR INVESTMENT RESULTING FROM
PREPAYMENTS OR REPURCHASES OF
RECEIVABLES OR EARLY TERMINATION OF
THE TRUST. You may receive payment of principal on your
securities earlier than you expected for the
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 lives 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. Unless otherwise set forth 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
9
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.
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
RECEIVABLES AND FINANCED VEHICLES
COULD BE SUPERIOR TO THE TRUST'S
INTEREST, WHICH MAY RESULT IN
REDUCED PAYMENTS ON YOUR
SECURITIES. Another person could acquire an interest in
a receivable that is superior to the trust's
interest in that receivable because the
receivables will not be segregated 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 as
custodian of title or ownership for the
vehicles, However, for administrative
reasons, the servicer will not endorse or
10
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 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 WITH
CONSUMER PROTECTION LAWS MAY BE
UNENFORCEABLE, WHICH MAY RESULT IN
LOSSES ON YOUR INVESTMENT. Many federal and state consumer protection
laws regulate consumer contracts, including
the receivables. If any of the receivables
does not comply with one or more of these
laws, the servicer may be prevented from or
delayed in collecting amounts due on the
receivable. 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
SERVICES NA, LLC (SERVICER) OR BMW
FS SECURITIES LLC (DEPOSITOR) COULD
RESULT IN LOSSES OR DELAYS IN
PAYMENTS ON YOUR SECURITIES. If either BMW Financial Services NA, LLC,
the servicer, or BMW FS Securities LLC, the
depositor, become subject to bankruptcy
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
11
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;
(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
MAY NOT BE SUFFICIENT TO PAY YOUR
SECURITIES IN FULL. If so directed by the holders of the
requisite percentage of 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
NOTES WILL NOT CONSTITUTE AN EVENT
OF DEFAULT UNTIL MATURITY. The amount of principal required to be paid
to the noteholders will generally be limited
to amounts available in the collection
account (and the Reserve Account or other
forms of credit or cash flow enhancement, if
any). Therefore, the failure to pay
principal of your notes generally will not
12
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
INTENDED TO BE USED TO MAKE PAYMENTS
ON THE SECURITIES MAY BE EXPOSED TO
A RISK OF LOSS. The servicer generally may retain all
payments and proceeds collected on the
receivables during each 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
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
OR AN INTEREST RATE SWAP, PAYMENTS
ON THE SECURITIES WILL BE DEPENDENT
ON PAYMENTS MADE UNDER THE SWAP
AGREEMENT. If the trust enters into a currency swap,
interest rate swap or a combined currency
and interest rate swap, its ability to
protect itself 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 related 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
THE INABILITY TO LOCATE A
REPLACEMENT SWAP COUNTERPARTY MAY
CAUSE TERMINATION OF THE TRUST. A swap agreement may be terminated if
particular events occur. Most of these
events are generally beyond the control of
the trust or the swap counterparty. If an
event of default under a 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
13
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 lives
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, 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
ENHANCEMENT PROVIDER MAY AFFECT THE
RATINGS OF THE SECURITIES. If a trust enters into any third party
credit enhancement 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 provider, 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 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. The calculation of interest or principal on
a series of securities may be based on a
currency, commodity, interest rate or other
index. In this situation, the 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,
14
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 is
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 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
SECURITIES AND/ OR OBTAINING YOUR
DESIRED PRICE DUE TO THE ABSENCE OF
A SECONDARY MARKET. The securities are not expected to be listed
on any securities exchange. Therefore, in
order to 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
BOOK-ENTRY FORM, YOUR RIGHTS CAN
ONLY BE EXERCISED INDIRECTLY. Because the securities will be issued in
book-entry form, you will 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 or
15
indenture. 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.
POSSIBLE PREPAYMENT DUE TO INABILITY
TO ACQUIRE SUBSEQUENT RECEIVABLES. If so disclosed in the applicable prospectus
supplement, a trust may 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--Credit and Cash Flow
Enhancement-- Pre-funding feature."
16
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 and MINI Products ("Centers") or other dealers and retail
purchasers (the "Obligors") and/or promissory notes executed by Obligors made
payable to BMW Bank of North America ("BMW Bank"). These contracts are referred
to as the "Receivables" and evidence the direct or indirect financing made
available by BMW Financial Services NA, LLC ("BMW FS") and 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 Centers in accordance with BMW FS'
requirements under agreements with 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.
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
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;
4. BMW FS' (or BMW Bank's) right to receive payments from Dealers
obligated to repurchase Receivables from BMW FS which do not
meet specified representations made by the Centers ("Dealer
Recourse");
5. the Depositor's right under, as applicable, the Sale and
Servicing Agreement, the Pooling and Servicing Agreement and the
Purchase Agreement, if any;
17
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 Account. 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 or originate 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 and/or promissory notes 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 or promissory
notes. 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; and
2. 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 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 annual percentage rate ("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
18
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 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 Account 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.
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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 and promissory notes 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 limits 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
Centers and their customers throughout the United States. BMW NA is based in
Woodcliff Lake, New Jersey and is engaged in the wholesale distribution of BMW
Products and MINI Products throughout the United States. BMW NA is an indirect
wholly owned subsidiary of BMW AG, a German corporation that is an international
manufacturer and distributor of passenger cars, 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 and promissory notes (the "Motor Vehicle Contracts"
or "Contracts") directly from authorized Centers and other dealers throughout
the United States. The Contracts are originated by Centers and other dealers who
regularly sell those Contracts to BMW FS, 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 Center or other dealer. In some cases BMW FS may purchase
contracts from other originators, such as BMW Bank. Certain Contracts (currently
the "lease to loan" program and certain refinancings) are originated directly by
BMW Bank rather than acquired from Centers.
Each Dealer Agreement, among other things, obligates the related
Center or other dealer to repurchase any Contract BMW FS or BMW Bank financed
for the outstanding principal balance of that Contract, if the 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 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 "Plan of Distribution". 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.
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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 facsimile or InfoBahn--a BMW intranet system linking
Centers and BMW FS. The application is reviewed 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.
A credit buyer reviews each application that is not automatically
approved through the credit processing system through the use of expert system
rules and scorecards. Credit buyers have credit authority levels of "1", "2" or
"3" depending on level of experience. The credit buyer's review includes an
evaluation of the customer demographics, income, the collateral, a credit bureau
report on the applicant from an independent credit bureau, use of internet
verification tools, and the applicant's credit score based on a credit scoring
system or "scorecard" developed for BMW FS. This internal scoring 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. The current application system used by BMW FS to process
applications provides review/decline indicators to aid the credit buyer in the
review of applications. 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 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 1 credit authority. These applicants
may be approved by a credit buyer with Level 2 or Level 3 credit authority
(or in some cases only by the credit team leader or credit manager) based on the
presence of certain factors, up to and including a guarantee by the Center. A
credit buyer with Level 1 credit authority may not disapprove without management
review applicants that score above the specified minimum.
On commercial transactions, BMW FS requires an individual to
guarantee the business' obligations under the Contract, otherwise it will obtain
a Dun and Bradstreet and two years of audited financial statements, bank
account records and credit references.
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
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o with respect to a used vehicle, 105% 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 and other items. Team leaders and above may approve
contracts exceeding advance guidelines on an exception basis.
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 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 security interest
in the related financed vehicles. 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 Center, BMW FS would have a right of recourse against that Center to
require it to repurchase the related Motor Vehicle Contract. Generally, the
Dealer Agreements do not provide for recourse against the 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.
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 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
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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 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 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 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, NW., 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 233 Broadway, New York, New York 10279. 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, NW., 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.
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 LIVES OF THE SECURITIES
The weighted average lives 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
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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. The
rate of prepayment of motor vehicle retail installment sale contracts and
promissory notes 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 and promissory notes 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 (or other level as may be disclosed in the applicable prospectus
supplement).
In addition, pursuant to agreements between BMW FS and the Centers,
each Center is obligated to repurchase from BMW FS Contracts which do not meet
particular representations and warranties made by that Center (these 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 promissory notes, as applicable, 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 Centers of retail
installment sale contracts to BMW FS do not generally provide for recourse
against the 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.
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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 a
Payment Date, after giving effect to payments made on such Payment Date, 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 a Payment Date, after
giving effect to payments made on such Payment Date, 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
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,
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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 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;
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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;
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 percentages 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 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 most senior notes then
outstanding (or relevant class or classes of notes);
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
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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 most
senior notes then outstanding (or relevant class or classes of
notes);
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
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 66?% of the aggregate
outstanding amount of the most senior notes then of the
related series outstanding (or relevant class or classes
of notes).
28
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.
Any Notes owned by the Depositor, the Servicer or any of their
affiliates will be entitled to equal and proportionate benefits under the
Transfer and Servicing Agreements, except that such Notes while unpledged will
not be considered to be outstanding for the purpose of determining whether the
requisite percentage of Noteholders have given any request, demand,
authorization, direction, notice, consent or other action under the Indenture.
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, 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;
29
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, so long as any Notes are outstanding, 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;
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
30
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") 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
31
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.
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:
32
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:
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, Amsterdam, 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).
33
"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.
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 Business Day, and no interest on that
payment shall accrue for the period from and after that scheduled Payment Date.
34
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, 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):
35
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.
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
36
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.federalreserve.gov/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:
(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
upward to the nearest one hundred-thousandth of a percentage point) calculated
in accordance with the following formula:
Money Market Yield = D x 360 x 100
-------------
360 - (D x M)
37
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)."
(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
38
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 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.
Treasury Rate Securities. Each Treasury Rate Security will bear
interest calculated with reference to the Treasury Rate and the Spread or Spread
Multiplier, it 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
39
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
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 (5) 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:
Bond Market Yield = D x N 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.
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
40
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.
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
41
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 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
42
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.
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 l7A of the Securities 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,
43
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 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, Luxembourg, incorporated under the laws of Luxembourg as
a professional depository, 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
44
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
Euroclear S.A./N.V. 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
Euroclear S.A./N.V. (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 has a banking license from the Belgian Banking
and Finance Commission. As such, it is regulated and supervised by the Belgian
Banking and Finance Commission and the National Bank of Belgium.
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 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.
45
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.
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
46
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 Account and the Yield
Supplement Account, if any.
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
47
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
(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/or promissory notes and any other documents
relating to the Receivables. To assure uniform quality in servicing both the
Receivables and the Servicer's (or BMW Bank's, as applicable) own portfolio of
motor vehicle retail installment sale contracts and promissory notes, 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 and promissory notes 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.
48
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 Account 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 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 Account, 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 Account 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 Account or the Yield Supplement Account at any
time may be less than the balance of the Reserve Account or the Yield Supplement
Account, as the case may be. If the amount required to be withdrawn from any
Reserve Account 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 Account 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 "Prime-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).
49
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 and promissory notes 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, but shall not,
except pursuant to an order of a court of competent jurisdiction, waive the
right to collect the unpaid balance of any Receivable. However, if any
modification of a Receivable extends the maturity of a Receivable beyond the
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; and
4. it will not extend the maturity of a Receivable beyond the
Final Scheduled Maturity Date.
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);
(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;
and
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.
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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 Securityholders 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 Account
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 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
51
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.
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"), exclusive of amounts that the Servicer
has determined would be nonrecoverable. On each Payment Date, the Servicer shall
reimburse itself for the outstanding amount advanced to the extent of actual
collections of late scheduled payments. 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 Simple Interest Advances in respect of that
Receivable, be withdrawn from the 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, 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
52
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.
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
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 supplement, amounts on deposit on any Payment Date in the
53
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
Account, 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 Accounts,
overcollateralization 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, 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 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 Account 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
54
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 Account. 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 Account" (the "Reserve Account"), which
will be maintained with the related Trustee or Indenture Trustee, as applicable.
Unless otherwise specified in the prospectus supplement, the Reserve Account
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 Account Initial Deposit"). To the extent provided in the
applicable prospectus supplement, the amount on deposit in the Reserve Account
will be increased on each Payment Date thereafter up to the Specified Reserve
Account Balance (as defined in the applicable prospectus supplement) by the
deposit in the Reserve Account of the amount of collections on the related
Receivables remaining on each Payment Date after all specified payments on that
date have been made. The applicable prospectus supplement will describe the
circumstances and manner under which payments may be made out of the Reserve
Account, 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 Account 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. The Depositor may in the future establish for
the related series or class of Securities a Reserve Account even though the
related prospectus supplement did not provide for the creation of a Reserve
Account, in accordance with the related Sale and Servicing Agreement or Pooling
and Servicing Agreement, to provide additional credit enhancement; under such
circumstances, deposits therein would be at the Depositor's sole option.
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 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,
55
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 the date on or prior to each Payment Date to be specified in the
applicable prospectus supplement (each, a "Determination Date"), 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 Secuntyholders 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;
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 Account on that date, after
giving effect to changes to the related Reserve Account on
that date and the amount of those changes;
56
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."
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
57
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 with respect to 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.
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;
2. failure on the part of the Servicer duly to observe or
perform, in any material respect, any covenants or agreements
of the Servicer set forth in the Sale and Servicing Agreement
or the Pooling and Servicing Agreement, which failure (i)
materially and adversely affects the rights of the
Securityholders and (ii) continues unremedied for a period of
60 days after discovery of such failure by the Servicer or
after the date on which written notice of such failure
requiring the same to be remedied shall have been given to the
Servicer by any of the Owner Trustee, the Indenture Trustee or
Securityholders evidencing not less than 50% of the
outstanding amount of the most senior class of Securities then
outstanding;
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 50%
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 50% 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
58
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.
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 (but excluding for
purposes of calculation and action all Securities held by the
Depositor, the Servicer or any of their affiliates); 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 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
59
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.
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;
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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, pursuant to the terms of the
Sale and Servicing Agreement 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 Pool Balance as of the related
Cutoff Date (or other level as may be provided in the
applicable Prospectus Supplement).
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.
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 or
promissory notes, 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.
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All retail installment sale contracts and promissory notes acquired
from Centers name BMW Bank as obligee or assignee and as the secured party,
except in the case of Contracts due from residents of certain states (currently
Montana and New Jersey) which 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 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 Bank's or
BMW FS', as applicable, 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 or promissory note to
surrender possession of the certificate of title. In the case of motor vehicles
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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.
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 or promissory note 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 or promissory note, 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
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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.
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 its limited
liability company agreement 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.
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
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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 Military
Reservist Relief Act of 1991, the Texas Consumer Credit Code, state adoptions of
the National Consumer Act and of the Uniform Consumer Credit Code and state
motor vehicle retail installment sales acts 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 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
65
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 Center if
the Center is unable to assign the contract to a lender within ten days of the
date of the contract. As of the date of this prospectus, the ten-day rescission
period had run in respect of all of the California Contracts in which the
rescission provision appears. Although there is authority, which is not binding
upon any court, providing that a conditional sale contract containing such a
provision does not comply with California law and would render the contract
unenforceable, to the Depositor's and BMW FS' knowledge, the issue has not been
presented before any California court. On the Closing Date, the Depositor will
receive an opinion of counsel 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 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 apply to a court to delay payments on any contract obligation if called into
active service by the Governor. It is possible that the foregoing could have an
effect on the ability of the Servicer to collect the full amount of interest
66
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 Account 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 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.
67
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.
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 nongovemment 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
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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 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 penalty
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:
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;
69
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 penalty 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 from 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.
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 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 CERTIFICATE
Treatment of the Trust as a Partnership. Tax counsel to the Trust is
of the opinion 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 Account), 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
70
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:
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
71
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 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 its 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
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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.
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
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to themselves and their ownership of certificates. A clearing agency registered
under Section 17A of the Securities and Exchange Act of 1934 is not required to
furnish any information statement of this type to the Trust. The information
referred to above for any calendar year must be furnished to the Trust on or
before the following January 31. Nominees, brokers and financial institutions
that fail to provide the Trust with the information described above may be
subject to penalties.
The 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 the highest rate of tax applicable to their domestic counterparts
in the case of Foreign Certificate Owners that are corporations, individuals,
trusts and estates, respectively. 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 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
if, in general, the Certificate Owner fails to comply with specified
74
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 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 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
75
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 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 from the Yield Supplement Account and the principal of, and
interest payable on, each Receivable (minus the Retained Yield
on the High Yield Receivables).
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 equated 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 from any Yield Supplement Account 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
76
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.
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
77
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:
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 the Yield Supplement Account 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
78
Grantor Trust Certificateholder should also be entitled to amortize the portion
of its purchase price allocable to its right 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
Account should be reported by a Grantor Trust Certificateholder in some other
manner. In addition, to the extent that the amounts payable from the Yield
Supplement Account 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 Account.
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.
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
79
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).
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
80
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 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.
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, 30% 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.
REPORTABLE TRANSACTION DISCLOSURE
In certain circumstances, a U.S. Holder of Notes or Certificates who
disposes of such investment in a transaction resulting in the recognition by
such holder of significant losses in excess of certain threshold amounts may be
obligated to disclose its participation in such transaction in accordance with
regulations issued by the Treasury Department governing tax shelters and other
potentially tax-motivated transactions. Investors should consult their tax
advisors concerning any possible disclosure obligation under such regulations
with respect to the disposition of such securities.
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 exemptions would include, without limitation,
81
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.
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.
PLAN OF DISTRIBUTION
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
82
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.
83
INDEX OF TERMS
Accounts....................................................49
Actuarial Receivables.......................................18
Administration Agreement....................................61
Administrative Purchase Payment.............................50
Administrative Receivable...................................50
Administrator...............................................61
Advances....................................................52
APR 18
Auction.....................................................39
Base Rate...................................................32
Base Servicing Fee..........................................52
Benefit Plan................................................81
BMW Bank....................................................17
BMW FS..................................................17, 20
BMW NA......................................................20
BMW Products.................................................3
Bond Equivalent Yield.......................................40
Business Day................................................32
Calculation Agent...........................................36
Calculation Date............................................36
California Contracts........................................66
CD Rate.....................................................36
CD Rate Security............................................32
Cede........................................................23
Centers.....................................................17
Certificate Balance.........................................25
Certificate Owners..........................................70
Certificate Pool Factor.....................................25
Certificateholder...........................................31
class...................................................25, 31
Clearstream, Luxembourg.....................................42
Clearstream, Luxembourg Participants........................42
Closing Date............................................17, 47
Code........................................................67
Collection Account..........................................49
Collection Period...........................................51
Commercial Paper Rate.......................................37
Commercial Paper Rate Security..............................32
Contracts...................................................20
Cooperative.................................................45
CPO.........................................................23
CSSF........................................................45
Cutoff Date.................................................17
Dealer Agreement............................................20
Dealer Agreements...........................................17
Dealer Recourse.........................................17, 24
Definitive Certificates.....................................46
Definitive Notes............................................46
Definitive Securities...................................42, 46
Depositaries................................................43
Depositor...............................................17, 20
Designated LIBOR Page.......................................39
Determination Date..........................................56
DTC ........................................................42
DTC Participants........................................25, 43
Due Date....................................................22
Eligible Institution........................................49
Eligible Investments........................................49
ERISA.......................................................81
Euroclear...............................................42, 45
Euroclear Operator..........................................45
Euroclear Participants......................................42
Events of Default...........................................27
Excess Payment..............................................52
Federal Funds Rate..........................................38
Federal Funds Rate Security.................................32
Final Scheduled Maturity Date...............................50
Financed Vehicles...........................................17
Fixed Rate Securities.......................................32
Floating Rate Securities....................................32
Foreign Certificate Owners..................................74
Foreign Grantor Trust Certificateholder.....................80
Foreign Owner...............................................70
FTC Rule....................................................65
Grantor Trust...............................................75
Grantor Trust Certificateholders............................75
Grantor Trust Certificates..................................75
H.15 Daily Update...........................................37
H.15(519)...................................................37
High Yield Receivable.......................................76
Indenture...................................................25
Indenture Trustee...........................................19
Index.......................................................41
Index Currency..............................................34
Indexed Principal Amount....................................41
Indexed Securities..........................................40
Indirect DTC Participants...................................43
Insolvency Event............................................58
Insolvency Laws.............................................64
Interest Determination Date.................................35
Interest Period.............................................35
Interest Rate...............................................26
Interest Reset Date.........................................34
Interest Reset Period.......................................34
IRS .......................................................67
LIBOR.......................................................38
LIBOR Security..............................................32
London Banking Day..........................................35
London Business Day.........................................33
Low Yield Receivables.......................................76
MINI Products................................................3
Money Market Yield..........................................37
Moody's.....................................................49
Motor Vehicle Contracts.....................................20
New York Business Day.......................................33
Note Owners.................................................68
84
Note Pool Factor............................................25
Noteholder..................................................25
Obligors....................................................17
OID ........................................................68
OID regulations.............................................68
Original Certificate Balance................................25
Owner Trust.................................................67
Pass Through Rate...........................................31
Payahead Account............................................49
Payment Date................................................31
Payments Ahead..............................................49
Plan Assets Regulation......................................82
Pool Balance................................................53
Pooling and Servicing Agreement.............................17
Precomputed Advance.........................................52
Precomputed Receivables.....................................18
Prepayment..................................................52
Prepayment Assumption.......................................68
Principal Balance...........................................53
Principal Financial Center..................................33
Principal Financial Center Business Day.....................33
prospectus supplement.......................................17
PTCE........................................................82
Purchase Agreement..........................................47
Rebate......................................................48
Receivables Pool............................................17
Related Documents...........................................30
Relief Act..................................................66
Required Deposit Rating.....................................49
Required Rate...............................................53
Required Yield Supplement Amount............................54
Reserve Account.............................................55
Reserve Account Initial Deposit.............................55
Retained Yield..............................................76
Rule of 78s Receivables.....................................18
Sale and Servicing Agreement................................17
Schedule of Receivables.....................................47
Scheduled Payment...........................................18
SEC .........................................................1
Section 1286 Treasury Regulations...........................77
Securities..................................................17
Securities Act..............................................23
Securityholders.............................................23
Servicer Default............................................58
Servicer Letter of Credit...................................57
Servicing Fee Rate..........................................52
Short-Term Note.............................................68
Simple Interest Advance.....................................52
Simple Interest Receivables.................................18
Specified Currency..........................................33
Spread......................................................32
Spread Multiplier...........................................32
Standard & Poor's...........................................49
Strip Certificates..........................................31
Strip Notes.................................................26
Supplemental Servicing Fee..................................53
TARGET Business Day.........................................33
Telerate Page 120...........................................38
Telerate Page 56............................................40
Telerate Page 57............................................40
Terms and Conditions........................................45
Total Servicing Fee.........................................53
Transfer and Servicing Agreements...........................46
Treasury Bills..............................................39
Treasury Rate...............................................39
Treasury Rate Security......................................32
Trust.......................................................17
Trust Agreement.............................................17
Trustee.....................................................19
U.S. Person.................................................69
UCC ........................................................48
Underwriters................................................82
Underwriting Agreements.....................................82
Warranty Purchase Payment...................................47
Warranty Receivable.........................................47
Weighted Average Life.......................................24
Yield Supplement Account....................................53
Yield Supplement Deposit....................................53
85
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 circumstances 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
Seller and Servicer
Until [ ], 2005 (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
$[ ]
[ ]% [ ]
Prospectus Supplement
[ ]
[ ]
[ ]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED [ ], 2005)
BMW VEHICLE OWNER TRUST [ ]-A
ISSUER
BMW FS SECURITIES LLC
DEPOSITOR
BMW FINANCIAL SERVICES NA, LLC
SELLER AND SERVICER
$[ ] ASSET BACKED NOTES
____% CLASS A-1 NOTES DUE ____
____% CLASS A-2 NOTES DUE ____
____% CLASS A-3 NOTES DUE ____
____% CLASS A-4 NOTES DUE ____
____% CLASS B NOTES DUE ____
The trust's main source of payments on the notes will be loan payments generated
by a portfolio of retail installment sale contracts and promissory notes secured
in most cases by BMW passenger cars, BMW light trucks, BMW motorcycles and MINI
passenger cars.
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 supplement and the attached prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
- --------------------- -------------------------- --------------------------- -------------------------- --------------------------
INITIAL PRINCIPAL PRICE TO UNDERWRITING PROCEEDS
BALANCE PUBLIC DISCOUNT TO DEPOSITOR(1)
- --------------------- -------------------------- --------------------------- -------------------------- --------------------------
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, in book-entry form, will be made to
investors through The Depository Trust Company against payment in immediately
available funds, on or about _____.
Underwriters of the Class A Notes
[ ]
Underwriters of the Class B Notes
[ ]
[ ], 2005
TABLE OF CONTENTS
Page
----
Important Notice About Information Presented in this Prospectus Supplement and the Accompanying Prospectus............S-3
Summary of Parties to the Transaction.................................................................................S-4
Summary of Monthly Deposits to and Withdrawals from Accounts..........................................................S-5
Summary of Terms......................................................................................................S-6
Risk Factors.........................................................................................................S-15
The Trust............................................................................................................S-21
General...................................................................................................S-21
Capitalization of the Trust..........................................................................................S-21
The Owner Trustee and the Indenture Trustee..........................................................................S-22
The Receivables......................................................................................................S-22
Assets on Trust...........................................................................................S-22
Description of Receivables................................................................................S-23
Composition of the Receivables.......................................................................................S-24
Distribution of the Receivables by APR...............................................................................S-24
Distribution of the Receivables by Geographic Location...............................................................S-25
Distribution of the Receivables by Remaining Term to Scheduled Maturity..............................................S-27
Distribution of the Receivables by Remaining Principal Balance.......................................................S-27
Delinquencies, Repossessions and Loan Loss Information...............................................................S-28
Maturity and Prepayment Considerations...............................................................................S-29
Weighted Average Lives of the Notes..................................................................................S-29
Receivables..........................................................................................................S-31
Percentage of Initial Class A-l and Class A-2 Note Principal at Various ABS Percentages..............................S-31
Percentage of Initial Class A-3 and Class A-4 Note Principal at Various ABS Percentages..............................S-32
Percentage of Initial Class B Note Principal at Various ABS Percentages..............................................S-32
Note Factors.........................................................................................................S-32
Use of Proceeds......................................................................................................S-33
The Depositor........................................................................................................S-33
The Servicer.........................................................................................................S-33
BMW FS' Financing Program............................................................................................S-33
Underwriting..............................................................................................S-33
The Notes............................................................................................................S-35
General...................................................................................................S-35
Payments of Interest......................................................................................S-35
Payments of Principal.....................................................................................S-35
Indenture................................................................................................ S-37
Notices...................................................................................................S-37
Governing Law.............................................................................................S-37
Payments on the Notes................................................................................................S-37
Calculation of Available Amounts..........................................................................S-38
Payment of Distributable Amounts..........................................................................S-39
Credit Enhancement...................................................................................................S-41
Subordination.............................................................................................S-41
Reserve Account...........................................................................................S-42
Yield Supplement Overcollateralization Amount.............................................................S-42
Description of the Transfer and Servicing Agreements.................................................................S-44
The Transfer and Servicing Agreements.....................................................................S-44
Sale and Assignment of Receivables........................................................................S-44
Accounts..................................................................................................S-45
Collections...............................................................................................S-45
Note Distribution Account.................................................................................S-45
Advances..................................................................................................S-45
S-2
Servicing Compensation....................................................................................S-46
Net Deposits..............................................................................................S-46
Optional Purchase.........................................................................................S-46
Removal of Servicer.......................................................................................S-47
Notes Owned by the Depositor, the Servicer or Affiliates..................................................S-47
Duties of the Owner Trustee and the Indenture Trustee.....................................................S-47
The Owner Trustee and the Indenture Trustee...............................................................S-48
Material Income Tax Consequences.....................................................................................S-49
Tax Characterization of the Trust.........................................................................S-49
Treatment of the Notes as Indebtedness....................................................................S-49
ERISA Considerations.................................................................................................S-49
Plan of Distribution.................................................................................................S-50
Legal Opinions.......................................................................................................S-52
Index of Terms.......................................................................................................S-53
Annex A Global Clearance, Settlement and Tax Documentation Procedures.................................................A-1
Initial Settlement....................................................................................................A-1
Secondary Market Trading..............................................................................................A-1
Material U.S. Federal Income Tax Documentation Requirements...........................................................A-3
S-2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is provided in two separate
documents that 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 securities; and (2) this
prospectus supplement, which describes the specific terms of your 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-1 in this prospectus supplement and the Table of
Contents beginning on page i 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-__ in this prospectus supplement and under the caption
"Index of Terms" beginning on page 87 in the accompanying prospectus.
In making your investment decision, you should rely only on the
information contained or incorporated by reference in this prospectus supplement
and the attached prospectus. We and the underwriters have not authorized anyone
to provide you with any other information. If you receive any other information,
you should not rely on it.
We and the underwriters are offering to sell the notes only in places
where offers and sales are permitted.
You should not assume that the information contained or incorporated
by reference in this prospectus supplement or the attached prospectus is
accurate as of any date other than the date on the front cover of this
prospectus supplement.
S-3
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)
----------------------- ---------------------
CITIBANK, N.A. / \
(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-4
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 |
on Notes | \ /
| | \ /
\|/ \|/ \ /
----------- ------------ \ /
Noteholders Certificate- ------------------
holders Certificateholders
----------- ------------ ------------------
*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-5
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/Trust..................... BMW Vehicle Owner Trust [ ]-A. The trust
will be established by the trust
agreement.
Seller........................... BMW Financial Services NA, LLC.
Servicer......................... BMW Financial Services NA, LLC.
Depositor........................ BMW FS Securities LLC.
Indenture Trustee................ Citibank, N.A.
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.
Receivables Purchase Agreement... The receivables purchase agreement
between the depositor and the seller.
The receivables purchase agreement
governs the sale of the receivables from
BMW Financial Services NA, LLC to the
depositor.
RELEVANT DATES
Closing Date..................... Expected to be [ ], 2005.
Statistical Calculation Date..... Close of business on [ ], 2005. This is
the date that was used in preparing the
statistical information used in this
prospectus supplement.
Cutoff Date...................... Close of business on [ ], 2005. The
Trust will receive amounts collected on
the motor vehicle retail installment
sale contracts and promissory notes
after this date.
S-6
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 [ ], 2005.
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 due ____
o Class A-2 Notes due ____
o Class A-3 Notes due ____
o Class A-4 Notes due ____
o Class B Notes due ____
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.
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 and
the Class B Notes. The initial principal
balance of each class of notes is
specified 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 will also issue 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 and
promissory notes, known as the
receivables. All of the receivables are
secured by passenger cars, light trucks
and motorcycles manufactured by
Bayerische Motoren Werke
S-7
Aktiengesellschaft or its subsidiaries
except that [ ]% by principal balance of
the receivables as of the statistical
calculation date are secured by vehicles
of other manufacturers. The statistical
information in this prospectus
supplement is based on the receivables
in the pool as of [ ], 2005. The
statistical distribution of the
characteristics of the receivables in
the pool as of the cutoff date, which is
[ ], 2005, will vary somewhat from the
statistical distribution of those
characteristics as of [ ], 2005,
although the Seller believes that such
variance is not likely to be material.
The principal balance of the receivables
on the close of business on [ ], 2005,
referred to as the "statistical
calculation date," was $[ ]. As of the
statistical calculation date, the
receivables had the following
characteristics:
o number of receivables: [ ]
o average principal balance:
$[ ]
o weighted average annual
percentage rate: [ ]%
o weighted average original term
to maturity: [ ] months
o weighted average remaining
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.
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:
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, but excluding, the next
payment date, except that the first
interest accrual period will be from the
closing date to, but excluding, [ ],
2005. This means that the interest due
S-8
on each payment date will be the product
of:
o the outstanding principal
balance of the Class A-1
Notes,
o the interest rate for the
Class A-1 Notes, 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, but excluding, the
25th day of the succeeding calendar
month, except that the first interest
accrual period will be from the closing
date to, but excluding, [ ], 2005. 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 related 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 Notes.
Priority of Distributions........ From collections on the receivables
during the prior calendar month and, in
the event of a shortfall in making 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
nonrecoverable servicer
advances,
S-9
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 equal to the excess of:
o the outstanding principal
balances of the Class A Notes
over
o the sum of the aggregate
principal balance of the
receivables less the 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 outstanding
principal balance of all of
the notes over
o an amount equal to the sum of
the aggregate principal
balance of the receivables
less the 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 the greater
of [ ]% of the outstanding
principal balance of the notes
and $[ ],
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 certificateholder, 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 include the
amount necessary to reduce the principal
balance of that class of notes to zero.
S-10
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 certificateholder, any
funds remaining.
Change in Priority of
Distribution upon Certain
Events of Default............. The order of priority for distributions
will change following the occurrence of:
o a default for five days or
more in 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 any 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-l Notes until
the Class A-1 Notes are paid in full,
and then pro rata to the Class A-2,
Class A-3 and Class A-4 Notes.
Following the occurrence of any other
event of default that 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
S-11
Notes and the Class B Notes on each
payment date until a liquidation, if
any, of the property of the trust.
Optional Purchase................ 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 cutoff date.
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,
to payments of principal on
the Class A Notes, and
o payments of principal on the
Class B Notes will be
subordinated to payments 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 principal balance of
the notes. On each payment date, after
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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 nonrecoverable
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 "Credit
Enhancement--Reserve Account" in this
prospectus supplement.
Yield Supplement
Overcollateralization Amount..... On the closing date, the aggregate
principal balance of the receivables as
of the cutoff date will exceed the
initial principal balance of the notes
by $[ ], which is approximately [ ]% of
the aggregate principal balance of the
receivables as of the cutoff 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 "Credit
Enhancement--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:
o the notes will be
characterized as debt for
federal income 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 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
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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 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 notes 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 of 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 notes 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
Ratings:
STANDARD
CLASS & POOR'S MOODY'S FITCH
----- -------- ------- -----
A-1 A-1+ Prime-1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
B A A
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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 notes of any class.
BECAUSE THE TRUST HAS LIMITED
ASSETS, THERE IS ONLY LIMITED
PROTECTION AGAINST POTENTIAL
LOSSES. The only sources of funds for payments on
the securities are the assets of the trust
and the reserve account. The 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 amount 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 "Credit Enhancement--Reserve
Account" in this prospectus supplement.
OCCURRENCE OF EVENTS OF DEFAULT
UNDER THE INDENTURE MAY RESULT IN
INSUFFICIENT FUNDS TO MAKE PAYMENTS
ON YOUR NOTES. Payment defaults or the insolvency or
dissolution of the depositor may result in
prepayment of the notes, which may result in
losses. If the trust fails to pay principal
on 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
indenture 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 TO GREATER CREDIT RISK
BECAUSE THE CLASS B NOTES ARE
SUBORDINATE TO THE CLASS A NOTES. The Class B Notes bear greater risk than the
Class A Notes because payments of interest
and principal on the Class B Notes are
subordinate, to the extent described below,
to payments of interest and principal on the
Class A Notes.
Interest payments on the Class B Notes on
each payment date will be subordinated to
servicing fees due to the servicer,
nonrecoverable advances payable 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 aggregate principal balance of the Class
A Notes exceeds the receivables balance 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
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paid on the Class B Notes until the Class A
Notes have been paid in full.
YOU MAY SUFFER LOSSES BECAUSE YOU
HAVE LIMITED CONTROL OVER ACTIONS OF
THE TRUST AND CONFLICTS OF INTEREST
BETWEEN CLASSES OF NOTES MAY OCCUR. Because the trust has pledged the property
of the trust to the indenture trustee to
secure payment on the notes, the indenture
trustee may, and at the direction of the
required 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 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 UNDER THE INDENTURE MAY
DELAY PAYMENTS ON THE CLASS B
NOTES. The trust will not make any distributions of
principal or interest on the Class B Notes
until payment in full of principal and
interest on the Class A Notes following:
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 DIRECT THE INDENTURE TRUSTEE UPON
AN EVENT OF DEFAULT UNDER THE
INDENTURE. If an event of default occurs under the
indenture, so long as any Class A Notes are
outstanding, only the holders of the Class A
Notes may waive that event of default,
accelerate the maturity dates of the notes
or direct or 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 OR DELAY IN PAYMENT TO CERTAIN
NOTES. Classes of notes that receive payments,
particularly principal payments, before
other classes will be repaid sooner 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
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all classes of notes on any payment date. In
addition, because principal of each class of
notes will be paid sequentially, certain
classes of 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.
As a result, the yields of the later
maturing classes of Class A Notes and the
yields of the Class B Notes will be
sensitive to losses on the receivables and
the timing of those losses. If the 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
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.
THE GEOGRAPHIC CONCENTRATION OF THE
OBLIGORS AND PERFORMANCE OF THE
RECEIVABLES MAY INCREASE THE RISK OF
LOSS ON YOUR INVESTMENT. Economic conditions in the states where
obligors reside may affect delinquencies,
losses and prepayments on the receivables.
The following economic conditions may affect
payments on the receivables:
o unemployment,
o interest rates,
o inflation rates,
o and consumer perceptions of the
economy.
If there is a concentration of obligors and
receivables in particular states, these or
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 statistical
calculation date, BMW Financial Services NA,
LLC's records indicate that the titles to
the vehicles relating to the receivables
were concentrated in the following states:
PERCENTAGE OF
AGGREGATE
STATE PRINCIPAL BALANCE
----------------------- --------------------
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
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No other state constituted more than [ ]% of
the aggregate principal balance of the
receivables as of the statistical
calculation date.
Approximately [ ]% of the outstanding
principal amount of the receivables as of
the statistical calculation date were titled
in California. A large number of
manufacturers and providers of high
technology equipment and services are
headquartered in California. The continued
downturn in this sector 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.
THE RETURN ON YOUR NOTES COULD BE
REDUCED BY SHORTFALLS DUE TO THE
SERVICEMEMBERS CIVIL RELIEF ACT. The Servicemembers Civil Relief Act of 2003,
as amended (the "Relief Act"), provides
relief to obligors who enter active military
service and to obligors in reserve status
who are called to active duty after the
origination of their receivables. The
response of the United States to the
terrorist attacks on September 11, 2001, the
instability of Afghanistan, the occupation
of Iraq and rising tensions in other regions
such as Korea may continue to involve
military operations that will increase the
number of citizens who have been called or
will be called to active duty. The Relief
Act provides, generally, that an obligor who
is covered by the Relief Act may not be
charged interest on the related receivable
in excess of 6% per annum during the period
of the obligor's active duty. These
shortfalls are not required to be paid by
the obligor at any future time. The servicer
is not required to advance these shortfalls
as delinquent payments.
In the event that excess interest on the
receivables and amounts in the reserve
account are not sufficient to cover the
reduction of interest on the receivables due
to the application of the Relief Act or
similar regulations or legislation, a note
interest carryover shortfall will result.
Any such interest carryover shortfall will
be paid in subsequent periods to the extent
of available funds before payments of
principal are made on the notes and may
result in extending the anticipated maturity
of your class of notes or possibly result in
a loss in the absence of sufficient credit
enhancement. In addition, pursuant to the
Military Reservist Relief Act of 1991, under
certain circumstances California residents
called into active duty with the reserves
can apply to a court to delay payments on
retail installment contracts, including the
receivables.
The Relief Act also limits the ability of
the servicer to repossess the financed
vehicle securing a receivable during the
related obligor's period of active duty and,
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in some cases, may require the servicer to
extend the maturity of the receivable, lower
the monthly payments and readjust the
payment schedule for a period of time after
the completion of the obligor's military
service. As a result, there may be delays in
payment and increased losses on the
receivables. Those delays and increased
losses will be borne primarily by the
certificates, but if such losses are greater
than anticipated, you may suffer a boss.
While there are not a significant number of
obligors in active military service as of
the statistical calculation date the
servicer does not maintain data as to the
number of obligors in the military reserves.
PREPAYMENTS ON RECEIVABLES MAY CAUSE
PREPAYMENTS ON THE NOTES, RESULTING
IN REINVESTMENT RISK TO YOU. You may receive payment of principal on your
notes earlier than you expected. If that
happens, you may not be able to reinvest the
principal you receive at a rate as high as
the rate on your notes. Prepayments on the
receivables will shorten the lives of the
notes 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 the prepayment of the
purchased receivables.
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 cutoff date.
S-19
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.
WITHDRAWAL OR DOWNGRADING OF THE
INITIAL RATINGS OF THE NOTES WILL
AFFECT THE PRICES FOR THE NOTES UPON
RESALE. A security rating is not a recommendation to
buy, sell or hold securities. Similar
ratings on different types of 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.
THE NOTES ARE NOT SUITABLE
INVESTMENTS FOR ALL INVESTORS. The notes, and in particular the Class B
Notes, are not a 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-20
THE TRUST
GENERAL
The BMW Vehicle Owner Trust [ ]-A (the "Trust") is a Delaware
statutory 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 sale contracts and promissory notes (the "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 Notes (as defined in this
prospectus supplement) will be used by the Trust to purchase the Receivables
from the Depositor pursuant to the sale and servicing agreement dated as of [ ],
2005 (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 Citibank, N.A., 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 [ ], 2005 (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 and
MINI Products ("Centers"), Centers will repurchase from BMW FS those contracts
that do not meet specified representations and warranties made by the Centers.
These Centers' repurchase obligations are referred to in this prospectus
supplement as "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
Center Recourse be deposited in the Collection Account to satisfy BMW FS'
repurchase obligations under the Sale and Servicing Agreement. The sales by the
Centers of retail installment sale contracts to BMW FS do not generally provide
for recourse against the 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 after the 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:
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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.
Citibank, N.A. is the Indenture Trustee under the Indenture (the
Indenture Trustee and the Owner Trustee are collectively referred to as the
"Trustees"). Citibank, N.A. is a national banking association and its principal
executive offices are located at 111 Wall Street, 14th Floor, New York, NY
10005, Attn: Corporate Trust- BMW Vehicle Owner Trust [ ]-A. The Depositor, the
Servicer and their respective 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 Receivables as of the close of business on [ ], 2005
(the "Cutoff Date"),
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 Cutoff Date with respect to the
Receivables,
3. security interests in the new or used automobiles, motorcycles and
light trucks (the "Financed Vehicles") securing each Receivables,
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[
], 2005 (the "Receivables Purchase Agreement") between the Depositor
and BMW FS, as seller (the "Seller"),
7. funds on deposit from time to time in the Reserve Account, and
8. funds on deposit in the Collection Account.
The Motor Vehicle Contracts that comprise the Receivables are secured
by new or used passenger cars, motorcycles and light trucks manufactured by
Bayerische Motoren Werke Aktiengesellschaft or its subsidiaries ("BMW AG" and,
together with all other BMW group companies, the "BMW Group") except that [ ]%
by principal balance of the Receivables as of the Statistical Calculation Date
are secured by vehicles of other manufacturers. The Contracts generally were
originated by Centers who participate in BMW FS' vehicle financing program and
were acquired by BMW FS or BMW Bank. See "BMW FS' Financing Program."
The Trust will purchase the Receivables from the Depositor on or
about [ ], 2005 (the "Closing Date") pursuant to the Sale and Servicing
Agreement.
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The Depositor will have purchased the 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").
The Receivables were selected from the Seller's portfolio of motor
vehicle retail installment sale contracts and promissory notes 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 Cutoff Date,
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.
DESCRIPTION OF RECEIVABLES
The statistical information presented in this prospectus supplement
is based on a pool of Receivables as of the close of business on [ ], 2005 (the
"Statistical Calculation Date"). As of the Statistical Calculation Date, the
Receivables in the pool had an aggregate principal balance of $[ ].
BMW FS will add Receivables to the pool after the Statistical
Calculation Date but prior to the Cutoff Date. In addition, some amortization of
the Receivables will have occurred since the Statistical Calculation Date and
some Receivables included as of the Statistical Calculation Date will have
prepaid in full or have been determined not to meet the eligibility requirements
regarding Receivables and therefore will not be included in the final
Receivables pool. As a result, the statistical distribution of characteristics
as of the Cutoff Date will vary from the statistical distribution of
characteristics as of the Statistical Calculation Date. However, the Seller
believes that such variance in statistical distribution of characteristics is
not likely to be material.
All of the Receivables were originated by BMW FS or BMW Bank or
purchased by BMW FS or BMW Bank from Centers. As of the Statistical Calculation
Date, approximately [ ]% of the Receivables by aggregate principal balance
represented financing of new vehicles and [ ]% of the Receivables by aggregate
principal balance represented financing of used vehicles.
As of the Statistical Calculation Date, approximately [ ]%, [ ]%, [
]%, [ ]% and [ ]% of the Receivables by aggregate principal balance were BMW
passenger cars, BMW light trucks, BMW motorcycles, MINI passenger cars and
vehicles of other manufacturers, respectively.
S-23
The distribution by APR, geographic distribution, distribution by
remaining term and distribution by remaining balance, in each case, of the
Receivables as of the Statistical Calculation 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 the Receivables.
COMPOSITION OF THE RECEIVABLES
Aggregate Principal Balance......................... $[ ]
Number of Contracts................................. [ ]
Average Principal Balance Outstanding............... $[ ]
Average Original Amount Financed.................... $[ ]
Original Amount Financed (range)............. $[ ] to $[ ]
Weighted Average APR(1)............................. [ ]%
APR (range).................................. [ ]% to [ ]%
Weighted Average Original Term(1)................... [ ] months
Original Term (range)........................ [ ] to [ ] months
Weighted Average Remaining Term(1).................. [ ] months
Remaining Term (range)....................... [ ] to [ ] months
.....................
(1) Weighted by principal balance as of the Statistical Calculation Date.
DISTRIBUTION OF THE RECEIVABLES BY APR
PERCENTAGE
OF AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
APR RANGE (%) RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------- ----------- ----------------- ----------
1.00% to 1.50%...................... [ ] $ [ ] [ ]%
1.51% to 2.00%...................... [ ] [ ] [ ]
2.01 % to 2.50%..................... [ ] [ ] [ ]
2.51% to 3.00%...................... [ ] [ ] [ ]
3.01% to 3.50%...................... [ ] [ ] [ ]
3.51% to 4.00%...................... [ ] [ ] [ ]
4.01% to 4.50%...................... [ ] [ ] [ ]
4.51% to 5.00%...................... [ ] [ ] [ ]
5.01% to 5.50%...................... [ ] [ ] [ ]
5.51% to 6.00%...................... [ ] [ ] [ ]
6.01% to 6.50%...................... [ ] [ ] [ ]
6.51% to 7.00%...................... [ ] [ ] [ ]
7.01% to 7.50%...................... [ ] [ ] [ ]
7.51% to 8.00%...................... [ ] [ ] [ ]
8.01% to 8.50%...................... [ ] [ ] [ ]
8.51% to 9.00%...................... [ ] [ ] [ ]
9.01% to 9.50%...................... [ ] [ ] [ ]
9.51% to 10.00%..................... [ ] [ ] [ ]
10.01% to 10.50%.................... [ ] [ ] [ ]
10.51% to 11.00%.................... [ ] [ ] [ ]
11.01% to 11.50%.................... [ ] [ ] [ ]
11.51% to 12.00%.................... [ ] [ ] [ ]
12.01% to 12.50%.................... [ ] [ ] [ ]
12.51% to 13.00%.................... [ ] [ ] [ ]
13.01% to 13.50%.................... [ ] [ ] [ ]
13.51% to 14.00%.................... [ ] [ ] [ ]
14.01% to 14.50%.................... [ ] [ ] [ ]
14.51% to 15.00%.................... [ ] [ ] [ ]
Greater than 15.00%................. [ ] [ ] [ ]
Totals........................ [ ] $[ ] [ ]%
(1) Percentages may not add to 100% because of rounding.
S-24
DISTRIBUTION OF THE RECEIVABLES BY GEOGRAPHIC LOCATION(1)
PERCENTAGE
OF AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
State RECEIVABLES PRINCIPAL BALANCE BALANCE(2)
----- ----------- ----------------- ----------
Alabama..................................... [ ] $[ ] [ ]%
Alaska...................................... [ ] [ ] [ ]
Arizona..................................... [ ] [ ] [ ]
Arkansas.................................... [ ] [ ] [ ]
California.................................. [ ] [ ] [ ]
Colorado.................................... [ ] [ ] [ ]
Connecticut................................. [ ] [ ] [ ]
Delaware.................................... [ ] [ ] [ ]
District of Columbia........................ [ ] [ ] [ ]
Florida..................................... [ ] [ ] [ ]
Georgia..................................... [ ] [ ] [ ]
Hawaii...................................... [ ] [ ] [ ]
Idaho....................................... [ ] [ ] [ ]
Illinois.................................... [ ] [ ] [ ]
Indiana..................................... [ ] [ ] [ ]
Iowa........................................ [ ] [ ] [ ]
Kansas...................................... [ ] [ ] [ ]
Kentucky.................................... [ ] [ ] [ ]
Louisiana................................... [ ] [ ] [ ]
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................................... [ ] [ ] [ ]
S-25
Texas....................................... [ ] [ ] [ ]
Utah........................................ [ ] [ ] [ ]
Vermont..................................... [ ] [ ] [ ]
Virginia.................................... [ ] [ ] [ ]
Washington.................................. [ ] [ ] [ ]
West Virginia............................... [ ] [ ] [ ]
Wisconsin................................... [ ] [ ] [ ]
Wyoming..................................... [ ] [ ] [ ]
Totals...................................... [ ] $[ ] [ ]%
- -----------
(1) Based on the state in which the related vehicle is titled.
(2) Percentages may not add to 100% because of rounding.
S-26
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM TO SCHEDULED MATURITY
PERCENTAGE
REMAINING TERM TO NUMBER OF AGGREGATE OF AGGREGATE
SCHEDULED MATURITY RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE(1)
- ------------------ ----------- ----------------- --------------------
6 months or less.................................... [ ] $[ ] [ ]%
7 months to 12 months............................... [ ] [ ] [ ]
13 months to 18 months.............................. [ ] [ ] [ ]
19 months to 24 months.............................. [ ] [ ] [ ]
25 months to 30 months.............................. [ ] [ ] [ ]
31 months to 36 months.............................. [ ] [ ] [ ]
37 months to 42 months.............................. [ ] [ ] [ ]
43 months to 48 months.............................. [ ] [ ] [ ]
49 months to 54 months.............................. [ ] [ ] [ ]
55 months to 60 months.............................. [ ] [ ] [ ]
Greater than 60 months.............................. [ ] [ ] [ ]
Totals.............................................. [ ] $[ ] [ ]%
- -----------
(1) Percentages may not add to 100% because of rounding.
DISTRIBUTION OF THE RECEIVABLES BY REMAINING PRINCIPAL BALANCE
PERCENTAGE
OF AGGREGATE
RANGE OF REMAINING NUMBER OF AGGREGATE PRINCIPAL
PRINCIPAL BALANCES RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------------ ----------- ----------------- ----------
$1 to $2,500........................................ [ ] $[ ] [ ]%
$2,501 to $5,000.................................... [ ] [ ] [ ]
$5,001 to $7,500.................................... [ ] [ ] [ ]
$7,501 to $10,000................................... [ ] [ ] [ ]
$10,001 to $12,500.................................. [ ] [ ] [ ]
$12,501 to $15,000.................................. [ ] [ ] [ ]
$15,001 to $17,500.................................. [ ] [ ] [ ]
$17,501 to $20,000.................................. [ ] [ ] [ ]
$20,001 to $22,500.................................. [ ] [ ] [ ]
$22,501 to $25,000.................................. [ ] [ ] [ ]
$25,001 to $27,500.................................. [ ] [ ] [ ]
$27,501 to $30,000.................................. [ ] [ ] [ ]
$30,001 to $32,500.................................. [ ] [ ] [ ]
$32,501 to $35,000.................................. [ ] [ ] [ ]
$35,001 to $37,500.................................. [ ] [ ] [ ]
$37,501 to $40,000.................................. [ ] [ ] [ ]
$40,001 to $42,500.................................. [ ] [ ] [ ]
$42,501 to $45,000.................................. [ ] [ ] [ ]
$45,001 to $47,500.................................. [ ] [ ] [ ]
$47,501 to $50,000.................................. [ ] [ ] [ ]
$50,001 to $52,500.................................. [ ] [ ] [ ]
$52,501 to $55,000.................................. [ ] [ ] [ ]
$55,001 to $57,500.................................. [ ] [ ] [ ]
$57,501 to $60,000.................................. [ ] [ ] [ ]
$60,001 to $62,500.................................. [ ] [ ] [ ]
$62,501 to $65,000.................................. [ ] [ ] [ ]
Greater than $65,000................................ [ ] [ ] [ ]
Totals.............................................. [ ] $[ ] [ ]%
- -----------
(1) Percentages may not add to 100% because of rounding.
S-27
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 and MINI motor vehicle
retail installment sale contracts and promissory notes ("Motor Vehicle
Contracts" or "Contracts"), which includes Contracts not owned but 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. 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 and light trucks.
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 and promissory notes, or the experience of the Trust with respect to
the Receivables, 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 in
time and the delinquency, repossession and net loss data showed the activity
only for that isolated group over the periods indicated.
In the table below, the period of delinquency for the years ended
December 31, 2004, 2003, 2002, 2001 and 2000 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
-------------------------------------------------------------------
AS OF DECEMBER 31
-------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Number of Contracts Outstanding........... 236,038 215,353 183,828 152,871 120,009
Delinquencies as a Percent of Contracts
Outstanding 0.16% 0.16% 0.17% 0.20% 0.29%
30-59 days.......................... 1.17% 1.27% 1.52% 1.38% 1.60%
60-89 days.......................... 0.20% 0.25% 0.33% 0.25% 0.36%
90 days or more..................... 0.16% 0.16% 0.17% 0.20% 0.29%
Total........................... 1.53% 1.67% 2.02% 1.83% 2.25%
Dollar Delinquencies as a Percent of
Principal Amount Outstanding
30-59 days.......................... 1.11% 1.27% 1.43% 1.30% 1.50%
60-89 days.......................... 0.19% 0.26% 0.33% 0.24% 0.38%
90 days or more..................... 0.14% 0.14% 0.16% 0.17% 0.26%
Total........................... 1.44% 1.67% 1.91% 1.71% 2.13%
In the table below, 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. 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.
S-28
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
--------------------------------------------------------------------------------------
AS OF
DECEMBER 31
--------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Principal Amount Outstanding........... $ 4,751,512 $ 4,371,333 $ 3,860,493 $ 3,206,427 $ 2,467,392
Average Principal Amount
Outstanding.......................... $ 4,561,422 $ 4,115,913 $ 3,533,460 $ 2,836,909 $ 2,211,856
Number of Contracts Outstanding........ 236,038 215,353 183,828 152,871 120,009
Average Number of Contracts
Outstanding.......................... 225,696 199,591 168,350 136,440 109,465
Charge-offs--full period actuals....... $ 22,770 $ 31,303 $ 25,275 $ 19,683 $ 14,839
Recoveries............................. $ 3,564 $ 11,642 $ 5,352 $ 3,613 $ 3,547
Net Losses............................. $ 19,206 $ 19,660 $ 19,923 $ 16,070 $ 11,292
Number of Repossessions sold......... 1,600 1,625 1,185 1,019 742
Number of Repossessions sold as a
percent of the Average Number of
Contracts Outstanding............... 0.71% 0.81% 0.70% 0.75% 0.68%
Net Losses as a percent of Average
Principal Amount Outstanding......... 0.42% 0.48% 0.56% 0.57% 0.51%
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 Lives of the Securities" in the accompanying prospectus
and "Risk Factors--You may experience reduced returns on your investment
resulting from prepayments or repurchases of receivables 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 than their respective final scheduled Payment Dates
set forth under "Payments on the Notes" (each, a "Final Scheduled Payment Date")
in this prospectus supplement. Note holders 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 herein) 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.
WEIGHTED AVERAGE LIVES 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
100 receivables prepay each month. ABS does not purport to be an historical
S-29
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 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 earlier than
its respective Final Scheduled Payment Date. 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 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 "Credit Enhancement--Reserve
Account", 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 ABS Tables indicate the projected weighted average life of each
class of Notes and set forth the percent of the initial principal balance of
each class of Notes that is projected to be outstanding after each of the
Payment Dates shown at various constant ABS percentages.
The ABS Tables also assume that the Receivables have been aggregated
into hypothetical pools with all of the Receivables within each hypothetical
pool having the characteristics set forth in the tables below and that the level
scheduled monthly payment for each of the pools, based on the aggregate
principal balance, APR, original term to maturity and remaining term to maturity
as of the assumed statistical calculation date as of the close of business on [
], 2005, will be such that each pool will be fully amortized by the end of its
remaining term to maturity. Additionally, the hypothetical pools for the
Receivables each have an assumed cutoff date as of the close of business on [ ],
2005.
S-30
RECEIVABLES
ORIGINAL STATED REMAINING
AGGREGATE TERM TERM
POOL PRINCIPAL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---- ----------------- --- ----------- -----------
1..............................
2..............................
3..............................
4..............................
5..............................
6..............................
7..............................
8..............................
9..............................
10.............................
---------------------
Total.......................
=====================
The actual characteristics and performance of the Receivables are
expected to differ from the assumptions used in constructing the ABS Tables. The
assumptions used are hypothetical and have been provided only to give a general
sense of how the principal cash flows might behave under varying prepayment
scenarios. For example, it is unlikely that the Receivables will prepay at a
constant level of ABS until maturity, that all of the Receivables will prepay at
the same level of ABS or that no defaults will occur on the Receivables.
Moreover, the diverse terms of Receivables within each of the hypothetical pools
could produce slower or faster principal distributions than indicated in the ABS
Table at the various percentages of ABS specified, even if the original and
remaining terms to maturity of the Receivables are as assumed. Any difference
between the assumptions and the actual characteristics and performance of the
Receivables, or actual prepayment experience, will affect the percentages of
initial amounts outstanding over time and the weighted average life of each
class of Notes.
PERCENTAGE OF INITIAL CLASS A-L AND CLASS A-2 NOTE PRINCIPAL
AT VARIOUS ABS PERCENTAGES
CLASS A-1 NOTES CLASS A-2 NOTES
----------------------------------------------- -----------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----
Closing Date..............
Weighted Average Life
(yrs)(l)...............
- -----------
(1) The weighted 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 balance of the
note.
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 may differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
S-31
PERCENTAGE OF INITIAL CLASS A-3 AND CLASS A-4 NOTE PRINCIPAL
AT VARIOUS ABS PERCENTAGES
CLASS A-3 NOTES CLASS A-4 NOTES
----------------------------------------------- -----------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----
Closing Date.................
Weighted Average Life
(yrs)(l)(2)...............
Weighted Average Life to Call
(yrs)(l)(3)...............
Month of Optional Purchase(3)
- -----------
(1) The weighted 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 balance 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 are expected to differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
PERCENTAGE OF INITIAL CLASS B NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
CLASS B NOTES
------------------------------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ----
Closing Date........................................
Weighted Average Life (yrs)(1)(2)...................
Weighted Average Life to Call(yrs)(1)(3)............
Month of Optional Purchase(3).......................
- -----------
(1) The weighted 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 balance
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 may differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
NOTE FACTORS
The "Note Pool Factor" with respect to any class of Notes will be a
seven-digit decimal indicating the principal balance 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 balance 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 balance of each class of Notes. The portion
of the principal balance 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
S-32
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 Reserve 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 will apply all or a 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, has acted as a "warehouse lender" to BMW FS or its affiliates, and will
indirectly receive a portion of the proceeds as repayment of that "warehouse"
debt.
THE DEPOSITOR
Information regarding the Depositor is set forth under the caption
"The Depositor" in the accompanying prospectus.
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
Centers and their customers throughout the United States. BMW NA is based in
Woodcliff Lake, New Jersey and is engaged in the wholesale distribution of BMW
passenger cars, BMW light trucks, BMW motorcycles and MINI passenger cars
throughout the United States. BMW NA is an indirect wholly owned subsidiary of
BMW AG, a German corporation that is an international manufacturer and
distributor of passenger cars, 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
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 Centers, BMW NA and BMW FS. The application is
reviewed 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
December 31, 2004, [ ]% of applications were approved, [ ]% of which were funded
by BMW FS.
S-33
A credit buyer reviews each application that is not automatically
approved through the credit processing system through the use of expert system
rules and scorecards. Credit buyers have credit authority levels of "I", "II" or
"III" depending on level of experience. The credit buyer's review includes an
evaluation of the customer demographics, income, the collateral, a credit bureau
report on the applicant from an independent credit bureau, use of internet
verification tools, and the applicant's credit score based on a credit scoring
system or "scorecard" developed for BMW FS. This internal scoring 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. The current application system used by BMW FS to process
applications provides review/decline indicators to aid the credit buyer in the
review of applications. 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 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 or Level III credit authority
(or in some cases only by the credit team leader or credit manager) based on the
presence of certain factors, up to and including a guarantee by the Center. A
credit buyer with Level I credit authority may not disapprove without management
review applicants that score above the specified minimum.
On commercial transactions, BMW FS requires an individual to
guarantee the business' obligations under the Contract, otherwise it will obtain
a Dun and Bradstreet and two years of audited financial statements, bank
accounts and credit references.
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, 105% 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 and other items. Team leaders and above may approve
contracts exceeding advance guidelines on an exception basis.
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.
Generally, after a Contract has been approved by BMW FS as described
above and originated by a Center, BMW FS acquires it indirectly by causing it to
be assigned to its affiliate, BMW Bank of North America, except in the case of
Contracts due from residents of certain states (currently Montana and New
Jersey) which are assigned directly to BMW FS. Contracts originated in
connection with the "lease to loan" program and certain refinancings are
originated directly by BMW Bank rather than acquired from Centers.
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Additional information regarding BMW FS' Financing Program is set
forth under "BMW FS' Financing Program" 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. The
Notes are denominated and payable in U.S. dollars and are available in minimum
denominations of $1,000 and multiples thereof (except for one Note of each Class
which may be issued in a denomination other than an integral multiple of
$1,000). 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 [ ], 2005.
Interest on the outstanding principal balance 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 Notes, Class A-3 Notes, 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 Notes, 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 nonrecoverable Advances have been
paid. We refer you to "Credit Enhancement--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.
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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 below 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 on 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 changes. In particular, 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, 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 "Class A 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. Following the occurrence of any other Event of Default that 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 payment date until a
liquidation, if any, of the property of the Trust.
The actual Payment Date on which the outstanding principal balance of
any class of Notes is paid in full may be earlier than its Final Scheduled
Payment Date based on a variety of factors, including the factors described
under "Weighted Average Lives of the Securities" in the accompanying prospectus.
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If the principal balance of a class of Notes has not been paid in
full on or prior to its Final Scheduled Payment Date, the 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
balance 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.
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--The 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. 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--The Indenture--Events of Default; 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-l 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 balance 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 balance is paid in full.
Under the Trust Indenture Act of 1939, as amended, the Indenture
Trustee may be deemed to have a conflict of interest and be required to resign
as Indenture Trustee for the Class A Notes or the Class B Notes or as Indenture
Trustee for all of the Notes if a default occurs under the Indenture. In these
circumstances, the Indenture will provide for a successor indenture trustee to
be appointed for the Class A Notes or the Class B Notes or both, in order that
there be separate indenture trustees for the Class A Notes and the Class B
Notes. If the Indenture Trustee resigns as Indenture Trustee for any class of
Notes or for all of the Notes, its resignation will become effective only after
a successor indenture trustee for the Notes or the applicable class of Notes is
appointed and the successor indenture trustee accepts such appointment.
"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.
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
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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),
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. Liquidation Proceeds for that Collection Period to the extent
allocable to interest, and
6. Investment Losses deposited by the Servicer.
"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. Liquidation Proceeds for that Collection Period to the extent
allocable to principal, and
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.
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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. 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.
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 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
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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,
3. to the Principal Distribution Account, the First Priority Principal
Distribution Amount, if any,
4. to the Class B Noteholders:
o 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 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 balance 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 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 balance 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 balance of that class of Class
A Notes to zero.
"Interest Period" means:
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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 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 balance
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 (in the case of the first Payment
Date), as the case may be, minus (ii) the Pool Balance at the end of
the Collection Period preceding such Payment Date less the Yield
Supplement Overcollateralization Amount with respect to such Payment
Date over
o the First Priority Principal Distribution Amount with respect to
that Payment Date;
provided however, that the Regular Principal Distribution Amount shall not
exceed the sum of the aggregate outstanding principal balance 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 Notes shall not be less than the amount that is necessary to reduce the
outstanding principal balance of that Class of Notes and all earlier maturing
classes of 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.
CREDIT ENHANCEMENT
The protection afforded to the Class A Noteholders will be effected
both by the preferential right of such Noteholders to receive, to the extent
described in this prospectus supplement, current distributions on the
Receivables, the establishment of the Reserve Account, the Yield Supplement
Overcollateralization Amount 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 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
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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
depositing in the Reserve Account 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 Notes--Payment of
Distributable Amounts" in this prospectus supplement. The Noteholders will not
have any rights in, or claims to, amounts distributed to the Certificateholder
or to the Depositor.
The "Specified Reserve Account Balance" with respect to any Payment
Date will be an amount equal to [ ]% of the aggregate outstanding principal
balance of the Notes. 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 consent to 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, or the
replacement of the Reserve Account with a different form of credit enhancement
in whole or in part. If each rating agency delivers a letter to the Trust to the
effect that the same 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
manner of funding will be changed or the Reserve Account will be replaced in
whole or in part, as applicable. The Sale and Servicing Agreement will
accordingly be amended, without the consent of any Noteholder, to reflect the
revised arrangement.
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
Collection 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.
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YIELD SUPPLEMENT OVERCOLLATERALIZATION AMOUNT
On the Closing Date, the Pool Balance will exceed the initial
principal balance of the Notes, by $[ ] (the "Initial Yield Supplement
Overcollateralization Amount"), which is approximately [ ]% of the aggregate
principal balance of the Receivables as of the Cutoff 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:
YIELD SUPPLEMENT
OVERCOLLATERALIZATION
PAYMENT DATE AMOUNT
- ------------ ------
Closing Date......................................
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.........................................
July 2007.........................................
August 2007.......................................
September 2007....................................
October 2007......................................
November 2007.....................................
December 2007.....................................
January 2008......................................
February 2008.....................................
March 2008........................................
April 2008........................................
May 2008..........................................
June 2008.........................................
July 2008.........................................
August 2008.......................................
September 2008....................................
October 2008......................................
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YIELD SUPPLEMENT
OVERCOLLATERALIZATION
PAYMENT DATE AMOUNT
- ------------ ------
November 2008.....................................
December 2008.....................................
January 2009......................................
February 2009.....................................
March 2009........................................
April 2009........................................
May 2009..........................................
June 2009.........................................
July 2009.........................................
August 2009.......................................
September 2009....................................
October 2009......................................
November 2009.....................................
December 2009.....................................
January 2010......................................
February 2010.....................................
March 2010........................................
April 2010........................................
May 2010..........................................
June 2010.........................................
July 2010.........................................
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 a discount
rate equal to the greater of the APR of that Receivable and [ ]% (the "Required
Rate"). 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, 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
Information with respect to the conveyance of the Receivables from
the Depositor to the Trust on the 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" in the accompanying
prospectus.
S-44
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 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 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.
NOTE DISTRIBUTION ACCOUNT
On or prior to the Closing Date, the Indenture Trustee will establish
and maintain 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.
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 of
an amount equal to the aggregate of all scheduled payments of interest that were
due during the related Collection Period that were not collected during such
Collection Period (an "Advance"), exclusive of amounts that the Servicer has
determined would be nonrecoverable. On each Payment Date, the Servicer shall
reimburse itself for the outstanding amount advanced to the extent of actual
collections of late scheduled payments. 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 of 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, 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 related Deposit Date. We refer you to "Description of the Transfer
and Servicing Agreements--Advances" in the accompanying prospectus.
S-45
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 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 qualification, reduction or
withdrawal in the rating of any 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 above under "Payments 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 reter you to "Description of
the Transfer and Servicing Agreements-- Net Deposits" in the accompanying
prospectus.
The Servicing Agreement will require the Servicer to make all
deposits of collections received to be deposited into the Collection Account on
the second Business Day following receipt thereof. However, so long as the
Monthly Remittance Condition is satisfied, the Servicer may retain such amounts
received during a Collection Period until the related Deposit Date. The "Monthly
Remittance Condition" will be satisfied if (a)(1) the short-term debt of BMW US
Capital LLC (or the entity that is the Servicer) is rated in the highest rating
category by, or is otherwise acceptable to, each Rating Agency and (2) no
Servicer Default has occurred or (b)(1) the Servicer obtains a letter of credit,
surety bond or insurance policy under which demands for payment may be made to
secure timely remittance of monthly collections to the Collection Account and
(2) the Trustees are provided with confirmation from each Rating Agency to the
effect that the use of such alternative remittance schedule will not result in
the qualification, reduction or withdrawal of its then-current rating on any
class of Securities. Pending deposit into the Collection Account, collections
may be used by the Servicer at its own risk and for its own benefit and will not
be segregated from its own funds.
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 Pool Balance as of the Cutoff 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 balance of the outstanding Notes plus accrued
and unpaid interest on the Notes on the date of the optional purchase.
S-46
REMOVAL OF SERVICER
The Indenture Trustee may, and at the direction of Noteholders
evidencing more than 50% of the voting interests of the Controlling Class shall,
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
discovery of such failure by a responsible officer of the
Servicer or after the date on which written notice of that
failure is given to the Servicer by (a) the Owner Trustee,
(b) the Indenture Trustee or (c) 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 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, for services rendered prior to termination.
NOTES OWNED BY THE DEPOSITOR, THE SERVICER OR AFFILIATES
Any Notes owned by the Depositor, the Servicer or any of their
affiliates will be entitled to equal and proportionate benefits under the
Transfer and Servicing Agreements, except that such Notes will not be considered
to be outstanding for the purpose of determining whether the requisite
percentage of Noteholders have given any request, demand, authorization,
direction, notice, consent or other action under the Transfer and Servicing
Agreements.
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.
S-47
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 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. Citibank, N.A. 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
S-48
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. 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 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 federal income 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, each Certificateholder and the beneficial owners of
the Notes 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
owners; 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.
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"
S-49
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 that 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 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.
PLAN OF DISTRIBUTION
Subject to tile 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 balance of Notes set forth opposite its name
below:
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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 if any of the Notes are not purchased. 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 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. In the ordinary course of their respective businesses, the
Underwriters and their respective affiliates have engaged and may engage in
various financial advisory, investment banking and commercial banking
transactions from time to time with BMW FS and its affiliates.
The 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.
In connection with the offering of the Notes, the Underwriters may
engage in overallotment, stabilizing transactions and syndicate covering
transactions. Overallotment involves sales in excess of the offering size which
creates a short position for the Underwriters. Stabilizing transactions involve
bids to purchase the Notes in the open market for the purpose of pegging, fixing
or maintaining the price of the Notes. Syndicate covering transactions involve
purchases of the Notes in the open market after the distribution has been
completed in order to cover short positions. Stabilizing transactions and
syndicate covering transactions may cause the price of the Notes to be higher
than it would otherwise be in the absence of those transactions. If the
Underwriters engage in stabilizing or syndicate covering transactions, they may
discontinue them at any time.
Upon receipt of a request by an investor who has received an
electronic prospectus from an Underwriter or a request by that investor's
representative within the period during which there is an obligation to deliver
a prospectus, BMW FS, the Depositor or the Underwriters will promptly deliver,
or cause to be delivered, without charge, a paper copy of 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)
S-51
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
(as amended) (the "POS Regulations") or the Financial Services
and Markets Act 2000 (the "FSMA");
o it has complied and will comply with all applicable provisions
of the FSMA 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 communicated or caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the
meaning of Section 21 of the FSMA) received by it in
connection with the issue or sale of any Notes in
circumstances in which Section 21(1) of the FSMA does not
apply.
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 [ ].
S-52
INDEX OF TERMS
A
ABS.......................................................S-29
ABS Tables................................................S-30
Administration Agreement..................................S-21
Advance...................................................S-45
Available Amounts.........................................S-38
Available Amounts Shortfall...............................S-39
Available Interest........................................S-38
Available Principal.......................................S-38
B
Benefit Plan..............................................S-49
BMW AG....................................................S-22
BMW FS....................................................S-33
BMW Group.................................................S-22
BMW NA....................................................S-33
C
Center Recourse...........................................S-21
Centers...................................................S-21
Class A Noteholders.......................................S-36
Class A Notes.............................................S-29
Class B Noteholders.......................................S-36
Class B Notes.............................................S-29
Closing Date..............................................S-22
Collection Period.........................................S-46
Contracts.................................................S-28
Controlling Class.........................................S-37
Cutoff Date...............................................S-22
D
Deposit Date..............................................S-45
Depositor.................................................S-20
Determination Date........................................S-37
E
Eligible Investments......................................S-45
Excess Amount.............................................S-40
F
Final Scheduled Payment Date..............................S-29
Financed Vehicles.........................................S-22
First Priority Principal Distribution Amount..............S-40
FSMA......................................................S-52
I
Indenture Trustee.........................................S-21
Initial Yield Supplement Overcollateralization Amount.....S-43
Interest Period...........................................S-40
Interest Rate.............................................S-35
L
Liquidated Receivable.....................................S-39
Liquidation Proceeds......................................S-39
M
Monthly Remittance Condition..............................S-46
N
Note Distribution Account.................................S-45
Note Pool Factor..........................................S-32
Notes.....................................................S-29
O
Obligor...................................................S-22
Owner Trustee.............................................S-20
P
Payment Date..............................................S-35
Plan Assets Regulation....................................S-50
POS Regulations...........................................S-52
Principal Distribution Account............................S-41
Principal Distribution Amount.............................S-41
PTCE......................................................S-50
Purchased Amount..........................................S-39
Purchased Receivable......................................S-39
R
Receivables...............................................S-20
Receivables Purchase Agreement............................S-22
Recoveries................................................S-28
Redemption Price..........................................S-46
Regular Principal Distribution Amount.....................S-41
Relief Act................................................S-18
Required Rate.............................................S-44
Reserve Account Initial Deposit...........................S-42
S
Sale and Servicing Agreement..............................S-20
Seller....................................................S-22
S-53
Servicer..................................................S-21
Servicer Defaults.........................................S-47
Servicing Fee.............................................S-46
Servicing Rate............................................S-46
Specified Reserve Account Balance.........................S-42
Statistical Calculation Date..............................S-23
T
Transfer and Servicing Agreements.........................S-44
Trust.....................................................S-20
Trust Agreement...........................................S-20
Trust Fees and Expenses...................................S-41
Trustees..................................................S-21
U
Underwriters..............................................S-50
Underwriting Agreement....................................S-50
Y
Yield Supplement Overcollateralization
Amount.................................................S-13
S-54
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in specified circumstances, the globally offered 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 tradeable 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 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.
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.
A-1
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 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
A-2
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 withholding tax that generally
applies to payments of interest (including 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 or other appropriate
form 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-8ECI (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). If the
information shown on Form W-8ECI changes, a new Form W-8ECI or other appropriate
form must be filed within 30 days of that change.
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 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
A-3
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
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 circumstances 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
Seller and Servicer
Until [ ], 2005 (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
[ ]
[ ]
[ ]
Subject to completion, dated February [ ], 2005
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED [ ], 2005)
BMW VEHICLE OWNER TRUST [ ]-A
ISSUER
BMW FS SECURITIES LLC
DEPOSITOR
BMW FINANCIAL SERVICES NA, LLC
SELLER AND SERVICER
$[ ] ASSET BACKED NOTES
$[ ] ASSET BACKED CERTIFICATES
____% CLASS A-1 NOTES DUE ____
____% CLASS A-2 NOTES DUE ____
____% CLASS A-3 NOTES DUE ____
____% CLASS A-4 NOTES DUE ____
____% CERTIFICATES DUE ____
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 and
promissory notes secured in most cases by BMW passenger cars, BMW light trucks,
BMW motorcycles and MINI passenger cars.
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 supplement and the attached prospectus are truthful or complete. Any
representation to the contrary is a criminal offense.
============================ ========================== =========================== ========================== ====================
INITIAL PRINCIPAL PRICE TO UNDERWRITING PROCEEDS
BALANCE PUBLIC DISCOUNT TO DEPOSITOR(1)
- ----------------------------- -------------------------- --------------------------- -------------------------- --------------------
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 _________.
Underwriters
[ ]
[ ], 2005
TABLE OF CONTENTS
Page
----
Important Notice About Information Presented in this Prospectus Supplement and the Accompanying Prospectus.....................S-3
Summary of Parties to the Transaction..........................................................................................S-4
Summary of Monthly Deposits to and Withdrawals from Accounts...................................................................S-5
Summary of Terms...............................................................................................................S-6
Risk Factors..................................................................................................................S-16
The Trust.....................................................................................................................S-21
General .........................................................................................................S-21
Capitalization of the Trust...................................................................................................S-22
The Owner Trustee and the Indenture Trustee...................................................................................S-22
The Receivables...............................................................................................................S-23
Assets of the Trust................................................................................................S-23
Description of Receivables.........................................................................................S-24
Composition of the Receivables................................................................................................S-25
Distribution of the Receivables by APR........................................................................................S-25
Distribution of the Receivables by Geographic Location........................................................................S-26
Distribution of the Receivables by Remaining Term to Scheduled Maturity.......................................................S-28
Distribution of the Receivables by Remaining Principal Balance................................................................S-28
Delinquencies, Repossessions and Loan Loss Information........................................................................S-29
Maturity and Prepayment Considerations........................................................................................S-30
Weighted Average Lives of the Securities......................................................................................S-30
Receivables...................................................................................................................S-32
Percentage of Initial Class A-l and Class A-2 Note Principal at Various ABS Percentages.......................................S-32
Percentage of Initial Class A-3 and Class A-4 Note Principal at Various ABS Percentages.......................................S-33
Percentage of Initial Certificate Principal at Various ABS Percentages........................................................S-33
Note and Certificate Factors..................................................................................................S-33
Use of Proceeds...............................................................................................................S-34
The Depositor.................................................................................................................S-34
The Servicer..................................................................................................................S-34
BMW FS' Financing Program.....................................................................................................S-34
Underwriting.......................................................................................................S-34
The Notes ....................................................................................................................S-36
General .........................................................................................................S-36
Payments of Interest...............................................................................................S-36
Payments of Principal..............................................................................................S-37
Indenture .........................................................................................................S-38
Notices .........................................................................................................S-38
Governing Law......................................................................................................S-39
The Certificates..............................................................................................................S-39
General .........................................................................................................S-39
Payments of Interest...............................................................................................S-39
Optional Prepayment................................................................................................S-39
Payments of Principal..............................................................................................S-40
Notices .........................................................................................................S-40
Governing Law......................................................................................................S-40
Payments on the Securities....................................................................................................S-40
Calculation of Available Amounts...................................................................................S-40
Payment of Distributable Amounts...................................................................................S-42
Credit Enhancement............................................................................................................S-44
Subordination......................................................................................................S-44
Reserve Account....................................................................................................S-44
Yield Supplement Overcollateralization Amount......................................................................S-45
S-1
TABLE OF CONTENTS
(CONTINUED)
Description of the Transfer and Servicing Agreements..........................................................................S-47
The Transfer and Servicing Agreements..............................................................................S-47
Sale and Assignment of Receivables.................................................................................S-47
Accounts ..........................................................................................................S-47
Collections........................................................................................................S-47
Note Distribution Account..........................................................................................S-48
Certificate Distribution Account...................................................................................S-48
Advances ..........................................................................................................S-48
Servicing Compensation.............................................................................................S-48
Net Deposits.......................................................................................................S-49
Optional Purchase..................................................................................................S-49
Removal of Servicer................................................................................................S-49
Notes Owned by the Depositor, the Servicer or Affiliates...........................................................S-50
Duties of the Owner Trustee and the Indenture Trustee..............................................................S-50
The Owner Trustee and the Indenture Trustee........................................................................S-51
Material Income Tax Consequences..............................................................................................S-51
Tax Characterization of the Trust..................................................................................S-52
Treatment of the Notes as Indebtedness.............................................................................S-52
Treatment of the Certificates......................................................................................S-52
ERISA Considerations..........................................................................................................S-52
Plan of Distribution..........................................................................................................S-53
Legal Opinions................................................................................................................S-55
Index of Terms................................................................................................................S-56
Annex A Global Clearance, Settlement and Tax Documentation Procedures..........................................................A-1
Initial Settlement.............................................................................................................A-1
Secondary Market Trading.......................................................................................................A-1
Material U.S. Federal Income Tax Documentation Requirements....................................................................A-3
S-2
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
Information about the securities is provided in two separate
documents that 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 securities; and (2) this
prospectus supplement, which describes the specific terms of your 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-1 in this prospectus supplement and the Table of
Contents beginning on page i 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-58 in this prospectus supplement and under the caption
"Index of Terms" beginning on page 87 in the accompanying prospectus.
In making your investment decision, you should rely only on the
information contained or incorporated by reference in this prospectus supplement
and the attached prospectus. We and the underwriters have not authorized anyone
to provide you with any other information. If you receive any other information,
you should not rely on it.
We and the underwriters are offering to sell the notes only in places
where offers and sales are permitted.
You should not assume that the information contained or incorporated
by reference in this prospectus supplement or the attached prospectus is
accurate as of any date other than the date on the front cover of this
prospectus supplement.
S-3
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)
----------------------- ---------------------
CITIBANK, N.A. / \
(indenture trustee) / \
------------------------ / \
/ \
/ \
/ \
/ \
/ \
/ ------------------
---------------
CLASS A-1 NOTES CERTIFICATES
CLASS A-2 NOTES
CLASS A-3 NOTES ------------------
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-4
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 |
on Notes | \ /
| | \ /
\|/ \|/ \ /
----------- ------------ \ /
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-5
*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.
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/Trust.......................... BMW Vehicle Owner Trust [ ]-A. The
trust will be established by the
trust agreement.
Seller................................ BMW Financial Services NA, LLC.
Servicer.............................. BMW Financial Services NA, LLC.
Depositor............................. BMW FS Securities LLC.
Indenture Trustee..................... Citibank, N.A.
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.
Receivables Purchase Agreement........ The receivables purchase agreement
between the depositor and the
seller. The receivables purchase
agreement governs the sale of the
receivables from BMW Financial
Services NA, LLC to the depositor.
RELEVANT DATES
Closing Date.......................... Expected to be [ ], 2005.
Statistical Calculation Date.......... Close of business on [ ], 2005.
This is the date that was used in
preparing the statistical
information used in this prospectus
supplement.
Cutoff Date........................... Close of business on [ ], 2005. The
Trust will receive amounts
collected on the motor vehicle
retail installment sale contracts
and promissory notes after this
date.
S-6
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
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 due ____
o Class A-2 Notes due ____
o Class A-3 Notes due ____
o Class A-4 Notes due ____
o Certificates due ____
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.
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 balance of each class of
notes is specified on the front
cover of this prospectus
supplement.
The trust will also issue $[ ]
initial principle 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 and promissory
notes, known as the receivables.
All of the receivables are secured
by passenger cars, light trucks and
motorcycles manufactured by
Bayerische Motoren Werke
Aktiengesellschaft or its
subsidiaries except that [ ]% by
principal balance of the
receivables as of the statistical
calculation date are secured by
vehicles of other manufacturers.
The statistical information in this
S-7
prospectus supplement is based on
the receivables in the pool as of [
], 2005. The statistical
distribution of the characteristics
of the receivables in the pool as
of the cutoff date, which is [ ],
2005, will vary somewhat from the
statistical distribution of those
characteristics as of [ ], 2005,
although the Seller believes that
such variance is not likely to be
material. The principal balance of
the receivables on the close of
business on [ ], 2005, referred to
as the "statistical calculation
date," was $[ ]. As of the
statistical calculation date, the
receivables had the following
characteristics:
o number of receivables: [ ]
o average principal balance: $[ ]
o weighted average annual
percentage rate: [ ]%
o weighted average original term
to maturity: [ ] months
o weighted average remaining
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.
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:
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, but excluding, the
next payment date, except that the
first interest accrual period will
be from the closing date to, but
excluding, [ ], 2005. This means
that the interest due on each
payment date will be the product
of:
o the outstanding principal
balance of the Class A-1
Notes,
S-8
o the interest rate for the
Class A-1 Notes, 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 and Class
A-4 Notes will accrue interest on a
30/360 basis from the 25th day of
each calendar month to, but
excluding, the 25th day of the
succeeding calendar month, except
that the first interest accrual
period will be from the closing
date to, but excluding, [ ], 2005.
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 related 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.
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 [ ],
2005. This means that the interest
due on each payment date will be
the product of:
S-9
o the outstanding principal
balance of the certificates,
o the related interest rate, and
o 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
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 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,
S-10
(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
aggregate principal
balance of the
receivables less the
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 the greater
of [ ]% of the outstanding
principal balance of the Class
A Notes and [ ],
(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 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.
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,
S-11
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.
[Change in Priority of Distribution
upon Certain Events of Default.... The order of priority for
distributions will change following
the occurrence of:
o a default for five days or
more in 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 any of
the preceding events, 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-l Notes until the Class A-1
Notes are paid in full, and then
pro rata to the Class A-2, Class
A-3 and Class A-4 Notes.
Following the occurrence of any
other event of default that 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 Certificates on each payment
date until a liquidation, if any,
of the property of the trust.]
Optional Purchase..................... 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 cutoff date.
We refer you to "Description of the
Transfer and Servicing
Agreements--Optional Purchase" in
this prospectus supplement for more
detailed information.
S-12
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
Certificates,
o the reserve account, and
o the subordination of the
certificateholder's right to
receive excess interest.
[The credit enhancement for the
Certificates will include:
o the reserve account, and
o 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 Class A Notes and,
in certain circumstances, to
payments of principal on the Class
A Notes, and
o payments of principal on the
Certificates will be
subordinated to payments 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 principal
balance of the notes. 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
S-13
payments. The depositor's right to
receive this excess interest is
subordinated to the payment of the
servicing fee, reimbursement of
nonrecoverable 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 "Credit Enhancement--Reserve
Account" in this prospectus
supplement.
Yield Supplement Overcollateralization
Amount................................ On the closing date, the aggregate
principal balance of the
receivables as of the cutoff date
will exceed the initial principal
balance of the notes by $[ ], which
is approximately [ ]% of the
aggregate principal balance of the
receivables as of the cutoff 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 "Credit
Enhancement--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:
o the notes will be
characterized as debt for
federal income 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 you purchase the notes, you will
agree to treat the notes as debt.
If you purchase the certificates,
you will agree to treat the trust
as a partnership in which you are a
partner. If you are the only
beneficial owner of the
certificates, you will agree to
treat the trust 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 supplement and in the
accompanying prospectus.
S-14
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 of 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 Ratings:
STANDARD
CLASS & POOR'S MOODY'S FITCH
----- --------- ------- -----
A-1 A-1+ Prime-1 F1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
Certificates A A3 A
S-15
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 notes of any class.
BECAUSE THE TRUST HAS LIMITED ASSETS,
THERE IS ONLY LIMITED PROTECTION AGAINST
POTENTIAL LOSSES. The only sources of funds for
payments on the securities are the
assets of the trust and the reserve
account. The 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 amount 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 "Credit
Enhancement--Reserve Account" in
this prospectus supplement.
OCCURRENCE OF EVENTS OF DEFAULT UNDER
THE INDENTURE MAY RESULT IN INSUFFICIENT
FUNDS TO MAKE PAYMENTS ON YOUR SECURITIES. Payment defaults or the insolvency
or dissolution of the depositor may
result in prepayment of the
securities, which may result in
losses. If the trust fails to pay
principal on 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
indenture 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 CERTIFICATES, YOU ARE SUBJECT
TO GREATER CREDIT RISK BECAUSE THE
CERTIFICATES ARE SUBORDINATE TO THE
CLASS A NOTES. The Certificates bear greater risk
than the Class A Notes because
payments of interest and principal
on the Certificates are
subordinate, to the extent
described below, to payments of
interest and principal on the Class
A Notes.
Interest payments on the
Certificates on each payment date
will be subordinated to servicing
fees due to the servicer,
nonrecoverable advances payable 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 aggregate
principal balance of the Class A
Notes exceeds the receivables
balance less the yield supplement
overcollateralization amount.
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.
S-16
YOU MAY SUFFER LOSSES BECAUSE YOU HAVE
LIMITED CONTROL OVER ACTIONS THE TRUST
AND CONFLICTS OF INTEREST BETWEEN CLASSES
OF NOTES MAY OCCUR. Because the trust has pledged the
property of the trust to the OF
indenture trustee to secure payment
on the notes, the indenture trustee
may, and at the direction of the
required percentage of the
controlling class, which will be
the Class A Notes for so long as
any Class A Notes are outstanding
and the Certificates after the
Class A Notes have been paid in
full, will take one or more of the
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 Certificates. The
holders of Certificates 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 UNDER
THE INDENTURE MAY DELAY PAYMENTS ON THE
CERTIFICATES. The trust will not make any
distributions of principal or
interest on the Certificates until
payment in full of principal and
interest on the Class A Notes
following:
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
Certificates.
CERTIFICATEHOLDERS MAY NOT BE ABLE TO DIRECT
THE INDENTURE TRUSTEE UPON AN EVENT OF
DEFAULT UNDER THE INDENTURE. If an event of default occurs under
the indenture, so long as any Class
A Notes are outstanding, only the
holders of the Class A Notes may
waive that event of default,
accelerate the maturity dates of
the notes or direct or consent to
any action under the indenture. The
holders of any outstanding
Certificates 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
OR DELAY IN PAYMENT TO CERTAIN NOTES. Classes of notes that receive
payments, particularly principal
payments, before other classes will
be repaid sooner 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,
certain classes of 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.
S-17
As a result, the yields of the
later maturing classes of Class A
Notes and the yields of the
Certificates will be sensitive to
losses on the receivables and the
timing of those losses. If the 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 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.
THE GEOGRAPHIC CONCENTRATION OF THE OBLIGORS
AND PERFORMANCE OF THE RECEIVABLES MAY
INCREASETHE RISK OF LOSS ON YOUR INVESTMENT. Economic conditions in the states
where obligors reside may affect
delinquencies, losses and
prepayments on the receivables. The
following economic conditions may
affect payments on the receivables:
o unemployment,
o interest rates,
o inflation rates,
o and consumer perceptions of
the economy.
If there is a concentration of
obligors and receivables in
particular states, these or 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 statistical
calculation date, BMW Financial
Services NA, LLC's records indicate
that the titles to the vehicles
relating to the receivables were
concentrated in the following
states:
PERCENTAGE OF
AGGREGATE
STATE PRINCIPAL BALANCE
----------------------- --------------------
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
[ ]............... [ ]%
S-18
No other state constituted more
than [ ]% of the aggregate
principal balance of the
receivables as of the statistical
calculation date.
Approximately [ ]% of the
outstanding principal amount of the
receivables as of the statistical
calculation date were titled in
California. A large number of
manufacturers and providers of high
technology equipment and services
are headquartered in California.
The continued downturn in this
sector 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.
THE RETURN ON YOUR NOTES COULD BE REDUCED
BY SHORTFALLS DUE TO THE SERVICEMEMBERS
CIVIL RELIEF ACT. The Servicemembers Civil Relief Act
of 2003, as amended (the "Relief
Act"), provides relief to obligors
who enter active military service
and to obligors in reserve status
who are called to active duty after
the origination of their
receivables. The response of the
United States to the terrorist
attacks on September 11, 2001, the
instability of Afghanistan, the
occupation of Iraq and rising
tensions in other regions such as
Korea may continue to involve
military operations that will
increase the number of citizens who
have been called or will be called
to active duty. The Relief Act
provides, generally, that an
obligor who is covered by the
Relief Act may not be charged
interest on the related receivable
in excess of 6% per annum during
the period of the obligor's active
duty. These shortfalls are not
required to be paid by the obligor
at any future time. The servicer is
not required to advance these
shortfalls as delinquent payments.
In the event that excess interest
on the receivables and amounts in
the reserve account are not
sufficient to cover the reduction
of interest on the receivables due
to the application of the Relief
Act or similar regulations or
legislation, a note interest
carryover shortfall will result.
Any such interest carryover
shortfall will be paid in
subsequent periods to the extent of
available funds before payments of
principal are made on the notes and
may result in extending the
anticipated maturity of your class
of notes or possibly result in a
loss in the absence of sufficient
credit enhancement. In addition,
pursuant to the Military Reservist
Relief Act of 1991, under certain
circumstances California residents
called into active duty with the
reserves can apply to a court to
delay payments on retail
installment contracts, including
the receivables.
S-19
The Relief Act also limits the
ability of the servicer to
repossess the financed vehicle
securing a receivable during the
related obligor's period of active
duty and, in some cases, may
require the servicer to extend the
maturity of the receivable, lower
the monthly payments and readjust
the payment schedule for a period
of time after the completion of the
obligor's military service. As a
result, there may be delays in
payment and increased losses on the
receivables. Those delays and
increased losses will be borne
primarily by the certificates, but
if such losses are greater than
anticipated, you may suffer a boss.
While there are not a significant
number of obligors in active
military service as of the
statistical calculation date the
servicer does not maintain data as
to the number of obligors in the
military reserves.
PREPAYMENTS ON RECEIVABLES MAY CAUSE
PREPAYMENTS ON THE SECURITIES, RESULTING
IN REINVESTMENT RISK TO YOU. You may receive payment of
principal on your securities
earlier than you expected. If that
happens, you may not be 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 lives
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
the prepayment of the purchased
receivables.
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 cutoff date.
S-20
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.
WITHDRAWAL OR DOWNGRADING OF THE INITIAL
RATINGS OF THE NOTES WILL AFFECT THE
PRICES FOR THE NOTES UPON RESALE. A security rating is not a
recommendation to buy, sell or hold
securities. Similar ratings on
different types of 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.
THE NOTES ARE NOT SUITABLE INVESTMENTS
FOR ALL INVESTORS. The notes are not a 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.
PAYMENTS ON THE CERTIFICATES WILL BE
SUBORDINATED TO PAYMENTS ON THE NOTES. Payments on the certificates will
be subordinated in priority of
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.
THE TRUST
GENERAL
The BMW Vehicle Owner Trust [ ]-A (the "Trust") is a Delaware
statutory 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 sale contracts and promissory notes (the "Receivables")
and the other assets of the Trust and proceeds from those assets,
2. issuing the notes and the certificates,
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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 Receivables
from the Depositor pursuant to the sale and servicing agreement dated as of [ ],
2005 (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 Citibank, N.A., 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 [ ], 2005 (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 and
MINI Products ("Centers"), Centers will repurchase from BMW FS those contracts
that do not meet specified representations and warranties made by the Centers.
These Centers' repurchase obligations are referred to in this prospectus
supplement as "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
Center Recourse be deposited in the Collection Account to satisfy BMW FS'
repurchase obligations under the Sale and Servicing Agreement. The sales by the
Centers of retail installment sale contracts to BMW FS do not generally provide
for recourse against the 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.
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 after the 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
S-22
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.
Citibank, N.A. is the Indenture Trustee under the Indenture (the
Indenture Trustee and the Owner Trustee are collectively referred to as the
"Trustees"). Citibank, N.A. is a national banking association and its principal
executive offices are located at 111 Wall Street, 14th Floor, New York, NY
10005, Attn: Corporate Trust- BMW Vehicle Owner Trust [ ]-A. The Depositor, the
Servicer and their respective 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 Receivables as of the close of business on [ ], 2005 (the "Cutoff
Date"),
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 Cutoff Date with respect to the
Receivables,
3. security interests in the new or used automobiles, motorcycles and
light trucks (the "Financed Vehicles") securing each Receivables,
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[
], 2005 (the "Receivables Purchase Agreement") between the Depositor
and BMW FS, as seller (the "Seller"),
7. funds on deposit from time to time in the Reserve Account, and
8. funds on deposit in the Collection Account.
The Motor Vehicle Contracts that comprise the Receivables are secured
by new or used passenger cars, motorcycles and light trucks manufactured by
Bayerische Motoren Werke Aktiengesellschaft or its subsidiaries ("BMW AG" and,
together with all other BMW group companies, the "BMW Group") except that [ ]%
by principal balance of the Receivables as of the Statistical Calculation Date
are secured by vehicles of other manufacturers. The Contracts generally were
originated by Centers who participate in BMW FS' vehicle financing program and
were acquired by BMW FS or BMW Bank. See "BMW FS' Financing Program."
The Trust will purchase the Receivables from the Depositor on or
about [ ], 2005 (the "Closing Date") pursuant to the Sale and Servicing
Agreement.
The Depositor will have purchased the 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-23
The Receivables were selected from the Seller's portfolio of motor
vehicle retail installment sale contracts and promissory notes 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 Cutoff Date,
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.
DESCRIPTION OF RECEIVABLES
The statistical information presented in this prospectus supplement
is based on a pool of Receivables as of the close of business on [ ], 2005 (the
"Statistical Calculation Date"). As of the Statistical Calculation Date, the
Receivables in the pool had an aggregate principal balance of $[ ].
BMW FS will add Receivables to the pool after the Statistical
Calculation Date but prior to the Cutoff Date. In addition, some amortization of
the Receivables will have occurred since the Statistical Calculation Date and
some Receivables included as of the Statistical Calculation Date will have
prepaid in full or have been determined not to meet the eligibility requirements
regarding Receivables and therefore will not be included in the final
Receivables pool. As a result, the statistical distribution of characteristics
as of the Cutoff Date will vary from the statistical distribution of
characteristics as of the Statistical Calculation Date. However, the Seller
believes that such variance in statistical distribution of characteristics is
not likely to be material.
All of the Receivables were originated by BMW FS or BMW Bank or
purchased by BMW FS or BMW Bank from Centers. As of the Statistical Calculation
Date, approximately [ ]% of the Receivables by aggregate principal balance
represented financing of new vehicles and [ ]% of the Receivables by aggregate
principal balance represented financing of used vehicles.
As of the Statistical Calculation Date, approximately [ ]%, [ ]%, [
]%, [ ]% and [ ]% of the Receivables by aggregate principal balance were BMW
passenger cars, BMW light trucks, BMW motorcycles, MINI passenger cars and
vehicles of other manufacturers, respectively.
The distribution by APR, geographic distribution, distribution by
remaining term and distribution by remaining balance, in each case, of the
Receivables as of the Statistical Calculation 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 the Receivables.
S-24
COMPOSITION OF THE RECEIVABLES
Aggregate Principal Balance......................... $[ ]
Number of Contracts................................. [ ]
Average Principal Balance Outstanding............... $[ ]
Average Original Amount Financed.................... $[ ]
Original Amount Financed (range)............. $[ ] to $[ ]
Weighted Average APR(1)............................. [ ]%
APR (range).................................. [ ]% to [ ]%
Weighted Average Original Term(1)................... [ ] months
Original Term (range)........................ [ ] to [ ] months
Weighted Average Remaining Term(1).................. [ ] months
Remaining Term (range)....................... [ ] to [ ] months
.....................
(1) Weighted by principal balance as of the Statistical Calculation Date.
DISTRIBUTION OF THE RECEIVABLES BY APR
PERCENTAGE
OF AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
APR RANGE (%) RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------- ----------- ----------------- ----------
1.00% to 1.50%...................... [ ] $ [ ] [ ]%
1.51% to 2.00%...................... [ ] [ ] [ ]
2.01 % to 2.50%..................... [ ] [ ] [ ]
2.51% to 3.00%...................... [ ] [ ] [ ]
3.01% to 3.50%...................... [ ] [ ] [ ]
3.51% to 4.00%...................... [ ] [ ] [ ]
4.01% to 4.50%...................... [ ] [ ] [ ]
4.51% to 5.00%...................... [ ] [ ] [ ]
5.01% to 5.50%...................... [ ] [ ] [ ]
5.51% to 6.00%...................... [ ] [ ] [ ]
6.01% to 6.50%...................... [ ] [ ] [ ]
6.51% to 7.00%...................... [ ] [ ] [ ]
7.01% to 7.50%...................... [ ] [ ] [ ]
7.51% to 8.00%...................... [ ] [ ] [ ]
8.01% to 8.50%...................... [ ] [ ] [ ]
8.51% to 9.00%...................... [ ] [ ] [ ]
9.01% to 9.50%...................... [ ] [ ] [ ]
9.51% to 10.00%..................... [ ] [ ] [ ]
10.01% to 10.50%.................... [ ] [ ] [ ]
10.51% to 11.00%.................... [ ] [ ] [ ]
11.01% to 11.50%.................... [ ] [ ] [ ]
11.51% to 12.00%.................... [ ] [ ] [ ]
12.01% to 12.50%.................... [ ] [ ] [ ]
12.51% to 13.00%.................... [ ] [ ] [ ]
13.01% to 13.50%.................... [ ] [ ] [ ]
13.51% to 14.00%.................... [ ] [ ] [ ]
14.01% to 14.50%.................... [ ] [ ] [ ]
14.51% to 15.00%.................... [ ] [ ] [ ]
Greater than 15.00%................. [ ] [ ] [ ]
Totals........................ [ ] $[ ] [ ]%
- -------------------------
(1) Percentages may not add to 100% because of rounding.
S-25
DISTRIBUTION OF THE RECEIVABLES BY GEOGRAPHIC LOCATION(1)
PERCENTAGE
OF AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
State RECEIVABLES PRINCIPAL BALANCE BALANCE(2)
----- ----------- ----------------- ----------
Alabama..................................... [ ] $[ ] [ ]%
Alaska...................................... [ ] [ ] [ ]
Arizona..................................... [ ] [ ] [ ]
Arkansas.................................... [ ] [ ] [ ]
California.................................. [ ] [ ] [ ]
Colorado.................................... [ ] [ ] [ ]
Connecticut................................. [ ] [ ] [ ]
Delaware.................................... [ ] [ ] [ ]
District of Columbia........................ [ ] [ ] [ ]
Florida..................................... [ ] [ ] [ ]
Georgia..................................... [ ] [ ] [ ]
Hawaii...................................... [ ] [ ] [ ]
Idaho....................................... [ ] [ ] [ ]
Illinois.................................... [ ] [ ] [ ]
Indiana..................................... [ ] [ ] [ ]
Iowa........................................ [ ] [ ] [ ]
Kansas...................................... [ ] [ ] [ ]
Kentucky.................................... [ ] [ ] [ ]
Louisiana................................... [ ] [ ] [ ]
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................................ [ ] [ ] [ ]
S-26
South Carolina.............................. [ ] [ ] [ ]
South Dakota................................ [ ] [ ] [ ]
Tennessee................................... [ ] [ ] [ ]
Texas....................................... [ ] [ ] [ ]
Utah........................................ [ ] [ ] [ ]
Vermont..................................... [ ] [ ] [ ]
Virginia.................................... [ ] [ ] [ ]
Washington.................................. [ ] [ ] [ ]
West Virginia............................... [ ] [ ] [ ]
Wisconsin................................... [ ] [ ] [ ]
Wyoming..................................... [ ] [ ] [ ]
Totals...................................... [ ] $[ ] [ ]%
- -----------
(1) Based on the state in which the related vehicle is titled.
(2) Percentages may not add to 100% because of rounding.
S-27
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM TO SCHEDULED MATURITY
PERCENTAGE
REMAINING TERM TO NUMBER OF AGGREGATE OF AGGREGATE
SCHEDULED MATURITY RECEIVABLES PRINCIPAL BALANCE PRINCIPAL BALANCE(1)
- ------------------ ----------- ----------------- --------------------
6 months or less.................................... [ ] $[ ] [ ]%
7 months to 12 months............................... [ ] [ ] [ ]
13 months to 18 months.............................. [ ] [ ] [ ]
19 months to 24 months.............................. [ ] [ ] [ ]
25 months to 30 months.............................. [ ] [ ] [ ]
31 months to 36 months.............................. [ ] [ ] [ ]
37 months to 42 months.............................. [ ] [ ] [ ]
43 months to 48 months.............................. [ ] [ ] [ ]
49 months to 54 months.............................. [ ] [ ] [ ]
55 months to 60 months.............................. [ ] [ ] [ ]
Greater than 60 months.............................. [ ] [ ] [ ]
Totals.............................................. [ ] $[ ] [ ]%
- -----------
(1) Percentages may not add to 100% because of rounding.
DISTRIBUTION OF THE RECEIVABLES BY REMAINING PRINCIPAL BALANCE
PERCENTAGE
OF AGGREGATE
RANGE OF REMAINING NUMBER OF AGGREGATE PRINCIPAL
PRINCIPAL BALANCES RECEIVABLES PRINCIPAL BALANCE BALANCE(1)
- ------------------ ----------- ----------------- ----------
$1 to $2,500........................................ [ ] $[ ] [ ]%
$2,501 to $5,000.................................... [ ] [ ] [ ]
$5,001 to $7,500.................................... [ ] [ ] [ ]
$7,501 to $10,000................................... [ ] [ ] [ ]
$10,001 to $12,500.................................. [ ] [ ] [ ]
$12,501 to $15,000.................................. [ ] [ ] [ ]
$15,001 to $17,500.................................. [ ] [ ] [ ]
$17,501 to $20,000.................................. [ ] [ ] [ ]
$20,001 to $22,500.................................. [ ] [ ] [ ]
$22,501 to $25,000.................................. [ ] [ ] [ ]
$25,001 to $27,500.................................. [ ] [ ] [ ]
$27,501 to $30,000.................................. [ ] [ ] [ ]
$30,001 to $32,500.................................. [ ] [ ] [ ]
$32,501 to $35,000.................................. [ ] [ ] [ ]
$35,001 to $37,500.................................. [ ] [ ] [ ]
$37,501 to $40,000.................................. [ ] [ ] [ ]
$40,001 to $42,500.................................. [ ] [ ] [ ]
$42,501 to $45,000.................................. [ ] [ ] [ ]
$45,001 to $47,500.................................. [ ] [ ] [ ]
$47,501 to $50,000.................................. [ ] [ ] [ ]
$50,001 to $52,500.................................. [ ] [ ] [ ]
$52,501 to $55,000.................................. [ ] [ ] [ ]
$55,001 to $57,500.................................. [ ] [ ] [ ]
$57,501 to $60,000.................................. [ ] [ ] [ ]
$60,001 to $62,500.................................. [ ] [ ] [ ]
$62,501 to $65,000.................................. [ ] [ ] [ ]
Greater than $65,000................................ [ ] [ ] [ ]
Totals.............................................. [ ] $[ ] [ ]%
- -----------
(1) Percentages may not add to 100% because of rounding.
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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 and MINI motor vehicle
retail installment sale contracts and promissory notes ("Motor Vehicle
Contracts" or "Contracts"), which includes Contracts not owned but 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. 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 and light trucks.
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 and promissory notes, or the experience of the Trust with respect to
the Receivables, 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 in
time and the delinquency, repossession and net loss data showed the activity
only for that isolated group over the periods indicated.
In the table below, the period of delinquency for the years ended
December 31, 2004, 2003, 2002, 2001, and 2000 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
------------------------------------------------------------------
AS OF DECEMBER 31
------------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- -------- --------
Number of Contracts Outstanding........... 236,038 215,353 183,828 152,871 120,009
Delinquencies as a Percent of Contracts
Outstanding 0.16% 0.16% 0.17% 0.20% 0.29%
30-59 days.......................... 1.17% 1.27% 1.52% 1.38% 1.60%
60-89 days.......................... 0.20% 0.25% 0.33% 0.25% 0.36%
90 days or more..................... 0.16% 0.16% 0.17% 0.20% 0.29%
-------- -------- -------- -------- --------
Total........................... 1.53% 1.67% 2.02% 1.83% 2.25%
Dollar Delinquencies as a Percent of Principal Amount
Outstanding
30-59 days.......................... 1.11% 1.27% 1.43% 1.30% 1.50%
60-89 days.......................... 0.19% 0.26% 0.33% 0.24% 0.38%
90 days or more..................... 0.14% 0.14% 0.16% 0.17% 0.26%
-------- -------- -------- -------- --------
Total........................... 1.44% 1.67% 1.91% 1.71% 2.13%
In the table below, 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. 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.
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AS OF DECEMBER 31
NET CREDIT LOSS AND REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
-------------------------------------------------------------------------------------
AS OF DECEMBER 31
-------------------------------------------------------------------------------------
2004 2003 2002 2001 2000
------------- ------------- ------------- ------------- -------------
Principal Amount Outstanding........... $ 4,751,512 $ 4,371,333 $ 3,860,493 $ 3,206,427 $ 2,467,392
Average Principal Amount
Outstanding.......................... $ 4,561,422 $ 4,115,913 $ 3,533,460 $ 2,836,909 $ 2,211,856
Number of Contracts Outstanding........ 236,038 215,353 183,828 152,871 120,009
Average Number of Contracts
Outstanding.......................... 225,696 199,591 168,350 136,440 109,465
Charge-offs--full period actuals........ $ 22,770 $ 31,303 $ 25,275 $ 19,683 $ 14,839
Recoveries............................. $ 3,564 $ 11,642 $ 5,352 $ 3,613 $ 3,547
------------- ------------- ------------- ------------- -------------
Net Losses............................. $ 19,206 $ 19,660 $ 19,923 $ 16,070 $ 11,292
Number of Repossessions sold......... 1,600 1,625 1,185 1,019 742
Number of Repossessions sold as a
percent of the Average Number of Contracts
Outstanding.......................... 0.71% 0.81% 0.70% 0.75% 0.68%
Net Losses as a percent of Average
Principal Amount Outstanding......... 0.42% 0.48% 0.56% 0.57% 0.51%
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" or the "Notes") and the
Certificates (the "Certificates" and together with the Class A Notes, the
"Securities") is set forth under "Weighted Average Lives of the Securities" in
the accompanying prospectus and "Risk Factors--You may experience reduced
returns on your investment resulting from prepayments or repurchases of
receivables 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 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 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 herein) 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.
WEIGHTED AVERAGE LIVES 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
100 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.
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As the rate of 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 earlier than its respective Final Scheduled Payment Date.
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 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 "Credit Enhancement--Reserve
Account", 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 ABS Tables indicate the projected weighted average life of each
class of Notes and the Certificates and set forth the percent of the initial
principal balance 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 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 maturity and remaining term to maturity
as of the assumed statistical calculation date as of the close of business on [
], 2005, will be such that each pool will be fully amortized by the end of its
remaining term to maturity. Additionally, the hypothetical pools for the
Receivables each have an assumed cutoff date as of the close of business on [ ],
2005.
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RECEIVABLES
ORIGINAL STATED REMAINING
AGGREGATE TERM TERM
POOL PRINCIPAL BALANCE APR (IN MONTHS) (IN MONTHS)
- ---- ----------------- --- ----------- -----------
1..............................
2..............................
3..............................
4..............................
5..............................
6..............................
7..............................
8..............................
9..............................
10.............................
---------------------
Total.......................
=====================
The actual characteristics and performance of the Receivables are
expected to differ from the assumptions used in constructing the ABS Tables. The
assumptions used are hypothetical and have been provided only to give a general
sense of how the principal cash flows might behave under varying prepayment
scenarios. For example, it is unlikely that the Receivables will prepay at a
constant level of ABS until maturity, that all of the Receivables will prepay at
the same level of ABS or that no defaults will occur on the Receivables.
Moreover, the diverse terms of Receivables within each of the hypothetical pools
could produce slower or faster principal distributions than indicated in the ABS
Table at the various percentages of ABS specified, even if the original and
remaining terms to maturity of the Receivables are as assumed. Any difference
between the assumptions and the actual characteristics and performance of the
Receivables, or actual prepayment experience, will affect the percentages of
initial amounts outstanding over time and the weighted average life of each
class of Notes.
PERCENTAGE OF INITIAL CLASS A-L AND CLASS A-2 NOTE PRINCIPAL
AT VARIOUS ABS PERCENTAGES
CLASS A-1 NOTES CLASS A-2 NOTES
----------------------------------------------- -----------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----
Closing Date..............
Weighted Average Life
(yrs)(l)...............
- -----------
(1) The weighted 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 balance of the
note.
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 may differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
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PERCENTAGE OF INITIAL CLASS A-3 AND CLASS A-4 NOTE PRINCIPAL
AT VARIOUS ABS PERCENTAGES
CLASS A-3 NOTES CLASS A-4 NOTES
----------------------------------------------- -----------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ---- ---- ---- ---- ----
Closing Date.................
Weighted Average Life
(yrs)(l)(2)...............
Weighted Average Life to Call
(yrs)(l)(3)...............
Month of Optional Purchase(3)
- -----------
(1) The weighted 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 balance 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 are expected to differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
PERCENTAGE OF INITIAL CLASS B NOTE PRINCIPAL AT VARIOUS ABS PERCENTAGES
CLASS B NOTES
------------------------------------------------------------------
PAYMENT DATE 0.5% 1.0% 1.5% 2.0%
- ------------ ---- ---- ---- ----
Closing Date........................................
Weighted Average Life (yrs)(1)(2)...................
Weighted Average Life to Call(yrs)(1)(3)............
Month of Optional Purchase(3).......................
- -----------
(1) The weighted 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 balance
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 may differ from the actual
characteristics and performance of the Receivables) and should be read in
conjunction with those assumptions.
NOTE AND CERTIFICATE FACTORS
The "Note Pool Factor" with respect to any class of Notes will be a
seven-digit decimal indicating the principal balance 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 balance 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 balance of each class of Notes. The portion
of the principal balance 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
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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 Pool 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 Notes to
purchase the Receivables from BMW FS pursuant to the Receivables Purchase
Agreement and to fund the Reserve 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 will apply all or a 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, has acted as a "warehouse lender" to BMW FS or its affiliates, and will
indirectly receive a portion of the proceeds as repayment of that "warehouse"
debt.
THE DEPOSITOR
Information regarding the Depositor is set forth under the caption
"The Depositor" in the accompanying prospectus.
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
Centers and their customers throughout the United States. BMW NA is based in
Woodcliff Lake, New Jersey and is engaged in the wholesale distribution of BMW
passenger cars, BMW light trucks, BMW motorcycles and MINI passenger cars
throughout the United States. BMW NA is an indirect wholly owned subsidiary of
BMW AG, a German corporation that is an international manufacturer and
distributor of passenger cars, 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
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.
S-34
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 Centers, BMW NA and BMW FS. The application is
reviewed 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
December 31, 2004, [ ]% of applications were approved, [ ]% of which were funded
by BMW FS. (1)
A credit buyer reviews each application that is not automatically
approved through the credit processing system through the use of expert system
rules and scorecards. Credit buyers have credit authority levels of "I", "II" or
"III" depending on level of experience. The credit buyer's review includes an
evaluation of the customer demographics, income, the collateral, a credit bureau
report on the applicant from an independent credit bureau, use of internet
verification tools, and the applicant's credit score based on a credit scoring
system or "scorecard" developed for BMW FS. This internal scoring 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. The current application system used by BMW FS to process
applications provides review/decline indicators to aid the credit buyer in the
review of applications. 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 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 or Level III credit authority
(or in some cases only by the credit team leader or credit manager) based on the
presence of certain factors, up to and including a guarantee by the Center. A
credit buyer with Level I credit authority may not disapprove without management
review applicants that score above the specified minimum.
On commercial transactions, BMW FS requires an individual to
guarantee the business' obligations under the Contract, otherwise it will obtain
a Dun and Bradstreet and two years of audited financial statements, bank
accounts and credit references.
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, 105% 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,
- -----------------
(1) NL -> In the 2003 S-3 obtained from the SEC website, this sentence was
included in the description of Underwriting in the Base Prospectus and not in
either Prospectus Supplement. In the Base Prospectus put on to the system by
Document Production, there is no such sentence. The sentence appears in the Pro
Supp for 2004-A.
S-35
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 and other items. Team leaders and above may approve
contracts exceeding advance guidelines on an exception basis.
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.
Generally, after a Contract has been approved by BMW FS as described
above and originated by a Center, BMW FS acquires it indirectly by causing it to
be assigned to its affiliate, BMW Bank of North America, except in the case of
Contracts due from residents of certain states (currently Montana and New
Jersey) which are assigned directly to BMW FS. Contracts originated in
connection with the "lease to loan" program and certain refinancings are
originated directly by BMW Bank rather than acquired from Centers.
Additional information regarding BMW FS' Financing Program is set
forth under "BMW FS' Financing Program" 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. The
Notes are denominated and payable in U.S. dollars and are available in minimum
denominations of $1,000 and multiples thereof (except for one Note of each Class
which may be issued in a denomination other than an integral multiple of
$1,000). 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 [ ], 2005.
Interest on the outstanding principal balance 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 Notes, Class A-3 Notes, 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 Notes, 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 nonrecoverable Advances have been
paid. We refer you to "Credit Enhancement--Reserve Account" and "Payments on the
Notes" in this prospectus supplement.
S-36
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.
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 below 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 on 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 changes. In particular, 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, 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
S-37
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
"Class A 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
Certificates (the "Certificateholders") until the Certificates have been paid in
full. Following the occurrence of any other Event of Default that 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 Certificates on each payment date until a liquidation, if any, of the
property of the Trust.
The actual Payment Date on which the outstanding principal balance of
any class of Notes is paid in full may be earlier than its Final Scheduled
Payment Date based on a variety of factors, including the factors described
under "Weighted Average Lives of the Securities" in the accompanying prospectus.
If the principal balance of a class of Notes has not been paid in
full on or prior to its Final Scheduled Payment Date, the 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
balance 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.
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--The 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. 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--The Indenture--Events of Default; 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-l 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 balance 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 balance is paid in full.
Under the Trust Indenture Act of 1939, as amended, the Indenture
Trustee may be deemed to have a conflict of interest and be required to resign
as Indenture Trustee for the Class A Notes or the Certificates or as Indenture
Trustee for all of the Notes if a default occurs under the Indenture. In these
circumstances, the Indenture will provide for a successor indenture trustee to
be appointed for the Class A Notes or the Certificates or both, in order that
there be separate indenture trustees for the Class A Notes and the Certificates.
If the Indenture Trustee resigns as Indenture Trustee for any class of Notes or
for all of the Notes, its resignation will become effective only after a
successor indenture trustee for the Notes or the applicable class of Notes is
appointed and the successor indenture trustee accepts such appointment.
"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 Certificates for so long as any
Certificates 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.
S-38
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:
payment of the Servicing Fee; and
Class A Noteholders' interest distribution;
Principal Distribution Amount for the Class A-1 Notes; and
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.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when
the Pool Balance declines to 10% or less of the Pool Balance as of the Cutoff
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.
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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,
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.
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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 Accounts (other than the Collection
Account and the Reserve Account) for the related Payment Date,
5. Liquidation Proceeds for that Collection Period to the extent
allocable to interest, and
6. Investment Losses deposited by the Servicer.
"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. Liquidation Proceeds for that Collection Period to the extent
allocable to principal, and
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.
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. 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,
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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 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 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,
3. to the Principal Distribution Account, the First Priority
Principal Distribution Amount, if any,
4. to the Certificateholders:
o 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 Certificateholders on the
preceding Payment Date, and
o the excess, if any, of the amount of interest payable to the
Certificateholders 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,
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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 Depositor.
The 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 balance 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 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 balance 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 balance of that class 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 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
balance 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 (in the case of the
first Payment Date), as the case may be, minus (ii) the Pool
Balance at the end of the Collection Period preceding such
Payment Date less the Yield Supplement Overcollateralization
Amount with respect to such Payment Date over
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o the First Priority Principal Distribution Amount with respect to
that Payment Date;
provided however, that the Regular Principal Distribution Amount shall not
exceed the sum of the aggregate outstanding principal balance 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 Notes shall not be less than the amount that is necessary to reduce the
outstanding principal balance of that Class of Notes and all earlier maturing
classes of 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.
CREDIT ENHANCEMENT
The protection afforded to the Noteholders will be effected both by
the preferential right of such Noteholders to receive, to the extent described
in this prospectus supplement, current distributions on the Receivables, the
establishment of the Reserve Account, the Yield Supplement Overcollateralization
Amount 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 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 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
depositing in the Reserve Account 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 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 Certificateholder
or to the Depositor.
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The "Specified Reserve Account Balance" with respect to any Payment
Date will be an amount equal to [ ]% of the aggregate outstanding principal
balance of the Notes. 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 consent to 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, or the
replacement of the Reserve Account with a different form of credit enhancement
in whole or in part. If each rating agency delivers a letter to the Trust to the
effect that the same 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
manner of funding will be changed or the Reserve Account will be replaced in
whole or in part, as applicable. The Sale and Servicing Agreement will
accordingly be amended, without the consent of any Noteholder, to reflect the
revised arrangement.
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
Collection Account for distribution to the Noteholders.
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 Pool Balance will exceed the initial
principal balance of the Notes, by $[ ] (the "Initial Yield Supplement
Overcollateralization Amount"), which is approximately [ ]% of the aggregate
principal balance of the Receivables as of the Cutoff 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:
YIELD SUPPLEMENT
OVERCOLLATERALIZATION
PAYMENT DATE AMOUNT
- ------------ ------
Closing Date......................................
March 2005........................................
April 2005........................................
May 2005..........................................
June 2005.........................................
July 2005.........................................
August 2005.......................................
September 2005....................................
October 2005......................................
November 2005.....................................
December 2005.....................................
January 2006......................................
February 2006.....................................
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YIELD SUPPLEMENT
OVERCOLLATERALIZATION
PAYMENT DATE AMOUNT
- ------------ ------
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.........................................
July 2007.........................................
August 2007.......................................
September 2007....................................
October 2007......................................
November 2007.....................................
December 2007.....................................
January 2008......................................
February 2008.....................................
March 2008........................................
April 2008........................................
May 2008..........................................
June 2008.........................................
July 2008.........................................
August 2008.......................................
September 2008....................................
October 2008......................................
November 2008.....................................
December 2008.....................................
January 2009......................................
February 2009.....................................
March 2009........................................
April 2009........................................
May 2009..........................................
June 2009.........................................
July 2009.........................................
August 2009.......................................
September 2009....................................
October 2009......................................
November 2009.....................................
December 2009.....................................
January 2010......................................
February 2010.....................................
March 2010........................................
April 2010........................................
May 2010..........................................
June 2010.........................................
July 2010.........................................
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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 a discount
rate equal to the greater of the APR of that Receivable and 4.00% (the "Required
Rate"). 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, 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
Information with respect to the conveyance of the Receivables from
the Depositor to the Trust on the 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" 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 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.
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"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.
NOTE DISTRIBUTION ACCOUNT
On or prior to the Closing Date, the Indenture Trustee will establish
and maintain 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 of
an amount equal to the aggregate of all scheduled payments of interest that were
due during the related Collection Period that were not collected during such
Collection Period (an "Advance"), exclusive of amounts that the Servicer has
determined would be nonrecoverable. On each Payment Date, the Servicer shall
reimburse itself for the outstanding amount advanced to the extent of actual
collections of late scheduled payments. 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 of 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, 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 related Deposit 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 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 qualification, reduction or
withdrawal in the rating of any 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 above under "Payments on the
Securities--Payment of Distributable Amounts."
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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.
The Servicing Agreement will require the Servicer to make all
deposits of collections received to be deposited into the Collection Account on
the second Business Day following receipt thereof. However, so long as the
Monthly Remittance Condition is satisfied, the Servicer may retain such amounts
received during a Collection Period until the related Deposit Date. The "Monthly
Remittance Condition" will be satisfied if (a)(1) the short-term debt of BMW US
Capital LLC (or the entity that is the Servicer) is rated in the highest rating
category by, or is otherwise acceptable to, each Rating Agency and (2) no
Servicer Default has occurred or (b)(1) the Servicer obtains a letter of credit,
surety bond or insurance policy under which demands for payment may be made to
secure timely remittance of monthly collections to the Collection Account and
(2) the Trustees are provided with confirmation from each Rating Agency to the
effect that the use of such alternative remittance schedule will not result in
the qualification, reduction or withdrawal of its then-current rating on any
class of Securities. Pending deposit into the Collection Account, collections
may be used by the Servicer at its own risk and for its own benefit and will not
be segregated from its own funds.
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 Pool Balance as of the Cutoff 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 balance 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 may, and at the direction of Noteholders
evidencing more than 50% of the voting interests of the Class A Notes (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) shall, 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 discovery of such failure
by a responsible officer of the Servicer or after the date on
which written notice of that failure is given to the Servicer by
(a) the Owner Trustee, (b) the Indenture Trustee or (c) the
holders of Notes representing more than 50% of the Class A Notes
(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), and
3. the occurrence of an Insolvency Event (as defined in the attached
prospectus) of the Servicer.
S-49
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 the
Certificateholders) from effecting a transfer of servicing. In the event that
the Indenture Trustee is unwilling or unable 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, 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.
NOTES OWNED BY THE DEPOSITOR, THE SERVICER OR AFFILIATES
Any Notes owned by the Depositor, the Servicer or any of their
affiliates will be entitled to equal and proportionate benefits under the
Transfer and Servicing Agreements, except that such Notes will not be considered
to be outstanding for the purpose of determining whether the requisite
percentage of Noteholders have given any request, demand, authorization,
direction, notice, consent or other action under the Transfer and Servicing
Agreements.
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 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
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
S-50
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 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. Citibank, N.A. 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. 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 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.
S-51
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 federal income 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, each Certificateholder and the beneficial owners of
the Notes 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 owners; 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.
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 that 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
S-52
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 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.
PLAN OF DISTRIBUTION
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 balance 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 Certificates if any of the Notes or Certificates are not
purchased. This obligation of the Underwriters is subject to specified
conditions precedent set forth in the Underwriting Agreement.
S-53
The Depositor has been advised by the Underwriters that they propose
to offer the Notes and 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:
CLASS SELLING CONCESSION 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. In the ordinary course of their respective businesses, the
Underwriters and their respective affiliates have engaged and may engage in
various financial advisory, investment banking and commercial banking
transactions from time to time with BMW FS and its affiliates.
The 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.
In connection with the offering of the Notes and Certificates, the
Underwriters may engage in overallotment, stabilizing transactions and syndicate
covering transactions. Overallotment involves sales in excess of the offering
size which creates a short position for the Underwriters. Stabilizing
transactions involve bids to purchase the Notes and Certificates in the open
market for the purpose of pegging, fixing or maintaining the price of the Notes.
Syndicate covering transactions involve purchases of the Notes and Certificates
in the open market after the distribution has been completed in order to cover
short positions. Stabilizing transactions and syndicate covering transactions
may cause the price of the Notes and Certificates to be higher than it would
otherwise be in the absence of those transactions. If the Underwriters engage in
stabilizing or syndicate covering transactions, they may discontinue them at any
time.
Upon receipt of a request by an investor who has received an
electronic prospectus from an Underwriter or a request by that investor's
representative within the period during which there is an obligation to deliver
a prospectus, BMW FS, the Depositor or the Underwriters will promptly deliver,
or cause to be delivered, without charge, a paper copy of 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 (as amended) (the "POS
Regulations") or the Financial Services and Markets Act 2000 (the
"FSMA");
S-54
o it has complied and will comply with all applicable provisions of
the FSMA 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 communicated or caused to be communicated and will
only communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection with the
issue or sale of any Notes in circumstances in which Section
21(1) of the FSMA does not apply.
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-55
INDEX OF TERMS
A I
ABS.......................................................S-30 Indenture Trustee..........................................S-22
ABS Tables................................................S-31 Initial Yield Supplement Overcollateralization Amount......S-45
Administration Agreement..................................S-22 Interest Period............................................S-43
Advance...................................................S-48 Interest Rate..............................................S-36
Available Amounts.........................................S-40
Available Amounts Shortfall...............................S-42 L
Available Interest........................................S-41
Available Principal.......................................S-41 Liquidated Receivable......................................S-41
Liquidation Proceeds.......................................S-41
B
M
Benefit Plan..............................................S-52
BMW AG....................................................S-23 Monthly Remittance Condition...............................S-49
BMW FS....................................................S-34
BMW Group.................................................S-23 N
BMW NA....................................................S-34
Note Distribution Account..................................S-48
C Note Pool Factor...........................................S-33
Notes......................................................S-30
Center Recourse...........................................S-22
Centers...................................................S-22 O
Certificate Distribution Account..........................S-48
Certificate Pool Factor...................................S-33 Obligor....................................................S-23
Certificateholders........................................S-38 Owner Trustee..............................................S-21
Certificates..............................................S-30
Class A Noteholders.......................................S-37 P
Class A Notes.............................................S-30
Closing Date..............................................S-23 Payment Date...............................................S-36
Collection Period.........................................S-48 Plan Assets Regulation.....................................S-52
Contracts.................................................S-29 POS Regulations............................................S-54
Controlling Class.........................................S-38 Principal Distribution Account.............................S-43
Cutoff Date...............................................S-23 Principal Distribution Amount..............................S-43
PTCE.......................................................S-53
D Purchased Amount...........................................S-42
Purchased Receivable.......................................S-42
Deposit Date..............................................S-48
Depositor.................................................S-21 R
Determination Date........................................S-40
Receivables................................................S-21
E Receivables Purchase Agreement.............................S-23
Recoveries.................................................S-29
Eligible Investments......................................S-47 Redemption Price...........................................S-49
Excess Amount.............................................S-43 Regular Principal Distribution Amount......................S-43
Relief Act.................................................S-19
F Required Rate..............................................S-47
Reserve Account Initial Deposit............................S-44
Final Scheduled Payment Date..............................S-30
Financed Vehicles.........................................S-23 S
First Priority Principal Distribution Amount..............S-43
FSMA......................................................S-54 Sale and Servicing Agreement...............................S-22
Securities.................................................S-30
Seller.....................................................S-23
S-56
Servicer..................................................S-22
Servicer Defaults.........................................S-49
Servicing Fee.............................................S-48
Servicing Rate............................................S-48
Specified Reserve Account Balance.........................S-45
Statistical Calculation Date..............................S-24
T
Transfer and Servicing Agreements.........................S-47
Trust.....................................................S-21
Trust Agreement...........................................S-21
Trust Fees and Expenses...................................S-44
Trustees..................................................S-23
U
Underwriters..............................................S-53
Underwriting Agreement....................................S-53
Y
Yield Supplement Overcollateralization Amount.............S-14
S-57
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in specified circumstances, the globally offered 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 tradeable 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 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.
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.
A-1
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 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.
A-2
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 withholding tax that generally
applies to payments of interest (including 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 or other appropriate
form 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-8ECI (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). If the
information shown on Form W-8ECI changes, a new Form W-8ECI or other appropriate
form must be filed within 30 days of that change.
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 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
A-3
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
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 circumstances 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
Seller and Servicer
Until [ ], 2005 (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
$[ ]
[ ]% Certificates
Prospectus Supplement
[ ]
[ ]
[ ]
A-5
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.......................... $*
Accounting fees and expenses..................... $*
Rating agency fees............................... $*
Trustee's fees and expenses...................... $*
Printing......................................... $*
Miscellaneous.................................... $*
Total........................................ $*
*To be completed by amendment
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.
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 Trust Agreement for BMW Vehicle Owner Trust 2001-A (with Certificate
of Trust Attached (1))
*4.1 Form of Indenture between BMW Vehicle Owner Trust 2001-A and The
Chase Manhattan Bank, as Indenture Trustee (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 2001-A and The Chase Manhattan Bank (1)
*10.3 Form of Owner Trust Administration Agreement among BMW Financial
Services NA, LLC, The Chase Manhattan Bank and BMW Vehicle Owner
Trust 2001-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 (2)
* Previously filed; incorporated by reference
** To be filed by amendment
(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.
(2) Incorporated by reference to Amendment No. 2 to Registration Statement on
Form S-3 (Reg. No. 333--103795), filed with the SEC by the Registrant on April
16, 2003.
ITEM 17. UNDERTAKINGS.
A. Undertaking in respect of indemnification
The undersigned registrant hereby undertakes:
(1) 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.
B. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
C. Undertaking pursuant to Rule 430A
The undersigned registrant hereby undertakes:
(1) 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.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(D) Undertaking as to Documents Subsequently Filed that are
Incorporated by Reference
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act, as
amended, each filing of the registrants' annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 ("the Exchange Act")
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act), as amended, that is incorporated
by reference in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(E) Undertaking as to Qualification of Trust Indentures Under the
Trust Indenture Act of 1939 for Delayed Offerings
The undersigned registrant hereby undertakes:
(1) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of the
Trust Indenture Act in accordance with the rules and regulations prescribed by
the Commission under Section 305(b)(2) of the Act.
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 4th day of February, 2005.
BMW FS SECURITIES LLC,
a Delaware limited liability company
By: /s/ John M. Christman
----------------------------------------
John M. Christman
President
By: /s/ Martin Nellen
----------------------------------------
Martin Nellen
Treasurer
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Martin Nellen 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 any upsizings 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 February 4, 2005
- ------------------------------- of the Managing Member of
John M. Christman BMW FS Securities LLC and
President of BMW FS Securities LLC
(Principal Executive Officer)
/s/ Gerald Holzmann Vice President of Finance of February 4, 2005
- ------------------------------- BMW FS Securities LLC
Gerald Holzmann (Principal Financial
and Accounting Officer)
/s/ Martin Nellen Treasurer of February 4, 2005
- ------------------------------- BMW FS Securities LLC
Martin Nellen
/s/ Robert E. Devine Member of the Management Committee February 4, 2005
- ------------------------------- of the Managing Member of
Robert E. Devine BMW FS Securities LLC