PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 19, 1999
$1,835,868,028
NEWCOURT EQUIPMENT TRUST SECURITIES 1999-1
OWNER TRUST
RECEIVABLE-BACKED NOTES
NCT FUNDING COMPANY, L.L.C.
DEPOSITOR
[AT&T LOGO]
SERVICER
THE DEPOSITOR AND SERVICER ARE MEMBERS OF THE NEWCOURT GROUP OF COMPANIES.
[NEWCOURT LOGO]
THE OWNER TRUST WILL ISSUE THE FOLLOWING CLASSES OF NOTES --
CONSIDER CAREFULLY THE RISK
FACTORS BEGINNING ON PAGE
S-15 IN THIS PROSPECTUS
SUPPLEMENT AND ON PAGE 11 IN
THE ACCOMPANYING PROSPECTUS.
The notes represent
obligations of the owner
trust only.
This prospectus supplement
must be accompanied by the
prospectus.
Initial
Aggregate First Stated Price to Underwriting
Class of Principal Interest Rate Payment Maturity Public Discount
Notes Amount (per annum) Date Date Per Note Per Note
----- ------ ----------- ---- ---- -------- --------
A-1 $458,967,007 5.9713% September 20, 1999 August 20, 2000 100.0000% 0.1000%
A-2 $183,586,801 6.3100% September 20, 1999 August 20, 2001 99.9986% 0.1650%
A-3 $679,271,171 Floating September 20, 1999 July 20, 2003 100.0000% 0.1900%
A-4 $318,523,103 7.1800% September 20, 1999 October 20, 2005 99.9826% 0.2250%
A-5 $ 67,009,183 6.9900% September 20, 1999 June 20, 2006 99.9993% 0.1850%
B $ 22,948,351 7.0700% September 20, 1999 December 20, 2006 99.9798% 0.2500%
C $ 50,486,371 7.2100% September 20, 1999 April 20, 2008 99.9983% 0.3000%
D $ 55,076,041 7.9600% September 20, 1999 January 20, 2009 99.9964% 0.4000%
The total price to the public is $1,835,802,089.
The total underwriting discount is $3,322,279.
The total proceeds to the owner trust are $1,832,479,811.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
CREDIT SUISSE FIRST BOSTON
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
BARCLAYS CAPITAL
FIRST UNION CAPITAL MARKETS CORP.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES
Prospectus Supplement dated August 11, 1999
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
The depositor tells you about the notes in two separate documents:
the accompanying prospectus, which provides general information, some
of which may not apply to you; and
this prospectus supplement, which describes the particular terms of
your series of notes.
The depositor includes cross-references in this prospectus supplement and
in the accompanying prospectus to captions in these materials where you can find
further discussions. The following Table of Contents and the Table of Contents
included in the accompanying prospectus provide the pages on which these
captions are located.
You should rely only on the information contained in this document,
including the information described under the heading 'Where You Can Find More
Information' in the prospectus. The depositor has not authorized anyone to
provide you with information that is different. This document may only be used
where it is legal to sell these notes.
If you have received a copy of this prospectus supplement and prospectus in
an electronic format, and if the legal prospectus delivery period has not
expired, you may obtain a paper copy of this prospectus supplement and
prospectus from NCT Funding Company, L.L.C., at 2 Gatehall Drive, Parsippany,
New Jersey 07054, telephone number (973) 606-3500, or an underwriter by asking
any of them for it.
S-2
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT:
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.... S-2
PROSPECTUS SUPPLEMENT SUMMARY............................... S-5
BACKGROUND INFORMATION...................................... S-15
RISK FACTORS................................................ S-15
Future Contract Delinquency and Loss Experience of the
Contract Pool May Vary Substantially from the
Originators' Historical Experience................. S-15
Some Note Classes and the Swap Counterparty Will be
Entitled to Interest or Principal Payments Before
Other Note Classes................................. S-15
Any Failure by the Swap Counterparty to Pay Amounts
Owed Under the Swap Agreement Would Reduce the
Funds Available to Pay Interest on the Class A-3
Notes.............................................. S-16
Adverse Events in Five High Concentration States May
Cause Increased Defaults and Delinquencies......... S-17
Adverse Economic Conditions in High Concentration
Industries May Cause Increased Defaults and
Delinquencies...................................... S-17
Product Defects or Obsolescence or Adverse Economic
Events for Two Vendors Accounting for High
Proportions of the Contracts May Cause Increased
Defaults and Delinquencies......................... S-18
Product Defects or Obsolescence of Types of Equipment
Accounting for High Proportions of the Contracts
May Cause Increased Defaults or Delinquencies...... S-19
The Owner Trust's Not Having Security Interests, in
Computer Software and Services and the Owner
Trust's Not Being Named as Secured Party in Motor
Vehicle Title Certificates Will Leave the Owner
Trust Without Collateral for the Associated
Contracts.......................................... S-19
Completed and Pending Business Combinations May Affect
the Depositor's, Originators' and Servicer's
Operations......................................... S-20
THE OWNER TRUST............................................. S-21
The Owner Trust....................................... S-21
The Indenture......................................... S-21
Capitalization of the Owner Trust..................... S-21
The Owner Trustee..................................... S-21
THE CONTRACTS............................................... S-22
Description of the Contracts.......................... S-22
Statistics Relating to the Initial Cut-Off Date
Contract Pool...................................... S-22
Statistics Relating to Delinquencies and
Defaults........................................... S-26
WEIGHTED AVERAGE LIFE OF THE NOTES.......................... S-29
DESCRIPTION OF THE NOTES AND INDENTURE...................... S-39
General............................................... S-39
Distributions......................................... S-39
Interest.............................................. S-41
Principal............................................. S-42
Class A-3 Swap Agreement.............................. S-50
Optional Purchase of Class A-5 Notes.................. S-51
S-3
PAGE
----
Cash Collateral Account............................... S-52
Optional Purchase of Contracts and Redemption of
Notes.............................................. S-54
Reports to Noteholders................................ S-54
Servicing............................................. S-54
The Indenture Trustee................................. S-55
Representations and Warranties........................ S-55
Indemnification....................................... S-56
Amendments............................................ S-56
RATINGS OF THE NOTES........................................ S-57
USE OF PROCEEDS............................................. S-58
LEGAL PROCEEDINGS........................................... S-58
PLAN OF DISTRIBUTION........................................ S-58
LEGAL MATTERS............................................... S-60
EXPERTS..................................................... S-60
NOTES TO THE BALANCE SHEET.................................. S-61
REPORT OF INDEPENDENT AUDITORS.............................. S-62
INDEX OF DEFINED TERMS...................................... S-63
PROSPECTUS:
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT.... 4
PROSPECTUS SUMMARY.......................................... 5
RISK FACTORS................................................ 11
THE DEPOSITOR............................................... 19
THE OWNER TRUSTS............................................ 21
NEWCOURT CREDIT GROUP INC................................... 22
THE SERVICER................................................ 23
THE SELLER AND ORIGINATORS.................................. 24
THE CONTRACTS............................................... 33
DESCRIPTION OF THE NOTES AND INDENTURE...................... 52
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS......... 65
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 70
ERISA CONSIDERATIONS........................................ 77
RATINGS OF THE NOTES........................................ 79
USE OF PROCEEDS............................................. 79
PLAN OF DISTRIBUTION........................................ 80
LEGAL MATTERS............................................... 80
WHERE YOU CAN FIND MORE INFORMATION......................... 80
INDEX OF TERMS.............................................. 82
S-4
PROSPECTUS SUPPLEMENT SUMMARY
The following is only a summary of note terms. It does not contain all
information that may be important to you. You should read this entire prospectus
supplement and the accompanying prospectus. In addition, you may wish to read
the documents governing the transfers of the contracts, the formation of the
owner trust and the issuance of notes. These documents have been filed as
exhibits to the registration statement of which this prospectus supplement is a
part.
There are material risks associated with an investment in the notes. See
'Risk Factors' on page S-15 of this prospectus supplement and on page 11 in the
accompanying prospectus for a discussion of factors you should consider before
investing in the notes.
Owner Trustee............................. The owner trustee is The Bank of New York
(Delaware), acting not in its individual
capacity but solely as owner trustee under the
trust agreement with the depositor, and its
telephone number is (212) 815-2793. See 'The
Owner Trust' in this prospectus supplement.
Originators............................... Newcourt Financial USA Inc.
Newcourt Leasing Corporation, formerly known
as AT&T Capital Leasing Services, Inc.
Newcourt Communications Finance Corporation,
formerly known as AT&T Credit Corporation.
Newcourt Commercial Finance Corporation,
formerly known as AT&T Commercial Finance
Corporation.
The address of each originator is 2 Gatehall
Drive, Parsippany, New Jersey 07054.
Indenture and Indenture Trustee........... The notes will be issued under an indenture.
The Chase Manhattan Bank will serve as
indenture trustee. See 'Description of the
Notes and Indenture -- The Indenture Trustee,'
in this prospectus supplement.
Terms of the Notes:
Payment Dates......................... The 20th day of each month, beginning on
September 20, 1999, or if that day is not a
business day, the next business day.
Interest.............................. See the cover page for the rates as to all
classes other than Class A-3. The Class A-3
interest rate
S-5
will be the one-month London interbank offered
rate, plus 0.30%. See 'Description of the
Notes and Indenture -- Interest.' The owner
trust will calculate interest on the Class A-1
and Class A-3 Notes on the basis of the
actual number of days elapsed and a 360-day
year. The owner trust will calculate interest
on the Class A-2, Class A-4, Class A-5,
Class B, Class C and Class D Notes on the
basis of a 360-day year comprised of twelve
30-day months.
On each payment date and after the owner trust
repays any outstanding servicer advances and
pays the servicer's monthly servicing fee, the
owner trust will pay interest on the notes in
the following order:
CLASS OF RECEIVES INTEREST
NOTES BEFORE CLASS
----- ----------
A-1, A-2, A-3, A-4 and A-5 B, C and D
B C and D
C D
D None
If the available funds are insufficient to pay
interest on all classes of Class A Notes, the
owner trust will apply the available funds pro
rata to the classes of Class A Notes based on
their respective principal balances.
See 'Description of the Notes and Indenture --
Distributions' in this prospectus supplement.
Principal............................. After paying interest on the notes, the owner
trust will pay principal on the notes on each
payment date. The owner trust will pay
principal in the following order:
S-6
Before an Event of Default:
1. (A) Until the Class A-1 Note principal
amount becomes zero, 96.75% of the
total principal payment amount to the
Class A-1 Notes and 3.25% of the
total principal payment amount to the
Class A-5 Notes;
(B) on the payment date when the
Class A-1 Note principal amount
becomes zero, first, the remaining
Class A-1 principal amount to the
Class A-1 noteholders, second, 3.25%
of the total principal payment
amount, but not greater than the
Class A principal payment amount,
to the Class A-5 noteholders and
third, the remaining Class A
principal payment amount to the
Class A-2, A-3, A-4 and A-5 Notes in
that order, with each successive
class not being entitled to
principal until the prior class'
principal amount is reduced to zero;
(C) after the Class A-1 Note principal
amount is reduced to zero, 3.25% of
the total principal payment amount,
but not greater than the Class A
principal payment amount to the
Class A-5 Notes and then the
remaining Class A principal payment
amount to the Class A-2, A-3, A-4
and A-5 Notes in that order, with
each successive class not being
entitled to principal until the
prior class' principal amount is
reduced to zero.
If the available amount is insufficient
for the full payment of the amounts
called for in (A), (B), or (C) above,
the allocation of the available amount
will be as provided in 'Description of
the Notes and Indenture -- Principal' in
this prospectus supplement;
2. after the Class A-1 Note principal
amount
S-7
is reduced to zero, the Class B
principal payment amount to the Class B
Notes;
3. after the Class A-1 Note principal
amount is reduced to zero, the Class C
principal payment amount to the Class C
Notes; and
4. after the Class A-1 Note principal
amount is reduced to zero, the Class D
principal payment amount to the Class D
Notes.
The principal payment amount on each class of
the notes on each payment date will be based on
the difference between the aggregate principal
balance of that class of notes on that payment
date and the target amount set for the class or in
the case of Class B, C and D a floor amount set
for the class, if greater than the target amount.
After an Event of Default:
Following an event of default with respect to the
notes, the owner trust will pay principal in the
following order:
CLASS OF
NOTES RECEIVES PRINCIPAL BEFORE CLASSES
----- ---------------------------------
A-1 A-2, A-3, A-4, A-5, B, C and D
A-2 A-3, A-4, A-5, B, C and D
A-3 A-4, A-5, B, C and D
A-4 A-5, B, C and D
A-5 B, C and D
B C and D
C D
D None
See 'Description of the Notes and Indenture --
Distributions' in this prospectus supplement.
Class A-3 Swap Agreement.............. The owner trust will enter into a swap
agreement with a swap counterparty solely for
the benefit of the Class A-3 noteholders.
Under the swap agreement, the swap
counterparty's payments will be calculated at
the Class A-3 Note interest rate and the owner
trust's payments will be calculated at the
assumed fixed rate of 6.836%.
To the extent that interest on any payment
date at the Class A-3 Note interest rate
exceeds interest calculated at the assumed
fixed rate:
S-8
the swap counterparty will be obligated to pay
an amount equal to the excess to the owner
trust,
that payment will constitute a portion of the
amount available but only in respect of the
Class A-3 Notes and
the Class A-3 Notes will be dependent upon
that payment for receipt of interest to the
extent of the excess.
Likewise under the swap agreement, to the
extent that interest calculated at the assumed
fixed rate exceeds interest calculated at the
Class A-3 Note interest rate
the owner trust will be obligated to pay an
amount equal to the excess to the swap
counterparty, and
the payment will have the same priority, in
terms of application of the amount available,
as payment of interest on the Class A-3
Notes.
Any shortfall in the payment of interest on
the Class A-3 Notes due entirely to the
failure of the swap counterparty to make a
required payment under the swap agreement will
not constitute an event of default under the
indenture. Except to the extent the amount
available on any payment date exceeds the
amount needed to pay:
the servicing fee and servicer advances,
all interest and principal payable on the
notes, with Class A-3 Note interest being
calculated at the assumed fixed rate for this
purpose, and
all amounts payable in connection with the
cash collateral account,
no amounts in addition to those available
under the swap agreement will be available
under the indenture to make up the shortfall.
The only remedies in these circumstances will
be those available to the owner trust under
the swap agreement. See 'Description of the
Notes and Indenture -- The Class A-3 Swap
Agreement' in this prospectus supplement.
S-9
Class A-3 Swap Counterparty Westdeutsche Landesbank Girozentrale, New York
Branch will be the counterparty to the owner
trust under the swap agreement. The swap
counterparty currently has an 'AA+' long-term
unsecured senior debt credit rating from
Standard & Poor's and an 'Aa1' long-term
unsecured senior debt credit rating from
Moody's. See 'Description of the Notes and
Indenture -- The Class A-3 Swap Counterparty'
in this prospectus supplement.
Stated Maturity Dates................. The notes will mature on the respective dates
shown on the cover of this prospectus
supplement. However, if the stated maturity
date is not a business day, then the stated
maturity date will be the next business day.
Optional Purchase of Class A-5 Notes.. The owner trust will have the right to
purchase all of the Class A-5 Notes, on any
payment date, at a purchase price equal to the
principal balance of the Class A-5 Notes plus
a premium.
Following any purchase, the Class A-5 Notes
will not be retired, but will continue to be
entitled to interest and principal payments.
See 'Description of the Notes and
Indenture -- Optional Purchase of Class A-5
Notes' in this prospectus supplement.
Optional Redemption When the Aggregate
Note Principal Amount is Less Than 10%
of Initial Contract Pool Principal
Balance............................... Newcourt Financial USA, Inc., the seller of
contracts to the depositor, has the option to
purchase the owner trust's assets when the
outstanding note principal balance is less
than 10% of the initial contract pool
principal balance. If the seller exercises
this option, the indenture trustee will redeem
all notes on the next payment date. The
redemption price for each note will be the
note's principal amount plus unpaid accrued
interest to but excluding the redemption date.
The contract principal balance of any contract
is the present value of the unpaid scheduled
S-10
payments due on that contract discounted at
the discount rate, called the 'discount rate,'
of 7.941%. This prospectus supplement uses
this discount rate to calculate principal
balances of contracts throughout. The
'contract pool principal balance' is the
aggregate of the individual discounted
contract principal balances.
See 'Description of the Notes and Indenture --
Optional Purchase of Contracts' in this
prospectus supplement.
Cut-off Date.............................. August 1, 1999.
Closing Date.............................. On or about August 20, 1999.
Servicing; Servicing Fee.................. The servicer will be responsible for
servicing, managing and administering the
contracts and related interests, and enforcing
and making collections on the contracts. The
servicer may make advances for delinquent
scheduled payments, to the extent it
determines that advances will be recoverable
in future periods. Servicer advances are
reimbursable from contract payments.
See 'Description of the Pooling and Servicing
Agreements -- Servicing' in the accompanying
prospectus.
The servicer's monthly fee will equal the
product of
one twelfth of one percent and
the aggregate contract pool principal balance
as of the last day of the second preceding
collection period.
The servicer fee is payable out of contract
payments.
The servicer will pay any sub-servicer
servicing fees from its monthly servicing fee.
See 'Description of the Notes -- Servicing' in
this prospectus supplement.
Ratings................................... The owner trust will not issue any class of
notes unless Standard & Poor's Ratings
Services, Moody's Investors Service, Inc. and
Duff &
S-11
Phelps Credit Rating Co. assign at least the
following ratings to each class of notes:
CLASS S&P MOODY'S DCR
----- ---- ------- -------------
A-1 A-1+ P-1 D-1+
A-2 AAA Aaa AAA
A-3 AAA Aaa AAA
A-4 AAA Aaa AAA
A-5 AAA Aaa AAA
B AA Aa3 AA
C A A2 A
D BBB Baa3 BBB
See 'Ratings of the Notes' in this prospectus
supplement and the accompanying prospectus.
Owner Trust Assets
A. The Contracts.................... The contracts will consist of the following:
equipment lease contracts,
installment payment agreements,
conditional sales/financing agreements,
promissory notes, and
loan and security agreements.
As of August 1, 1999, the pool of contracts
for the owner trust had the following
characteristics. Percentages are based on the
contract pool principal balance:
Initial contract pool
principal balance ........... $1,835,868,028
Number of contracts ................... 86,204
Average contract
principal balance .................. $21,297
Leases as a percentage
of the contracts .................... 64.81%
Loans and other
financing arrangements
as a percentage
of the contracts ................... 35.19%;
S-12
Underlying equipment type concentration:
PRINCIPAL BALANCE
EQUIPMENT TYPE CONCENTRATION
-------------- -------------
telecommunications.............. 27.63%
transportation.................. 15.18%
computers and point of sale..... 14.46%
computer software............... 8.99%
manufacturing................... 7.90%
construction.................... 7.89%
medical......................... 7.14%
No other single type of equipment accounted
for more than 5% of the initial contract pool
principal balance.
Geographic concentration:
PRINCIPAL BALANCE
STATE CONCENTRATION
----- -------------
California...................... 12.12%
New Jersey...................... 8.99%
New York........................ 8.62%
Texas........................... 6.69%
Florida......................... 5.46%
No other state represented more than 5% of the
initial contract pool principal balance.
Remaining terms
of the contracts ................ 1 month to
119 months
The weighted average
remaining term of the contracts .. 47 months
Weighted average
age of the contracts .............. 8 months
See 'The Contracts -- Statistics Relating to
the Cut-Off Date Contract Pool' in this prospectus
supplement.
B. Cash Collateral Account.......... The indenture trustee will establish a cash
collateral account having an initial balance
of $100,972,742 (5.50% of initial contract
pool principal balance) for the benefit of the
noteholders, which may include proceeds of
loans from third party lenders to the owner
trust under a cash collateral account loan
agreement. The indenture trustee will use cash
collateral account
S-13
funds to pay the following amounts if payments
on the contracts are insufficient:
interest due on the notes, with interest on
the Class A-3 Notes being calculated for this
purpose at the assumed fixed rate of 6.836%
in connection with the swap agreement;
the lesser of
losses on liquidation of defaulted contracts
during the relevant collection period, and
the excess of the aggregate note principal
amount over the contract pool principal
balance, including all scheduled payments for
the relevant collection period and unpaid
scheduled payments from prior periods; and
principal on the notes on the applicable
stated maturity date.
See 'Description of the Notes and Indenture --
Cash Collateral Account' in this prospectus
supplement.
Use of Proceeds........................... After the deposit of funds from the note sale
proceeds into the cash collateral account and
payment of expenses, the indenture trustee
will pay the remaining proceeds of the sale of
notes to the depositor. The depositor will pay
the proceeds to a warehousing trust or to
Newcourt Financial USA Inc. in payment of the
purchase price of contracts acquired from
them, respectively.
See 'Use of Proceeds' in this prospectus
supplement.
Legal Investment.......................... The Class A-1 Notes will be eligible
securities for purchase by money market funds
under Rule 2a-7 under the Investment Company
Act of 1940.
S-14
BACKGROUND INFORMATION
The information in this section will help you understand the information in
this prospectus supplement and the accompanying prospectus.
The principal balance of any contract is the present value of the unpaid
scheduled payments due on the contract after a cut-off date. The principal
balance of a contract excludes all scheduled payments due on or prior to, but
not received as of, that date, as well as any scheduled payments due after but
received before that date. The principal balance also excludes any prepayments
received on or prior to that date. The scheduled payments are discounted monthly
at the rate of 7.941% per annum.
The aggregate principal balance of the contracts expected to be held by the
owner trust as of any particular date is referred to as the contract pool
principal balance. The contract pool principal balance, as of the initial
cut-off date, is referred to as the initial cut-off date contract pool principal
balance or the initial contract pool. The initial cut-off date is August 1, 1999
for all contracts transferred to the owner trust on the closing date for the
sale of the notes. It will be the first day of the month of transfer to the
owner trust for each substitute contract.
Contract balance percentages and amounts discussed below are based on the
aggregate principal balance of the contracts being transferred to the owner
trust as of the initial cut-off date, unless a different date is noted. Changes
in the characteristics of the contract pool between the initial cut-off date and
the closing date will not affect more than 5% of the initial cut-off date
contract pool principal balance.
RISK FACTORS
You should carefully consider the following risk factors before you invest
in notes. You should also carefully consider the risk factors beginning on
page 11 of the accompanying prospectus.
FUTURE CONTRACT DELINQUENCY AND LOSS EXPERIENCE OF THE CONTRACT POOL MAY VARY
SUBSTANTIALLY FROM THE ORIGINATORS' HISTORICAL EXPERIENCE
The depositor presents the historical contract delinquency and loss
experience of the originators' portfolios of contracts similar to those being
transferred to the owner trust under 'The Contracts -- Statistics Relating to
Delinquencies and Defaults.' However, the actual results for the owner trust's
contracts could be substantially worse. If so, you may not receive note interest
and principal payments in the amounts and at the times you expect.
SOME NOTE CLASSES WILL BE ENTITLED TO INTEREST OR PRINCIPAL PAYMENTS BEFORE
OTHER NOTE CLASSES AND THE SWAP COUNTERPARTY WILL BE ENTITLED TO PAYMENT BEFORE
SOME NOTE CLASSES
The owner trust will pay interest, principal or both on some classes of
notes prior to paying interest, principal or both on other classes of notes. The
subordination of some classes of notes to others means that the subordinated
classes are more likely to suffer the consequences of delinquent payments and
defaults on the contracts than the classes having prior payment rights. See
'Description of the Notes and Indenture --
S-15
Distributions,' ' -- Subordination of Subordinate Notes' and ' -- Cash
Collateral Account' in this prospectus supplement.
Similarly, if the owner trust has to pay any amounts to the swap
counterparty under the Class A-3 Notes swap agreement, that amount will have the
same priority of payment as interest owed to the Class A-3 noteholders. This
means that the amount owed to the swap counterparty must be paid before the
payment of interest to the Class B, C and D noteholders and before the payment
of principal to any noteholders. See 'Description of the Notes and
Indenture -- Class A-3 Swap Agreement' in this prospectus supplement.
Moreover, the more senior classes of notes could lose the credit
enhancement provided by the more subordinate classes and the cash collateral
account if delinquencies and defaults on contracts increase and the collections
on contracts and amounts in the cash collateral account are insufficient to pay
even the more senior classes of notes.
ANY FAILURE BY THE SWAP COUNTERPARTY TO PAY AMOUNTS OWED UNDER THE SWAP
AGREEMENT WOULD REDUCE THE FUNDS AVAILABLE TO PAY INTEREST ON THE CLASS A-3
NOTES
The Class A-3 Notes will be dependent upon payments to be made by the swap
counterparty under the swap agreement for receipt of the full amount of interest
on the Class A-3 Notes. This will be the case if the interest due on the Class
A-3 Notes at their floating rate exceeds the amount available to the owner trust
to pay the Class A-3 Note interest at the assumed fixed rate of 6.836%. Any
shortfall in the payment of interest on the Class A-3 Notes due entirely to the
failure of the swap counterparty to make a required payment under the swap
agreement will not constitute an event of default under the indenture. Except to
the extent the amount available on any payment date exceeds the amount necessary
to pay
the servicing fee and servicer advances,
all interest and principal payable on the notes, with Class A-3 Note
interest being calculated at the assumed fixed rate for this purpose and
all amounts payable in connection with the cash collateral account,
no amounts in addition to those available under the swap agreement will be
available under the indenture to make up the shortfall. The only remedies in
these circumstances will be those available to the owner trust under the swap
agreement.
As a general matter, the obligations of the swap counterparty under the
swap agreement are unsecured. However, in the event that the swap counterparty's
long-term unsecured senior debt ceases to be rated at a level acceptable to
Standard & Poor's and Moody's, the swap counterparty will be obligated either to
(a) post collateral or establish other arrangements to secure its obligations
under the swap agreement or (b) arrange for a substitute swap counterparty to
assume the rights and obligations of the swap counterparty under the swap
agreement, in either case so that the ratings of the notes are maintained or, if
applicable, restored to their level immediately prior to the downgrading or
withdrawal of the swap counterparty's debt. If the swap counterparty fails to
take either of these actions, the owner trust will be
S-16
entitled to terminate the swap agreement and to claim from the swap counterparty
the cost of obtaining a replacement swap from a swap counterparty satisfactory
to the note rating agencies. The Class A-3 noteholders bear the risk of any
failure by the swap counterparty to take the actions required of it and the risk
of any inability of the owner trust to obtain a replacement swap agreement.
ADVERSE EVENTS IN FIVE HIGH CONCENTRATION STATES MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
If adverse events or economic conditions were particularly severe in a
geographic region where there is a substantial concentration of obligors, the
amount of delinquent payments and defaults on the contracts may increase. As a
result, the overall timing and amount of collections on the contracts held by
the owner trust may differ from what you expect, and you may experience delays
or reductions in payments.
The following are the approximate percentages of the initial contract pool
principal balance of the owner trust's contracts whose obligors are located in
the following states:
12.12% in California,
8.99% in New Jersey,
8.62% in New York,
6.69% in Texas and
5.46% in Florida.
The remaining states accounted for 58.10% of the initial contract pool principal
balance, and none of these remaining states accounted for more than 5% of the
initial contract pool principal balance.
Although the depositor does not know of any matters likely to increase the
rate of delinquencies or defaults in these states, an example of an adverse
event specific to a geographic region is the possibility of a catastrophic
earthquake in California. An earthquake in California could have negative
regional economic repercussions and potentially cause obligors in that region to
delay or reduce their payments on contracts. Additionally, a substantial
downturn in the financial services industry, which is highly concentrated in the
states of New York and New Jersey, or in the oil and gas industry, which is
concentrated in the state of Texas could reduce revenues for obligors in those
states and ultimately reduce the associated obligors' ability to make timely
payments on their related contracts.
ADVERSE ECONOMIC CONDITIONS IN HIGH CONCENTRATION INDUSTRIES MAY CAUSE INCREASED
DEFAULTS AND DELINQUENCIES
If the industries in which there is a substantial concentration of
contracts experience adverse events or economic conditions, the timing and
amount of collections on the contracts held by the owner trust may differ from
what you expect. This could result in delays or reduced payments to you. As of
the initial cut-off date, of the contract pool principal balance, approximately
27.11% related to the manufacturing industry,
S-17
21.30% related to equipment used in the services industry, excluding
medical and professional services,
10.36% related to the retail and wholesale trade industry,
8.92% related to equipment used in transportation,
8.39% related to equipment used in professional services, and
7.39% related to the financial services industry.
While the depositor does not know of any industry conditions, practices or other
matters likely to increase the rate of delinquencies or defaults on contracts
with end-users in these industries, some of them may be adversely affected by
various economic conditions. For example, a rise in interest rates may weaken
the demand for construction services. Moreover, the retail trade industry is
dependent upon the level of consumer confidence and spending. Adverse
developments concerning these conditions will tend to increase the rate of
delinquencies and defaults by contract obligors in those industries. This, in
turn, could result in reductions of or delays in the collection of funds for
payment of the notes.
The depositor does not believe that any other industry accounts for more
than 5.00% of the contract pool principal balance. However, as shown in the
table below under the heading 'Types of Obligor,' the depositor's records list
6.18% of the contract pool principal balance in the category of 'Other' obligor.
The depositor has not analyzed this category to determine whether or not the
contracts included in it could be grouped into some other more specific type of
equipment category. Any contracts in this 'Other' category that relate to any
particular industry would be subject to all economic and other risks associated
with that industry. Any adverse developments in that industry will tend to
increase the rate of delinquencies and defaults by contract obligors in that
industry. This, in turn, could result in reductions or delays in collection of
funds for payment of the notes.
PRODUCT DEFECTS OR OBSOLESCENCE OR ADVERSE ECONOMIC EVENTS FOR TWO VENDORS
ACCOUNTING FOR HIGH PROPORTIONS OF THE CONTRACTS MAY CAUSE INCREASED DEFAULTS
AND DELINQUENCIES
Lucent Technologies Inc., a leading producer of communications systems,
software and products, is the vendor of equipment for approximately 23.97% of
the contract pool principal balance calculated as of the initial cut-off date.
Products of Dell Computer Corporation, a leading producer of computer systems,
accounted for approximately 11.51% of the contract pool balance calculated as of
the initial cut-off date. Although the depositor is unaware of conditions likely
to increase the rate of defaults or delinquencies on contracts pertaining to
equipment produced by these two vendors, some events concerning these vendors or
their products could have that effect. For example, if either of these vendors
were to experience financial difficulties, the obligors' payment performance
with respect to the related contracts may decline as the obligors may be less
inclined to make payments on contracts with respect to a vendor which is
suffering financial difficulties. Additionally, the occurrence of a substantial
number of defects in products produced by either of these vendors may result in
decisions by the obligors on the contracts relating to equipment that proved
S-18
defective not to pay the contract amounts, to pay late or to pay smaller
amounts. This could result in reductions of or delays in payments you expect on
the notes. Moreover, obsolescence of the products of either of these vendors
could result in prepayments of contracts that would cause the notes to be paid
earlier than you expect. No other single vendor originated more than 10% of the
contract pool principal balance as of the initial cut-off date.
PRODUCT DEFECTS OR OBSOLESCENCE OF TYPES OF EQUIPMENT ACCOUNTING FOR HIGH
PROPORTIONS OF THE CONTRACTS MAY CAUSE INCREASED DEFAULTS OR DELINQUENCIES
If the types of equipment in which contracts are concentrated suffer
unexpectedly high rates of defects or become obsolete, the obligors on the
contracts may default, pay late or pay less than the amounts owed on the
contracts. This could result in reductions of or delays in payments you expect
on the notes.
As of the initial cut-off date, of the contract pool principal balance,
approximately
27.63% related to contracts involving telecommunications equipment,
15.18% related to contracts involving transportation equipment,
14.46% related to contracts involving computer and point-of-sale
equipment,
8.99% related to contracts involving computer software,
7.90% related to contracts involving manufacturing,
7.89% related to contracts involving construction equipment, and
7.14% related to contracts involving medical equipment.
The depositor does not believe that any other type of equipment accounts for
more than 5.00% of the contract pool principal balance. However, as shown in the
table below under the heading 'Types of Equipment,' the depositor's records list
3.21% of the contract pool principal balance in the category of 'Other' types of
equipment. The depositor has not analyzed this category to determine whether or
not the contracts included in it could be grouped into some other more specific
type of equipment category. Any contracts in this 'Other' category that relate
to any particular type of equipment would be subject to all defect, obsolescence
and other risks associated with that type of equipment. Any adverse developments
concerning that type of equipment will tend to increase the rate of
delinquencies and defaults by obligors on contracts involving that type of
equipment. This, in turn, could result in reductions or delays in collection of
funds for payment of the notes.
THE OWNER TRUST'S NOT HAVING SECURITY INTERESTS IN COMPUTER SOFTWARE AND
SERVICES AND THE OWNER TRUST'S NOT BEING NAMED AS SECURED PARTY IN MOTOR VEHICLE
TITLE CERTIFICATES WILL LEAVE THE OWNER TRUST WITHOUT COLLATERAL FOR THE
ASSOCIATED CONTRACTS
The owner trust will have no security interest in computer software and
computer services contracts, which accounted for 8.99% of the initial contract
pool balance, and the owner trust will not be named as a secured party in the
title certificates for motor vehicle contracts, which accounted for a
substantial portion of the 15.18% of the initial
S-19
contract pool principal balance attributable to the transportation industry. If
the obligor on this type of contract fails to pay or is late in paying, the
owner trust will have no recourse to the software, services or motor vehicles,
as the case may be, underlying the contracts. This increases the risk that the
owner trust will be unable to pay or will be late in paying the amounts you
expect on the notes.
COMPLETED AND PENDING BUSINESS COMBINATIONS MAY AFFECT THE DEPOSITOR'S,
ORIGINATORS' AND SERVICER'S OPERATIONS
The indirect parent company of the depositor, originators and servicer,
Newcourt Credit Group Inc., has completed a number of acquisitions during the
past five years, including the acquisition of AT&T Capital Corporation in 1998.
See 'Newcourt Credit Group Inc. -- Acquisitions' in the accompanying prospectus.
The AT&T Capital Corporation acquisition has required a significant amount of
management time. Diversion of management attention from existing operations and
the task of integrating acquired businesses and their systems have affected the
originators' portfolio of receivables similar to the contracts and may continue
to do so in the future. See 'The Contracts -- Losses and Recoveries -- Twelve
Months Ended 12/31/98 versus Twelve Months Ended 12/31/97' in this prospectus
supplement.
Moreover, Newcourt Credit Group Inc. has entered into an agreement
providing for a business combination with The CIT Group, Inc. Preparing for the
completion of this combination and, if completed, integration of Newcourt and
CIT will require a substantial amount of management's time. Diversion of
management attention from Newcourt's existing business as well as problems that
may arise in connection with the integration of Newcourt and CIT may have a
material adverse impact on Newcourt's revenues and results of operations. The
integration of Newcourt and CIT may result in additional expenses which could
have a negative impact on Newcourt's results of operations. Further, the
uncertainty created by the combination may result in the loss of management and
other employees. The unavailability of these people and the resulting disruption
in Newcourt's operations could have a material adverse effect on Newcourt's
business.
The Newcourt-CIT combination is subject to a number of conditions, and the
depositor cannot assure you that the conditions will be satisfied or that the
transaction will be completed.
The transaction involves the integration of two companies that have
different corporate cultures and that have previously operated independently. In
addition, the composition of the combined company's management will be new. The
success of the combined company will depend to a significant degree on the
compatibility of key executives and its ability to retain highly-skilled
personnel. It is not certain that the two companies will be able to integrate
their operations without encountering difficulties, including
incompatibility of key executives,
the loss of key employees and customers,
the disruption of ongoing businesses or
possible inconsistencies in systems, standards, procedures and
policies.
S-20
It is possible that the servicer's operations and ability to provide the
services required under the pooling and servicing agreement could be disrupted
as a result.
THE OWNER TRUST
THE OWNER TRUST
The depositor created the owner trust on July 2, 1999 under a trust
agreement, which the parties will amend and restate on the closing date for the
sale of the notes, between the depositor and the owner trustee.
Under a pooling and servicing agreement, dated as of August 1, 1999, among
the depositor,
the owner trust,
Newcourt Financial USA Inc, an originator and the seller of contracts
to the depositor and
the servicer.
The depositor will transfer all of the contracts and the related security
interests to the owner trust. As noted in 'The Seller and
Originators -- Underwriting and Servicing -- Documentation' and 'The
Contracts -- Software and Services' in the accompanying prospectus, some
transferred contracts will not have associated security interests.
The owner trust will issue an equity certificate, representing the
beneficial ownership interest in the owner trust, to the depositor. The equity
certificate will be entitled to any excess amount available on any payment date
after reimbursement of servicer advances and payment of servicing fees,
principal and interest on the notes, any amount owed to the swap counterparty
and amounts payable in connection with the cash collateral account. See
'Description of the Indenture and Notes -- Distributions' in this prospectus
supplement. The depositor is not offering and selling the equity certificate
under this prospectus supplement and the accompanying prospectus.
THE INDENTURE
Under an indenture dated as of August 1, 1999 between the owner trust and
The Chase Manhattan Bank, as indenture trustee, the indenture trustee will
authenticate and deliver the notes.
CAPITALIZATION OF THE OWNER TRUST
If the issuance and sale of the notes had taken place on the initial
cut-off date, the capitalization of the owner trust on that date would have
consisted of notes with an aggregate principal amount of $1,835,868,028 and an
equity certificate.
THE OWNER TRUSTEE
The Bank of New York (Delaware) will be the owner trustee under the trust
agreement. The owner trustee is a national banking association and its principal
offices are located at White Clay Center, Newark, Delaware 19711.
S-21
THE CONTRACTS
DESCRIPTION OF THE CONTRACTS
All of the contracts are commercial, rather than consumer, leases, loans or
agreements. See 'The Contracts' in the accompanying prospectus.
STATISTICS RELATING TO THE INITIAL CUT-OFF DATE CONTRACT POOL
The initial contract pool principal balance is $1,835,868,028. This amount
is based upon the contract pool principal balance determined as of the initial
cut-off date, but also includes an amount in respect of scheduled payments on
the contracts due prior to, but not received as of, the cut-off date. The
following tables set forth the characteristics of the contracts as of the
cut-off date. Certain tables presented in this section may not total due to
rounding.
COMPOSITION OF THE INITIAL CUT-OFF DATE CONTRACT POOL
WEIGHTED WEIGHTED AVERAGE
INITIAL AVERAGE AVERAGE CONTRACT
CONTRACT POOL ORIGINAL REMAINING PRINCIPAL
NUMBER OF PRINCIPAL TERM TERM BALANCE
CONTRACTS BALANCE (RANGE) (RANGE) (RANGE)
--------- ------- ------- ------- -------
86,204 $1,835,868,028 55 months 47 months $21,297
(4 months to (1 month to ($0.24 to
172 months) 119 months) $20,070,167)
TYPE OF CONTRACTS
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
TYPE OF CONTRACT CONTRACTS CONTRACTS BALANCE BALANCE
- ---------------- --------- --------- ------- -------
True Lease................... 51,701 59.98% $ 606,160,084 33.02%
Finance Leases............... 25,451 29.52 583,690,082 31.79
Loans/Conditional Sales...... 8,730 10.13 492,553,405 26.83
Installment Payment
Agreements................ 322 0.37 153,464,458 8.36
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
GEOGRAPHICAL DIVERSITY
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
TYPE OF CONTRACT CONTRACTS CONTRACTS BALANCE BALANCE
- ---------------- --------- --------- ------- -------
Alabama...................... 1,512 1.75% $ 23,889,102 1.30%
Alaska....................... 184 0.21 4,125,272 0.22
Arizona...................... 1,371 1.59 27,242,501 1.48
Arkansas..................... 657 0.76 20,514,329 1.12
California................... 11,224 13.02 222,582,655 12.12
Colorado..................... 1,632 1.89 24,171,047 1.32
Connecticut.................. 1,434 1.66 28,004,926 1.53
Delaware..................... 302 0.35 6,080,913 0.33
Florida...................... 5,261 6.10 100,325,107 5.46
Georgia...................... 3,066 3.56 63,868,090 3.48
(table continued on next page)
S-22
(table continued from previous page)
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
STATE CONTRACTS CONTRACTS BALANCE BALANCE
- ----- --------- --------- ------- -------
Hawaii....................... 276 0.32% $ 3,690,141 0.20%
Idaho........................ 452 0.52 7,825,505 0.43
Illinois..................... 3,253 3.77 90,536,081 4.93
Indiana...................... 1,162 1.35 26,432,484 1.44
Iowa......................... 390 0.45 10,024,065 0.55
Kansas....................... 460 0.53 9,034,772 0.49
Kentucky..................... 841 0.98 27,119,593 1.48
Louisiana.................... 782 0.91 16,834,789 0.92
Maine........................ 469 0.54 17,087,988 0.93
Maryland..................... 1,794 2.08 45,010,326 2.45
Massachusetts................ 2,915 3.38 54,461,521 2.97
Michigan..................... 2,743 3.18 49,823,329 2.71
Minnesota.................... 1,134 1.32 28,390,559 1.55
Mississippi.................. 539 0.63 12,517,751 0.68
Missouri..................... 1,000 1.16 24,723,296 1.35
Montana...................... 215 0.25 2,959,845 0.16
Nebraska..................... 302 0.35 9,656,628 0.53
Nevada....................... 706 0.82 13,440,961 0.73
New Hampshire................ 651 0.76 11,147,588 0.61
New Jersey................... 4,824 5.60 165,048,477 8.99
New Mexico................... 568 0.66 12,255,868 0.67
New York..................... 8,248 9.57 158,317,047 8.62
North Carolina............... 1,985 2.30 35,318,180 1.92
North Dakota................. 71 0.08 1,601,179 0.09
Ohio......................... 2,458 2.85 48,597,110 2.65
Oklahoma..................... 618 0.72 13,567,175 0.74
Oregon....................... 1,134 1.32 23,079,197 1.26
Pennsylvania................. 3,880 4.50 63,649,602 3.47
Puerto Rico.................. 5 0.01 785,260 0.04
Rhode Island................. 392 0.45 6,298,797 0.34
South Carolina............... 818 0.95 12,255,666 0.67
South Dakota................. 109 0.13 1,355,127 0.07
Tennessee.................... 1,216 1.41 26,501,280 1.44
Texas........................ 6,267 7.27 122,902,910 6.69
Utah......................... 1,004 1.16 23,519,613 1.28
Vermont...................... 287 0.33 6,975,435 0.38
Virginia..................... 1,973 2.29 54,826,220 2.99
Washington................... 1,590 1.84 30,097,991 1.64
Washington DC................ 508 0.59 9,145,862 0.50
West Virginia................ 410 0.48 14,301,080 0.78
Wisconsin.................... 942 1.09 21,467,361 1.17
Wyoming...................... 170 0.20 2,480,431 0.14
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
S-23
PAYMENT STATUS
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
DAYS DELINQUENT CONTRACTS CONTRACTS BALANCE BALANCE
- --------------- --------- --------- ------- -------
Current, including 1 to 30
day delinquent
contracts................. 82,397 95.58% $1,741,532,515 94.86%
31 - 60 days delinquent...... 3,807 4.42 94,335,514 5.14
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
TYPES OF EQUIPMENT
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
TYPE OF EQUIPMENT CONTRACTS CONTRACTS BALANCE BALANCE
- ----------------- --------- --------- ------- -------
Telecommunications........... 20,383 23.65% $ 507,196,991 27.63%
Transportation............... 4,484 5.20 278,720,704 15.18
Computer..................... 43,990 51.03 265,416,795 14.46
Computer Software............ 506 0.59 165,060,541 8.99
Manufacturing................ 2,841 3.30 145,067,208 7.90
Construction................. 2,727 3.16 144,810,395 7.89
Medical...................... 1,050 1.22 131,100,220 7.14
Automotive Diagnostic
Equipment................. 4,446 5.16 55,531,092 3.02
Printing..................... 275 0.32 29,664,917 1.62
Resources.................... 305 0.35 23,734,963 1.29
Office Equipment............. 1,316 1.53 19,348,214 1.05
Commercial Retail Fixtures... 93 0.11 8,356,187 0.46
Industrial................... 89 0.10 2,910,928 0.16
Other, including $2,255,077
as the largest and $15,936
as the average contract
principal balance......... 3,699 4.29 58,948,873 3.21
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
The depositor does not believe that any other type of equipment accounts for
more than 5% of the contract pool principal balance. However, the depositor has
not analyzed the contracts included in the category 'Other' in the above table
to determine whether or not the contracts included in it could be grouped into
some other more specific type of equipment category.
S-24
CONTRACT PRINCIPAL BALANCES
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
CONTRACT PRINCIPAL BALANCE CONTRACTS CONTRACTS BALANCE BALANCE
- -------------------------- --------- --------- ------- -------
$ 0.01 to $ 5,000.00............... 46,379 53.80% $ 123,953,455 6.75%
$ 5,000.01 to $ 25,000.00............... 26,388 30.61 290,502,324 15.82
$ 25,000.01 to $ 50,000.00............... 6,128 7.11 217,956,952 11.87
$ 50,000.01 to $ 100,000.00............... 4,467 5.18 318,987,764 17.38
$ 100,000.01 to $ 500,000.00............... 2,533 2.94 473,023,031 25.77
$ 500,000.01 to $1,000,000.00............... 202 0.23 140,552,657 7.66
$1,000,000.01 to $2,000,000.00............... 65 0.08 88,800,166 4.84
$2,000,000.01 to $3,000,000.00............... 20 0.02 47,983,626 2.61
$3,000,000.01 to $4,000,000.00............... 11 0.01 38,215,071 2.08
$4,000,000.01 to $5,000,000.00............... 1 0.00 4,013,046 0.22
Over $5,000,000, the largest
single contract principal
balance being $20,070,167................. 10 0.01 91,879,935 5.00
------ ------ -------------- ------
Total.................................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
REMAINING TERMS OF CONTRACTS
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
REMAINING TERMS OF CONTRACTS CONTRACTS CONTRACTS BALANCE BALANCE
- ---------------------------- --------- --------- ------- -------
(MONTHS)
0 - 12.................... 3,919 4.55% $ 22,622,071 1.23%
13 - 24.................... 14,636 16.98 118,418,727 6.45
25 - 36.................... 40,204 46.64 389,046,920 21.19
37 - 48.................... 7,525 8.73 365,410,607 19.90
49 - 60.................... 19,217 22.29 745,257,275 40.59
61 - 72.................... 396 0.46 80,729,504 4.40
73 - 84.................... 180 0.21 50,325,491 2.74
85 - 96.................... 11 0.01 3,627,728 0.20
97 - 108.................... 16 0.02 5,486,573 0.30
Over 108..................... 100 0.12 54,943,133 2.99
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
S-25
TYPES OF OBLIGOR
AGGREGATE % OF INITIAL
AGGREGATE % OF TOTAL CONTRACT CONTRACT POOL
NUMBER OF NUMBER OF PRINCIPAL PRINCIPAL
TYPE OF OBLIGOR CONTRACTS CONTRACTS BALANCE BALANCE
- --------------- --------- --------- ------- -------
Manufacturing................ 11,242 13.04% $ 497,613,129 27.11%
Service Organizations........ 29,334 34.03 391,080,802 21.30
Retail & Wholesale........... 10,630 12.33 190,116,218 10.36
Transportation............... 4,187 4.86 163,787,528 8.92
Professional................. 5,680 6.59 154,115,823 8.39
Financial Services........... 6,008 6.97 135,615,563 7.39
Manufacturing &
Construction.............. 3,886 4.51 72,524,309 3.95
Machine tools................ 372 0.43 36,341,166 1.98
Medical...................... 977 1.13 35,370,504 1.93
Resources.................... 483 0.56 25,597,940 1.39
Government................... 162 0.19 12,893,776 0.70
Print Center................. 601 0.70 7,298,461 0.40
Other, including $3,660,604
as the largest and $8,979
as the average principal
balance................... 12,642 14.67 113,512,808 6.18
------ ------ -------------- ------
Total.................. 86,204 100.00% $1,835,868,028 100.00%
------ ------ -------------- ------
------ ------ -------------- ------
The depositor does not believe that any other industry accounts for more than
5.00% of the contract pool principal balance. However, the depositor has not
analyzed the contracts included in the category 'Other' in the above table to
determine whether or not the contracts could be grouped into some other more
specific industry category.
OBLIGOR CONCENTRATION
AGGREGATE
AGGREGATE CONTRACT % OF INITIAL
OBLIGORS (INCLUDING CONTRACTS NUMBER OF PRINCIPAL CONTRACT POOL
SECURING VENDOR LOANS) CONTRACTS BALANCE PRINCIPAL BALANCE
---------------------- --------- ------- -----------------
Top 5.................................. 326 $98,206,804 5.35%
STATISTICS RELATING TO DELINQUENCIES AND DEFAULTS
The following table shows contract delinquency statistics for the
originators' portfolios of receivables similar to the contracts, on an aggregate
basis, as of December 31 in each of the past five years and as of March 31, 1998
and 1999. The applicable originators used the underwriting standards described
in the prospectus under the section titled 'The Originators -- Underwriting --
General' for all of these receivables. For these purposes, a 'delinquency' means
that the obligor on the contract has failed to make a required scheduled payment
in an amount equal to at least 90% of the required scheduled payment within 60
days of the due date. For these purposes, any payment made by the obligor on a
contract subsequent to the required payment date is applied to the earliest
payment which was unpaid. These statistics are not necessarily indicative of the
future performance of the contracts. The following table is based on the net
investment for all contracts originated by Newcourt Financial
S-26
USA Inc. and the gross receivable for contracts originated by the other
originators. Net investment is the sum of all payments plus any expected
equipment residual value under a contract discounted to present value using the
contract's implicit interest rate. The gross receivable is the undiscounted sum
of all payments under a contract.
CONTRACT DELINQUENCIES
PERCENTAGE OF CONTRACT BALANCES
WHICH WERE DELINQUENT
---------------------------------------
CONTRACT 31 TO 60 61 TO 90 OVER 90
AS OF BALANCE DAYS DAYS DAYS TOTAL
- ----- ------- ---- ---- ---- -----
(IN THOUSANDS)
12/31/94.................... $4,289,244 2.81% 0.77% 0.92% 4.50%
12/31/95.................... $4,823,203 3.58% 0.86% 1.12% 5.56%
12/31/96.................... $5,871,337 3.81% 1.14% 1.18% 6.13%
12/31/97.................... $6,745,905 2.85% 0.83% 0.91% 4.59%
12/31/98.................... $8,714,990 4.38% 1.28% 1.63% 7.29%
03/31/98.................... $7,239,915 3.00% 1.12% 1.19% 5.31%
03/31/99.................... $9,662,157 3.83% 1.37% 1.64% 6.84%
LOSSES AND RECOVERIES
The following table shows statistics for gross losses and losses net of
recoveries on defaulted contracts within the originators' portfolios of
receivables similar to the contracts during the twelve-month period ending
December 31 in each of the past five years and the three-month periods ended
March 31, 1998 and 1999. Gross losses means total losses before recoveries
measured against the net investment of the contracts, gross of any allowance for
losses. Losses net of recoveries means losses after recoveries measured against
the net investment of the contracts, gross of any allowance for losses. These
statistics are not necessarily indicative of the future performance of the
contracts.
AGGREGATE NET GROSS LOSSES AS A NET LOSSES AS A
INVESTMENT OF PERCENTAGE OF NET PERCENTAGE OF NET
TWELVE MONTHS ENDED CONTRACTS INVESTMENT INVESTMENT
- ------------------- --------- ---------- ----------
(IN THOUSANDS)
12/31/94........................ $3,839,569 1.77% 1.22%
12/31/95........................ $4,461,217 1.66% 1.22%
12/31/96........................ $5,774,645 1.87% 1.34%
12/31/97........................ $6,765,600 1.74% 1.27%
12/31/98........................ $8,604,488 1.86% 1.16%
THREE MONTHS ENDED
- ------------------
03/31/98........................ $7,400,799 1.79% 1.26%
03/31/99........................ $9,509,069 1.58% 1.00%
TWELVE MONTHS ENDED 12/31/98 VERSUS TWELVE MONTHS ENDED 12/31/97
The amounts classified as delinquent as a percentage of the originators'
owned and managed portfolios increased from 4.59% to 7.29%. The increase in
delinquencies is directly attributable to integration issues related to the
consolidation of offices, systems conversions and changes in business names
relating to the acquisition of AT&T Capital Corporation in early 1998. See
'Newcourt Credit Group Inc. --
S-27
Acquisitions' in the accompanying prospectus. The servicer is addressing these
issues, which is reflected in a decline in delinquencies as of March 31, 1999.
Net losses as a percentage of the originators' owned and managed portfolios
decreased slightly from 1.27% to 1.16%. The slight decrease is not attributable
to any one factor and the depositor has no basis to predict, and offers no
assurances as to, whether net losses as a percentage of the originators' owned
and managed portfolios will continue to decrease in subsequent periods. The
originators' owned and managed portfolios increased approximately 27% from
$6,765,600,000 to $8,604,488,000 due to normal growth in the amounts of
contracts originated.
TWELVE MONTHS ENDED 12/31/97 VERSUS TWELVE MONTHS ENDED 12/31/96
The amounts classified as delinquent as a percentage of the originators'
owned and managed portfolios decreased from 6.13% to 4.59%. This decrease is
attributable to the prior year's experience having been adverse due to
integration issues following the acquisition of AT&T Capital Corporation by
Hercules Holdings (Cayman) Limited in October 1996. These integration issues
adversely affected the portfolios of the originator subsidiaries of AT&T
Capital. Also, as to several portfolios of contracts acquired by Newcourt Credit
Group in 1996, Newcourt instituted improved credit and collection policies that
improved delinquencies during 1997. Net losses as a percentage of the
originators' owned and managed portfolios decreased slightly from 1.34% to
1.27%. The slight decrease is not attributable to any one factor and the
depositor has no basis to predict, and offers no assurances as to, whether net
losses as a percentage of the originators' owned and managed portfolios will
continue to decrease in subsequent periods. The originators' owned and managed
portfolios increased approximately 17% from $5,774,645,000 to $6,765,600,000 due
to normal growth in the amounts of contracts originated.
THREE MONTHS ENDED 3/31/99 VERSUS THREE MONTHS ENDED 3/31/98
The amounts classified as delinquent as a percentage of the originators'
owned and managed portfolios increased from 5.31% to 6.84%. The increase in
delinquencies is directly attributable to integration issues related to the
consolidation of offices, systems conversions and changes in business names
resulting from the acquisition of AT&T Capital Corporation in early 1998. See
'Newcourt Credit Group Inc. -- Acquisitions' in the accompanying prospectus. The
servicer is addressing these issues which is reflected in a decline in
delinquencies over the first quarter of 1999. Net losses as a percentage of the
originators' owned and managed portfolios decreased slightly from 1.26% to
1.00%. The slight decrease is not attributable to any one factor and the
depositor has no basis to predict, and offers no assurances as to, whether net
losses as a percentage of the originators' owned and managed portfolios will
continue to decrease in subsequent periods. The originators' owned and managed
portfolios increased approximately 28% from $7,400,799,000 to $9,509,069,000 due
to normal fluctuations in the amounts of contracts originated.
S-28
WEIGHTED AVERAGE LIFE OF THE NOTES
The rate of payments on contracts will directly affect
the rate of note principal payments;
the aggregate amount of each note interest payment; and
the yield to maturity of the notes.
The payments on the contracts may be in the form of payments scheduled to
be made under the terms of the contracts, prepayments or liquidations due to
default, casualty and other events which cannot be predicted. Newcourt Financial
USA may purchase contracts from the owner trust if the contracts were ineligible
for transfer at the time of transfer to the owner trust. Any payments for these
reasons, other than scheduled payments may result in distributions to you of
amounts which would otherwise have been distributed over the remaining term of
the contracts. Each prepayment, liquidation or repurchase of a contract, if the
contract is not replaced by the depositor with a comparable substitute contract
as described under 'The Contracts -- Substitution of Contracts' in the
accompanying prospectus, will shorten the weighted average remaining term of the
contracts and the weighted average life of the notes. See 'Risk
Factors -- Contract Prepayments, Ineligibility or Default May Cause Earlier
Repayment of the Notes Than You Expect and You May Not be Able to Find
Investments with the Same Yield as the Notes at the Time of Repayment' in the
accompanying prospectus.
The following chart sets forth the percentage of the initial principal
amount of each class of notes which would be outstanding on the distribution
dates set forth below assuming the conditional prepayment rates ('CPR')
indicated in the chart. This information is hypothetical. The conditional
prepayment rate assumes that a fraction of the outstanding contracts is prepaid
on each payment date, which implies that each contract in the pool of contracts
is equally likely to prepay. This fraction, expressed as a percentage, is
annualized to arrive at the conditional prepayment rate for the contracts. The
conditional prepayment rate measures prepayments based on the contract pool
principal balance, after the payment of all payments scheduled to be made under
the terms of the contracts during each collection period. The conditional
prepayment rate further assumes that all contracts are the same size and
amortize at the same rate. The conditional prepayment rate also assumes that
each contract will be either paid as scheduled or prepaid in full. The amounts
set forth below are based upon the timely receipt of scheduled monthly contract
payments, and assume that:
the seller exercises its option to cause a redemption of the notes
when the aggregate note principal balance is less than 10% of the
initial aggregate discounted contract balance of the contracts, and
the closing date for the sale of the contracts to the owner trust is
August 20, 1999.
These tables are based upon the contract pool principal balance determined
using the discount rate of 7.941%. In addition, it is assumed for the purposes
of these tables
S-29
only, that the owner trust issues the notes in the following initial principal
amounts and at the following fixed interest rates:
CLASS INITIAL PRINCIPAL AMOUNT INTEREST RATE
- ----- ------------------------ -------------
A-1........................ $458,967,007 5.9713%
A-2........................ 183,586,801 6.3100
A-3........................ 679,271,171 6.8360
A-4........................ 318,523,103 7.1800
A-5........................ 67,009,183 6.9900
B.......................... 22,948,351 7.0700
C.......................... 50,486,371 7.2100
D.......................... 55,076,041 7.9600
S-30
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS A-1 NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 94.39 92.43 91.40 90.35 88.13
October 20, 1999........................................ 87.19 83.35 81.35 79.30 75.01
November 20, 1999....................................... 79.13 73.51 70.60 67.61 61.41
December 20, 1999....................................... 70.92 63.61 59.84 55.99 48.01
January 20, 2000........................................ 62.21 53.33 48.76 44.10 34.50
February 20, 2000....................................... 54.22 43.82 38.50 33.09 21.98
March 20, 2000.......................................... 43.44 31.73 25.75 19.70 7.32
April 20, 2000.......................................... 32.89 19.97 13.40 6.76 0.00
May 20, 2000............................................ 24.93 10.79 3.63 0.00 0.00
June 20, 2000........................................... 16.57 1.31 0.00 0.00 0.00
July 20, 2000........................................... 7.88 0.00 0.00 0.00 0.00
August 20, 2000......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2000...................................... 0.00 0.00 0.00 0.00 0.00
October 20, 2000........................................ 0.00 0.00 0.00 0.00 0.00
November 20, 2000....................................... 0.00 0.00 0.00 0.00 0.00
December 20, 2000....................................... 0.00 0.00 0.00 0.00 0.00
January 20, 2001........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2001.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2001.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2001............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2001........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2001........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2001......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2001...................................... 0.00 0.00 0.00 0.00 0.00
October 20, 2001........................................ 0.00 0.00 0.00 0.00 0.00
November 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
December 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
January 20, 2002........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2002.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2002.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2002............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2002........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2002........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2002......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2002...................................... 0.00 0.00 0.00 0.00 0.00
October 20, 2002........................................ 0.00 0.00 0.00 0.00 0.00
November 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
December 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
January 20, 2003........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2003....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2003............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2003......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 0.56 0.48 0.44 0.41 0.36
Weighted Average Life To Maturity (in years)............ 0.56 0.48 0.44 0.41 0.36
S-31
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS A-2 NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 85.54
May 20, 2000............................................ 100.00 100.00 100.00 92.69 59.67
June 20, 2000........................................... 100.00 100.00 86.38 68.91 33.68
July 20, 2000........................................... 100.00 81.86 63.42 44.93 7.80
August 20, 2000......................................... 100.00 61.74 42.29 22.85 0.00
September 20, 2000...................................... 80.07 39.97 19.68 0.00 0.00
October 20, 2000........................................ 61.78 19.92 0.00 0.00 0.00
November 20, 2000....................................... 43.28 0.00 0.00 0.00 0.00
December 20, 2000....................................... 24.17 0.00 0.00 0.00 0.00
January 20, 2001........................................ 4.46 0.00 0.00 0.00 0.00
February 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2001.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2001.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2001............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2001........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2001........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2001......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2001...................................... 0.00 0.00 0.00 0.00 0.00
October 20, 2001........................................ 0.00 0.00 0.00 0.00 0.00
November 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
December 20, 2001....................................... 0.00 0.00 0.00 0.00 0.00
January 20, 2002........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2002.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2002.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2002............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2002........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2002........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2002......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2002...................................... 0.00 0.00 0.00 0.00 0.00
October 20, 2002........................................ 0.00 0.00 0.00 0.00 0.00
November 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
December 20, 2002....................................... 0.00 0.00 0.00 0.00 0.00
January 20, 2003........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2003....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2003............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2003......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 1.26 1.09 1.01 0.94 0.82
Weighted Average Life To Maturity (in years)............ 1.26 1.09 1.01 0.94 0.82
S-32
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS A-3 NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
May 20, 2000............................................ 100.00 100.00 100.00 100.00 100.00
June 20, 2000........................................... 100.00 100.00 100.00 100.00 100.00
July 20, 2000........................................... 100.00 100.00 100.00 100.00 100.00
August 20, 2000......................................... 100.00 100.00 100.00 100.00 95.67
September 20, 2000...................................... 100.00 100.00 100.00 99.85 88.97
October 20, 2000........................................ 100.00 100.00 99.69 94.03 82.80
November 20, 2000....................................... 100.00 99.97 94.09 88.26 76.75
December 20, 2000....................................... 100.00 94.45 88.42 82.46 70.74
January 20, 2001........................................ 100.00 88.84 82.70 76.64 64.77
February 20, 2001....................................... 96.33 83.69 77.44 71.29 59.30
March 20, 2001.......................................... 89.71 77.02 70.76 64.62 52.71
April 20, 2001.......................................... 83.72 70.97 64.71 58.59 46.76
May 20, 2001............................................ 78.94 66.07 59.78 53.64 41.82
June 20, 2001........................................... 73.96 61.03 54.74 48.62 36.89
July 20, 2001........................................... 68.80 55.89 49.63 43.55 31.97
August 20, 2001......................................... 64.17 51.26 45.03 39.00 27.54
September 20, 2001...................................... 58.91 46.13 39.98 34.05 22.83
October 20, 2001........................................ 54.35 41.66 35.57 29.72 18.70
November 20, 2001....................................... 49.94 37.36 31.36 25.60 14.79
December 20, 2001....................................... 45.39 32.99 27.09 21.44 10.89
January 20, 2002........................................ 41.01 28.80 23.01 17.49 7.22
February 20, 2002....................................... 37.05 25.01 19.32 13.91 3.90
March 20, 2002.......................................... 31.80 20.16 14.68 9.49 0.00
April 20, 2002.......................................... 27.37 16.05 10.75 5.73 0.00
May 20, 2002............................................ 23.87 12.77 7.58 2.69 0.00
June 20, 2002........................................... 20.38 9.53 4.48 0.00 0.00
July 20, 2002........................................... 16.82 6.26 1.36 0.00 0.00
August 20, 2002......................................... 13.64 3.34 0.00 0.00 0.00
September 20, 2002...................................... 9.84 0.00 0.00 0.00 0.00
October 20, 2002........................................ 6.65 0.00 0.00 0.00 0.00
November 20, 2002....................................... 3.55 0.00 0.00 0.00 0.00
December 20, 2002....................................... 0.35 0.00 0.00 0.00 0.00
January 20, 2003........................................ 0.00 0.00 0.00 0.00 0.00
February 20, 2003....................................... 0.00 0.00 0.00 0.00 0.00
March 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
April 20, 2003.......................................... 0.00 0.00 0.00 0.00 0.00
May 20, 2003............................................ 0.00 0.00 0.00 0.00 0.00
June 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
July 20, 2003........................................... 0.00 0.00 0.00 0.00 0.00
August 20, 2003......................................... 0.00 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 2.33 2.11 2.00 1.90 1.71
Weighted Average Life To Maturity (in years)............ 2.33 2.11 2.00 1.90 1.71
S-33
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS A-4 NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
May 20, 2000............................................ 100.00 100.00 100.00 100.00 100.00
June 20, 2000........................................... 100.00 100.00 100.00 100.00 100.00
July 20, 2000........................................... 100.00 100.00 100.00 100.00 100.00
August 20, 2000......................................... 100.00 100.00 100.00 100.00 100.00
September 20, 2000...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2001........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2001....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2001.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2001.......................................... 100.00 100.00 100.00 100.00 100.00
May 20, 2001............................................ 100.00 100.00 100.00 100.00 100.00
June 20, 2001........................................... 100.00 100.00 100.00 100.00 100.00
July 20, 2001........................................... 100.00 100.00 100.00 100.00 100.00
August 20, 2001......................................... 100.00 100.00 100.00 100.00 100.00
September 20, 2001...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 2001........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 2001....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 2001....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2002........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2002....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2002.......................................... 100.00 100.00 100.00 100.00 99.80
April 20, 2002.......................................... 100.00 100.00 100.00 100.00 92.56
May 20, 2002............................................ 100.00 100.00 100.00 100.00 86.67
June 20, 2002........................................... 100.00 100.00 100.00 99.42 80.97
July 20, 2002........................................... 100.00 100.00 100.00 93.11 74.75
August 20, 2002......................................... 100.00 100.00 96.98 87.48 69.21
September 20, 2002...................................... 100.00 99.87 90.14 81.06 63.02
October 20, 2002........................................ 100.00 93.75 84.37 75.06 57.79
November 20, 2002....................................... 100.00 87.85 78.83 69.32 52.82
December 20, 2002....................................... 100.00 81.83 72.61 63.53 47.87
January 20, 2003........................................ 94.29 75.57 66.78 58.12 0.00
February 20, 2003....................................... 88.21 69.71 61.34 53.09 0.00
March 20, 2003.......................................... 79.96 61.97 54.25 46.63 0.00
April 20, 2003.......................................... 71.83 55.11 47.99 0.00 0.00
May 20, 2003............................................ 65.74 49.95 0.00 0.00 0.00
June 20, 2003........................................... 59.59 44.78 0.00 0.00 0.00
July 20, 2003........................................... 53.70 0.00 0.00 0.00 0.00
August 20, 2003......................................... 48.10 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 3.88 3.68 3.54 3.44 3.19
Weighted Average Life To Maturity (in years)............ 4.09 3.86 3.75 3.63 3.40
S-34
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS A-5 NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 98.71 98.26 98.02 97.78 97.27
October 20, 1999........................................ 97.05 96.17 95.71 95.24 94.25
November 20, 1999....................................... 95.20 93.90 93.23 92.55 91.12
December 20, 1999....................................... 93.31 91.63 90.76 89.87 88.04
January 20, 2000........................................ 91.31 89.26 88.21 87.14 84.93
February 20, 2000....................................... 89.47 87.07 85.85 84.60 82.05
March 20, 2000.......................................... 86.99 84.29 82.92 81.52 78.68
April 20, 2000.......................................... 84.56 81.59 80.07 78.55 75.44
May 20, 2000............................................ 82.73 79.47 77.83 76.17 72.80
June 20, 2000........................................... 80.80 77.29 75.52 73.75 70.16
July 20, 2000........................................... 78.81 75.06 73.19 71.30 67.52
August 20, 2000......................................... 78.68 73.01 71.03 69.05 65.09
September 20, 2000...................................... 76.65 70.80 68.73 66.67 62.57
October 20, 2000........................................ 74.79 68.76 66.61 64.47 60.24
November 20, 2000....................................... 72.91 66.71 64.50 62.30 57.96
December 20, 2000....................................... 70.96 64.64 62.36 60.12 55.70
January 20, 2001........................................ 68.95 62.52 60.21 57.92 53.45
February 20, 2001....................................... 67.11 60.58 58.22 55.91 51.39
March 20, 2001.......................................... 64.62 58.06 55.71 53.39 48.90
April 20, 2001.......................................... 62.36 55.79 53.43 51.12 46.66
May 20, 2001............................................ 60.56 53.94 51.57 49.25 44.80
June 20, 2001........................................... 58.68 52.04 49.67 47.36 42.94
July 20, 2001........................................... 56.74 50.10 47.74 45.45 41.09
August 20, 2001......................................... 54.99 48.36 46.01 43.74 39.42
September 20, 2001...................................... 53.01 46.42 44.11 41.87 37.64
October 20, 2001........................................ 51.29 44.74 42.45 40.24 36.09
November 20, 2001....................................... 49.63 43.12 40.86 38.68 34.61
December 20, 2001....................................... 47.92 41.47 39.25 37.12 33.14
January 20, 2002........................................ 46.27 39.89 37.71 35.63 31.76
February 20, 2002....................................... 44.77 38.46 36.32 34.28 30.51
March 20, 2002.......................................... 42.80 36.64 34.57 32.61 29.00
April 20, 2002.......................................... 41.13 35.09 33.09 31.20 27.72
May 20, 2002............................................ 39.81 33.85 31.90 30.05 26.68
June 20, 2002........................................... 38.49 32.63 30.73 28.94 25.68
July 20, 2002........................................... 37.15 31.40 29.55 27.82 24.68
August 20, 2002......................................... 35.95 30.30 28.51 26.83 23.80
September 20, 2002...................................... 34.52 29.01 27.30 25.69 22.81
October 20, 2002........................................ 33.32 27.93 26.28 24.73 21.97
November 20, 2002....................................... 32.15 26.89 25.30 23.82 21.18
December 20, 2002....................................... 30.94 25.83 24.30 22.89 20.39
January 20, 2003........................................ 29.80 24.83 23.37 22.03 0.00
February 20, 2003....................................... 28.73 23.89 22.50 21.23 0.00
March 20, 2003.......................................... 27.27 22.66 21.37 20.19 0.00
April 20, 2003.......................................... 25.97 21.56 20.37 0.00 0.00
May 20, 2003............................................ 25.00 20.74 0.00 0.00 0.00
June 20, 2003........................................... 24.02 19.91 0.00 0.00 0.00
July 20, 2003........................................... 23.08 0.00 0.00 0.00 0.00
August 20, 2003......................................... 22.18 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 2.34 2.11 2.01 1.93 1.77
Weighted Average Life To Maturity (in years)............ 2.71 2.38 2.27 2.17 1.99
S-35
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS B NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 96.55
May 20, 2000............................................ 100.00 100.00 100.00 97.65 92.61
June 20, 2000........................................... 100.00 100.00 96.68 94.02 88.65
July 20, 2000........................................... 100.00 95.99 93.18 90.36 84.70
August 20, 2000......................................... 98.86 92.92 89.96 86.99 81.06
September 20, 2000...................................... 95.82 89.60 86.51 83.43 77.28
October 20, 2000........................................ 93.03 86.55 83.33 80.14 73.80
November 20, 2000....................................... 90.20 83.49 80.17 76.88 70.39
December 20, 2000....................................... 87.29 80.38 76.98 73.61 67.00
January 20, 2001........................................ 84.28 77.21 73.74 70.32 63.63
February 20, 2001....................................... 81.53 74.30 70.78 67.30 60.54
March 20, 2001.......................................... 77.80 70.54 67.01 63.54 56.82
April 20, 2001.......................................... 74.42 67.13 63.59 60.14 53.46
May 20, 2001............................................ 71.72 64.36 60.81 57.34 50.68
June 20, 2001........................................... 68.91 61.52 57.97 54.51 47.89
July 20, 2001........................................... 65.99 58.61 55.08 51.65 45.11
August 20, 2001......................................... 63.38 56.00 52.49 49.08 42.62
September 20, 2001...................................... 60.41 53.11 49.64 46.29 39.96
October 20, 2001........................................ 57.84 50.58 47.15 43.85 37.63
November 20, 2001....................................... 55.35 48.16 44.77 41.52 35.42
December 20, 2001....................................... 52.79 45.69 42.36 39.17 33.22
January 20, 2002........................................ 50.31 43.33 40.06 36.94 31.15
February 20, 2002....................................... 48.08 41.19 37.98 34.93 29.27
March 20, 2002.......................................... 45.12 38.45 35.36 32.43 27.02
April 20, 2002.......................................... 42.62 36.13 33.14 30.31 25.10
May 20, 2002............................................ 40.64 34.28 31.35 28.59 23.55
June 20, 2002........................................... 38.67 32.45 29.60 26.92 22.04
July 20, 2002........................................... 36.66 30.61 27.84 25.25 22.04
August 20, 2002......................................... 34.87 28.96 26.27 23.76 22.04
September 20, 2002...................................... 32.72 27.04 24.46 22.06 22.04
October 20, 2002........................................ 30.92 25.42 22.94 22.06 22.04
November 20, 2002....................................... 29.17 23.86 21.47 22.06 22.04
December 20, 2002....................................... 27.36 22.26 21.47 22.06 22.04
January 20, 2003........................................ 25.66 22.26 21.47 22.06 0.00
February 20, 2003....................................... 24.05 22.26 21.47 22.06 0.00
March 20, 2003.......................................... 21.86 22.26 21.47 22.06 0.00
April 20, 2003.......................................... 21.86 22.26 21.47 0.00 0.00
May 20, 2003............................................ 21.86 22.26 0.00 0.00 0.00
June 20, 2003........................................... 21.86 22.26 0.00 0.00 0.00
July 20, 2003........................................... 21.86 0.00 0.00 0.00 0.00
August 20, 2003......................................... 21.86 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 2.60 2.39 2.28 2.18 1.99
Weighted Average Life To Maturity (in years)............ 3.15 2.82 2.67 2.54 2.31
S-36
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS C NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 96.55
May 20, 2000............................................ 100.00 100.00 100.00 97.65 92.61
June 20, 2000........................................... 100.00 100.00 96.68 94.02 88.65
July 20, 2000........................................... 100.00 95.99 93.18 90.36 84.70
August 20, 2000......................................... 98.86 92.92 89.96 86.99 81.06
September 20, 2000...................................... 95.82 89.60 86.51 83.43 77.28
October 20, 2000........................................ 93.03 86.55 83.33 80.14 73.80
November 20, 2000....................................... 90.20 83.49 80.17 76.88 70.39
December 20, 2000....................................... 87.29 80.38 76.98 73.61 67.00
January 20, 2001........................................ 84.28 77.21 73.74 70.32 63.63
February 20, 2001....................................... 81.53 74.30 70.78 67.30 60.54
March 20, 2001.......................................... 77.80 70.54 67.01 63.54 56.82
April 20, 2001.......................................... 74.42 67.13 63.59 60.14 53.46
May 20, 2001............................................ 71.72 64.36 60.81 57.34 50.68
June 20, 2001........................................... 68.91 61.52 57.97 54.51 47.89
July 20, 2001........................................... 65.99 58.61 55.08 51.65 45.11
August 20, 2001......................................... 63.38 56.00 52.49 49.08 42.62
September 20, 2001...................................... 60.41 53.11 49.64 46.29 39.96
October 20, 2001........................................ 57.84 50.58 47.15 43.85 37.63
November 20, 2001....................................... 55.35 48.16 44.77 41.52 35.42
December 20, 2001....................................... 52.79 45.69 42.36 39.17 33.22
January 20, 2002........................................ 50.31 43.33 40.06 36.94 31.15
February 20, 2002....................................... 48.08 41.19 37.98 34.93 29.27
March 20, 2002.......................................... 45.12 38.45 35.36 32.43 27.02
April 20, 2002.......................................... 42.62 36.13 33.14 30.31 25.10
May 20, 2002............................................ 40.64 34.28 31.35 28.59 23.55
June 20, 2002........................................... 38.67 32.45 29.60 26.92 22.04
July 20, 2002........................................... 36.66 30.61 27.84 25.25 22.04
August 20, 2002......................................... 34.87 28.96 26.27 23.76 22.04
September 20, 2002...................................... 32.72 27.04 24.46 22.06 22.04
October 20, 2002........................................ 30.92 25.42 22.94 22.06 22.04
November 20, 2002....................................... 29.17 23.86 21.47 22.06 22.04
December 20, 2002....................................... 27.36 22.26 21.47 22.06 22.04
January 20, 2003........................................ 25.66 22.26 21.47 22.06 0.00
February 20, 2003....................................... 24.05 22.26 21.47 22.06 0.00
March 20, 2003.......................................... 21.86 22.26 21.47 22.06 0.00
April 20, 2003.......................................... 21.86 22.26 21.47 0.00 0.00
May 20, 2003............................................ 21.86 22.26 0.00 0.00 0.00
June 20, 2003........................................... 21.86 22.26 0.00 0.00 0.00
July 20, 2003........................................... 21.86 0.00 0.00 0.00 0.00
August 20, 2003......................................... 21.86 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 2.60 2.39 2.28 2.18 1.99
Weighted Average Life To Maturity (in years)............ 3.34 2.98 2.81 2.67 2.41
S-37
PERCENTAGE OF THE INITIAL PRINCIPAL
OF THE CLASS D NOTES
CPR
------------------------------------------
PAYMENT DATE 0% 6% 9% 12% 18%
------------ -- -- -- --- ---
Closing Date............................................ 100.00 100.00 100.00 100.00 100.00
September 20, 1999...................................... 100.00 100.00 100.00 100.00 100.00
October 20, 1999........................................ 100.00 100.00 100.00 100.00 100.00
November 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
December 20, 1999....................................... 100.00 100.00 100.00 100.00 100.00
January 20, 2000........................................ 100.00 100.00 100.00 100.00 100.00
February 20, 2000....................................... 100.00 100.00 100.00 100.00 100.00
March 20, 2000.......................................... 100.00 100.00 100.00 100.00 100.00
April 20, 2000.......................................... 100.00 100.00 100.00 100.00 96.55
May 20, 2000............................................ 100.00 100.00 100.00 97.65 92.61
June 20, 2000........................................... 100.00 100.00 96.68 94.02 88.65
July 20, 2000........................................... 100.00 95.99 93.18 90.36 84.70
August 20, 2000......................................... 98.86 92.92 89.96 86.99 81.06
September 20, 2000...................................... 95.82 89.60 86.51 83.43 77.28
October 20, 2000........................................ 93.03 86.55 83.33 80.14 73.80
November 20, 2000....................................... 90.20 83.49 80.17 76.88 70.39
December 20, 2000....................................... 87.29 80.38 76.98 73.61 67.00
January 20, 2001........................................ 84.28 77.21 73.74 70.32 63.63
February 20, 2001....................................... 81.53 74.30 70.78 67.30 60.54
March 20, 2001.......................................... 77.80 70.54 67.01 63.54 56.82
April 20, 2001.......................................... 74.42 67.13 63.59 60.14 53.46
May 20, 2001............................................ 71.72 64.36 60.81 57.34 50.68
June 20, 2001........................................... 68.91 61.52 57.97 54.51 47.89
July 20, 2001........................................... 65.99 58.61 55.08 51.65 45.11
August 20, 2001......................................... 63.38 56.00 52.49 49.08 42.62
September 20, 2001...................................... 60.41 53.11 49.64 46.29 39.96
October 20, 2001........................................ 57.84 50.58 47.15 43.85 37.63
November 20, 2001....................................... 55.35 48.16 44.77 41.52 35.42
December 20, 2001....................................... 52.79 45.69 42.36 39.17 33.22
January 20, 2002........................................ 50.31 43.33 40.06 36.94 31.15
February 20, 2002....................................... 48.08 41.19 37.98 34.93 29.27
March 20, 2002.......................................... 45.12 38.45 35.36 32.43 27.02
April 20, 2002.......................................... 42.62 36.13 33.14 30.31 25.10
May 20, 2002............................................ 40.64 34.28 31.35 28.59 23.55
June 20, 2002........................................... 38.67 32.45 29.60 26.92 22.04
July 20, 2002........................................... 36.66 30.61 27.84 25.25 22.04
August 20, 2002......................................... 34.87 28.96 26.27 23.76 22.04
September 20, 2002...................................... 32.72 27.04 24.46 22.06 22.04
October 20, 2002........................................ 30.92 25.42 22.94 22.06 22.04
November 20, 2002....................................... 29.17 23.86 21.47 22.06 22.04
December 20, 2002....................................... 27.36 22.26 21.47 22.06 22.04
January 20, 2003........................................ 25.66 22.26 21.47 22.06 0.00
February 20, 2003....................................... 24.05 22.26 21.47 22.06 0.00
March 20, 2003.......................................... 21.86 22.26 21.47 22.06 0.00
April 20, 2003.......................................... 21.86 22.26 21.47 0.00 0.00
May 20, 2003............................................ 21.86 22.26 0.00 0.00 0.00
June 20, 2003........................................... 21.86 22.26 0.00 0.00 0.00
July 20, 2003........................................... 21.86 0.00 0.00 0.00 0.00
August 20, 2003......................................... 21.86 0.00 0.00 0.00 0.00
September 20, 2003...................................... 0.00 0.00 0.00 0.00 0.00
- ------------
Weighted Average Life To Call (in years)................ 2.60 2.39 2.28 2.18 1.99
Weighted Average Life To Maturity (in years)............ 3.54 3.22 3.02 2.86 2.57
S-38
DESCRIPTION OF THE NOTES AND INDENTURE
This section adds to the information in the accompanying prospectus under
the caption 'Description of the Notes and Indenture.' However, as these
statements are only summaries, you should read the pooling and servicing
agreement and the indenture. The depositor filed the forms of these documents as
exhibits to the registration statement it filed with the Securities and Exchange
Commission for the notes.
GENERAL
The notes will be issued under an indenture between the owner trust and the
indenture trustee.
The owner trust will issue eight classes of notes, consisting of five
classes of senior notes, designated as the
Class A-1 Notes,
Class A-2 Notes,
Class A-3 Notes,
Class A-4 Notes and
Class A-5 Notes.
These are referred to in this document as 'Class A Notes.' The owner trust will
also issue three classes of subordinate notes, designated as the Class B Notes,
the Class C Notes and the Class D Notes. The Class B, Class C and Class D Notes
are the 'Subordinate Classes.'
Investors may purchase the notes in book-entry form in minimum
denominations of $1,000 and in integral multiples of $1 in excess thereof. Each
class will initially be represented by one or more notes registered in the name
of the nominee of The Depository Trust Company. The owner trustee will pay note
interest and principal on the 20th day of each month, or, if not a business day,
the next succeeding business day, commencing September 20, 1999, to registered
noteholders as of the related record date. So long as the notes remain in
book-entry form, the record date for any payment date will be the business day
immediately preceding the payment date. If the notes are no longer in book-entry
form, the record date will be the last business day of the month immediately
preceding the payment date. However, the owner trust will make the final payment
on the notes only upon presentation and surrender of the notes to the indenture
trustee. The owner trust will make all payments on the notes in immediately
available funds. See 'Description of the Notes and Indenture -- Book-Entry
Registration' in the accompanying prospectus.
DISTRIBUTIONS
The owner trust will pay note principal and interest on each payment date
from the 'Available Pledged Revenues' for the payment date, as well as amounts
permitted to be withdrawn from the cash collateral account. See ' -- Cash
Collateral Account' below. The 'Available Pledged Revenues' as of any payment
date are the sum of
S-39
(a) the following amounts on deposit in the collection account which
the owner trust received during the related collection period
(1) scheduled contract payments, except payments in respect of
taxes,
insurance premium reimbursements,
security deposits,
late charges,
documentation fees,
extension fees,
administrative charges or,
maintenance premiums,
(2) prepayments of contracts, and
(3) proceeds of liquidating defaulted contracts,
(b) the purchase price paid by the seller in repurchasing ineligible
contracts from the owner trust,
(c) the amounts that the seller paid to purchase the contracts in
exercise of its option to do so when the aggregate note principal
amount is reduced to less than 10% of the initial contract pool
principal balance and that were on deposit in the collection
account as of the business day before the payment date,
(d) investment earnings on amounts held in the collection or note
distribution account and
(e) to the extent necessary to pay interest, amounts of the type
described in (a) above that the owner trust received after the end
of the related collection period.
However, Available Pledged Revenues do not include any amount allocable to
the depositor as representing the residual value of equipment subject to a
lease, except to the extent that the end-user or a vendor guaranteed the
equipment residual value.
On each payment date, the servicer will direct the indenture trustee to
apply Available Pledged Revenues to the following payments in the following
order of priority:
(1) reimbursement of servicer advances;
(2) the servicing fee;
(3) interest on the notes in the following order of priority:
(a) interest on the Class A-1, A-2, A-3, A-4, and A-5
Notes, including any overdue interest, allocated pro
rata based on the respective principal amounts of the
Class A-1, A-2, A-3, A-4 and A-5 Notes,
(b) interest on the Class B Notes, including any overdue
interest,
(c) interest on the Class C Notes, including any overdue
interest,
S-40
(d) interest on the Class D Notes, including any overdue
interest,
(4) principal on the notes in the amounts and priority described under
'Principal' below;
(5) any amount necessary to increase the cash collateral account
balance to its required level;
(6) amounts payable in connection with the cash collateral account;
(7) any shortfall in the payment of interest on the Class A-3 Notes due
to the failure of the swap counterparty to pay amounts owed to the
owner trust under the swap agreement, together with interest on the
shortfall; and
(8) any remainder to the holder of the equity certificate.
The owner trust is to make payments first from the Available Pledged Revenues,
and second, but only as to amounts described in clauses (3) and (4) immediately
above, from amounts permitted to be withdrawn from the cash collateral account
as described under 'Cash Collateral Account' below. For purposes of the above
allocation of Available Pledged Revenues in respect of interest, the Class A-3
interest rate will be assumed to be the assumed fixed rate of 6.836% determined
in connection with the swap agreement.
INTEREST
The priorities of interest payments are set forth under 'Distributions'
above.
The owner trust will pay interest on each class of notes from and including
the closing date to but excluding September 20, 1999, and after that date for
each successive interest period. Interest on the Class A-1 and A-3 Notes will be
computed on the basis of the actual number of days elapsed and a 360-day year.
Interest on the other classes of notes will be computed on the basis of a
360-day year comprised of twelve 30-day months.
The rates for classes other than Class A-3 are set forth on the cover page
of this prospectus supplement. The Class A-3 interest rate shall be the
one-month London interbank offered rate, referred to as One-Month LIBOR, plus
0.30%.
One-Month LIBOR means as of any LIBOR Determination Date and with respect
to the related interest period, the rate of interest per annum equal to the
London interbank offered rate for deposits in U.S. dollars having a maturity of
one month which appears on Telerate Page 3750 as of 11:00 a.m., London time, on
the LIBOR Determination Date. If the rate does not appear on Telerate Page 3750,
One-Month LIBOR for the LIBOR Determination Date will be determined on the basis
of the rates at which deposits in U.S. dollars having a maturity of one month
and in a principal amount of not less than U.S. $1,000,000, are offered at
approximately 11:00 a.m., London time, on the LIBOR Determination Date to prime
banks in the London interbank market by the Reference Banks. The servicer will
request the principal London office of each of the Reference Banks to provide a
quotation of its rate to the indenture trustee. If at least two quotations are
provided, One-Month LIBOR will be the arithmetic mean, rounded upwards, if
necessary, to the nearest .01%, of the offered rates. If fewer than than two
quotations are provided, One-Month LIBOR will be the arithmetic mean, rounded
upwards, if necessary to the nearest .01%, of the
S-41
rates quoted at approximately 11:00 a.m., New York City time, on the LIBOR
Determination Date to the indenture trustee by three major banks in New York,
New York, selected by the servicer, for loans in United States dollars to
leading European banks having a maturity of one month and in a principal amount
of not less than U.S. $1,000,000. However, if those banks do not quote a rate to
the indenture trustee as described in this sentence, One-Month LIBOR will be the
One-Month LIBOR in effect for the immediately preceding interest period.
LIBOR Determination Date means for the interest period from and including
the closing date to but excluding September 20, 1999 the second business day
preceding the closing date for the sale of the notes, and for each subsequent
interest period the second business day preceding the interest period. For
purposes of computing One-Month LIBOR, a business day is any business day on
which dealings in deposits in United States dollars are transacted in the London
interbank market.
Telerate Page 3750 means the display page so designated on the Dow Jones
Telerate Service (or another page replacing that page on that service for the
purpose of displaying comparable rates or prices).
Reference Banks means four leading banks, selected by the servicer, engaged
in transactions in Eurodollar deposits in the international Eurocurrency market
and having an established place of business in London.
If on any payment date, the owner trust does not have sufficient funds,
after payment of servicer advances and the servicing fee, to make a full payment
of interest on any class of notes, the amount of the shortfall will be carried
forward and, together with interest on the shortfall amount at the applicable
interest rate for that class, added to the amount of interest the affected class
of noteholders will be entitled to receive on the next payment date.
PRINCIPAL
This section gives only an overview of how the owner trust will pay
principal. The depositor recommends that you read this section in connection
with the more detailed terms set forth in the pooling and servicing agreement
included as an exhibit to the registration statement filed with the Securities
and Exchange Commission for the notes.
OVERVIEW OF PRINCIPAL DISTRIBUTIONS
The principal required to be paid on the notes on each payment date will be
the amount necessary to pay the notes down so that their aggregate principal
balance equals the contract pool principal balance as of the last day of the
prior month. This amount will be allocated among the various classes of notes
according to the priorities described in this section.
For so long as the Class A-1 Notes are outstanding, 100% of the principal
will be allocated between the Class A-1 Notes and the Class A-5 Notes. After the
Class A-1 note principal balance has been paid to zero, the principal will be
allocated:
S-42
first, among the Class A Notes as a group, between the Class A-5 Notes
on one hand and the Class A-2, Class A-3 and Class A-4 Notes, on the
other hand, sequentially in that order, then again to the Class A-5
Notes;
second, to the Class B Notes;
third, to the Class C Notes; and
fourth, to the Class D Notes
Subject to the operation of the floors for each of the Subordinate Classes,
after the payment date on which the the Class A-1 note principal amount has been
paid to zero, the owner trust will pay principal proportionately, among the
Class A Notes as a group, the Class B Notes, the Class C Notes and the Class D
Notes, in the priorities listed above. However, the principal paydown rules
incorporate a concept of a floor on each class of the Subordinate Classes, which
means that the Subordinate Classes, for so long as any notes senior to that
class are outstanding, cannot be paid an amount of principal which would reduce
that Subordinate Class below its floor principal amount. If a Subordinate Class
is at its floor level, that Subordinate Class is 'locked out' from receiving
further principal payments, with the additional effect of reallocating the
principal that would otherwise have been paid to that Subordinate Class to the
most senior class then outstanding. The levels of the floors are not static, but
are subject to increase if the owner trust experiences contract pool losses that
cannot be funded from the current period's Available Pledged Revenues or the
cash collateral account. This increase in the level of the floors tends to 'lock
out' the Subordinate Classes earlier, which accelerates the payment of the
reallocated principal to the senior classes. If unfunded losses become severe
and the cash collateral account is depleted, the unfunded loss amount could be
so large that the principal paydown rules result in a sequential-pay senior
subordinated structure among the various note classes, with no principal being
paid to a Subordinate Class unless the note principal amount of each class
senior to it has been paid in full. The floors operate both before and after an
event of default.
BEFORE AN EVENT OF DEFAULT
This chart summarizes how principal will be paid on the notes before any
event of default. The section headed 'Definitions Concerning Principal Payments'
below defines various terms relating to the payment of principal.
S-43
CLASS PRINCIPAL PAYMENTS
Class A-1 Begins receiving principal on first payment date
Receives 96.75% of Total Principal Payment Amount until paid
in full, but will receive 100% of the Total Principal
Payment Amount if any of its principal is outstanding after
its stated maturity date until paid in full
Class A-2 Begins receiving principal once Class A-1 is paid in full
Receives the Class A Principal Payment Amount reduced by any
amount paid to Class A-5, until Class A-2 is paid in full,
but will receive 100% of the Class A Principal Payment
Amount if any of its principal is outstanding after its
stated maturity date, until paid in full
May also receive principal payments reallocated away from
the Subordinate Classes through the operation of the floors
Class A-3 Begins receiving principal once Class A-2 is paid in full
Receives the Class A Principal Payment Amount reduced by any
amount paid to Class A-5, until Class A-3 is paid in full,
but will receive 100% of the Class A Principal Payment
Amount if any of its principal is outstanding after its
stated maturity date, until paid in full
May also receive principal payments reallocated away from
the Subordinate Classes through the operation of the floors
Class A-4 Begins receiving principal once Class A-3 is paid in full
Receives the Class A Principal Payment Amount reduced by any
amount paid to Class A-5, until Class A-4 is paid in full,
but will receive 100% of the Class A Principal Payment
Amount if any of its principal is outstanding after its
stated maturity date, until paid in full
May also receive principal payments reallocated away from
the Subordinate Classes through the operation of the floors
Class A-5 Begins receiving principal on first payment date
Receives 3.25% of the Total Principal Payment Amount until
Class A-1 is paid in full and the same percentage after
Class A-1 is paid in full until Class A-4 is paid in full
but only to the extent of the Class A Principal Payment
Amount
Once Class A-4 is paid in full, Class A-5 receives 100% of
the Class A Principal Payment Amount until paid in full
May also receive principal payments reallocated away from
the Subordinate Classes through the operation of the floors
S-44
CLASS PRINCIPAL PAYMENTS
Class B Begins receiving principal once Class A-1 is paid in full
Receives the Class B Principal Payment Amount until paid in
full
Through the operation of its floor, Class B's principal
payments are subject to reallocation for the benefit of
Class A
May also receive principal payments reallocated away from
Class C and Class D through the operation of the floors
Class C Begins receiving principal once Class A-1 is paid in full
Receives the Class C Principal Payment Amount until paid in
full
Through the operation of its floor, Class C's principal
payments are subject to reallocation for the benefit of
Class A and Class B
May also receive principal payments reallocated away from
Class D through the operation of the floors
Class D Begins receiving principal once Class A-1 is paid in full
Receives the Class D Principal Payment Amount until paid in
full
Through the operation of its floor, Class D's principal
payments are subject to re-allocation for the benefit of
Class A, Class B and Class C
DETAILED PRINCIPAL DISTRIBUTION RULES
The priority of principal payments will be in the following order:
(1) prior to the payment date on which the Class A-1 Note principal amount
has been reduced to zero, the Class A Principal Payment Amount will be
equal to the Total Principal Payment Amount and will be allocated
96.75% to the Class A-1 Notes and 3.25% to the Class A-5 Notes.
However, if the Class A-1 Notes have not been paid to zero by their
stated maturity date, 100% of the Class A Principal Payment Amount will
be paid to the Class A-1 Notes on their stated maturity date and on
each subsequent payment date until their note principal amount is zero;
(2) on and after the payment date on which the Class A-1 principal amount
has been reduced to zero, and disregarding the amount that must first
be applied to reduce the Class A-1 principal amount to zero, the Total
Principal Payment Amount will be allocated among the various classes in
the following order of priority:
(a) the Class A Principal Payment Amount to the Class A noteholders,
allocated as follows:
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(1) 3.25% of the Total Principal Payment Amount, but in no event
greater than the Class A Principal Payment Amount, to the
Class A-5 noteholders, and
(2) the Class A Principal Payment Amount reduced by any payments
to the Class A-5 noteholders under clause (2)(a)(1) to the
Class A-2 noteholders until the Class A-2 principal amount
equals zero, then to the Class A-3 noteholders until the
Class A-3 principal amount equals zero, then to the Class A-4
noteholders until the Class A-4 principal amount equals zero
and then to the Class A-5 noteholders until the Class A-5
principal amount equals zero;
However, if the Class A-2, Class A-3 or Class A-4 Notes have
not been paid to zero by their respective stated maturity
dates, 100% of the Class A Principal Payment Amount will be
paid to that class on its stated maturity date and on each
subsequent payment date until its note principal amount
is zero;
(b) the Class B Principal Payment Amount to the Class B noteholders;
(c) the Class C Principal Payment Amount to the Class C noteholders;
(d) the Class D Principal Payment Amount to the Class D noteholders;
and
(e) any Reallocated Principal, sequentially to the Class A-2,
Class A-3, Class A-4, Class A-5, Class B, Class C and Class D
Notes.
PRINCIPAL DISTRIBUTIONS AFTER AN EVENT OF DEFAULT
After an event of default occurs, all principal distributions among the
classes will be made as follows:
CLASS PRINCIPAL PAYMENTS
Class A-1 100% of the Class A Principal Payment Amount until paid in full
Class A-2 100% of the Class A Principal Payment Amount until paid in full
Class A-3 100% of the Class A Principal Payment Amount until paid in full
Class A-4 100% of the Class A Principal Payment Amount until paid in full
Class A-5 100% of the Class A Principal Payment Amount until paid in full
Class B 100% of the Class B Principal Payment Amount until paid in full
Class C 100% of the Class C Principal Payment Amount until paid in full
Class D 100% of the Class D Principal Payment Amount until paid in full
The principles described above in the sections labelled 'Principal --
Overview of Principal Distributions,' ' -- Before an Event of Default' and
'Detailed Principal Distribution Rules' will also apply after an event of
default except that the allocations between Class A-5, on the one hand, and the
other classes of Class A Notes, on the other hand, as described in those
sections, will not apply after an event of default.
Also, any Reallocated Principal will be allocated sequentially to the
Class A-1, A-2, A-3, A-4, A-5, B, C and D noteholders in that order.
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DEFINITIONS CONCERNING PRINCIPAL PAYMENTS
The CLASS A BASE PRINCIPAL PAYMENT AMOUNT is:
(1) as to any payment date until the payment date on which the Class A-1
principal amount equals zero, 100% of the Total Principal Payment
Amount; and
(2) for any subsequent payment date, and disregarding any amount first used
on the payment date on which the Class A-1 principal amount is paid to
zero, the excess of (x) the sum of the Class A-2, A-3, A-4 and A-5
notes principal amounts over (y) the Class A Target Principal Amount;
However, the Class A Principal Payment Amount may not exceed the Class A
principal balance.
The CLASS A PERCENTAGE will be approximately 90.6667%.
The CLASS A TARGET PRINCIPAL AMOUNT for any payment date will be the
product of (a) the Class A Percentage and (b) the contract pool principal
balance as of the last day of the collection period immediately preceding the
payment date.
The CLASS A PRINCIPAL PAYMENT AMOUNT is the sum of the Class A Base
Principal Payment Amount plus the Class A Principal Shortfall Amount.
The CLASS A PRINCIPAL SHORTFALL AMOUNT means, for any payment date that is
the stated maturity date for a class of Class A Notes and any subsequent payment
date until that class' principal amount is zero, the excess of (a) sum of the
principal amount of that class, plus, until the Class A-4 principal amount has
been reduced to zero, 96.75% of the Total Principal Payment Amount, over
(b) the Total Principal Payment Amount.
The CLASS B FLOOR for any payment date will equal (1) 2.8125% of the
initial contract pool principal balance, plus (2) the Unfunded Loss Amount, if
any, for that payment date, minus, (3) the sum of the Class C principal amount,
and the Class D principal amount, prior to giving effect to any payments of
principal on the Class C or D Notes on that payment date, and the amount on
deposit in the cash collateral account after giving effect to withdrawals to be
made on the payment date. However, the Class B Floor may not be greater than the
Class B principal amount or less than zero.
The CLASS B PERCENTAGE will be approximately 1.6667%.
The CLASS B PRINCIPAL PAYMENT AMOUNT will equal
(1) zero until the payment date on which the Class A-1 principal amount
equals zero; and
(2) for any subsequent payment date the excess, if any, of (a) the
Class B principal amount over (b) the greater of (x) the Class B
Target Principal Amount and (y) the Class B Floor.
However, the Class B Principal Payment Amount may not exceed the Class B
principal amount.
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The CLASS B TARGET PRINCIPAL AMOUNT for any payment date will be the
product of (a) the Class B Percentage and (b) the contract pool principal
balance as of the last day of the collection period immediately preceding the
payment date.
The CLASS C FLOOR for any payment date will equal (1) 2.125% of the initial
contract pool principal balance, plus (2) the Unfunded Loss Amount, if any, for
the payment date, minus (3) the sum of the Class D principal amount, prior to
giving effect to any payments of principal on the Class D Notes on the payment
date, and the amount on deposit in the cash collateral account after giving
effect to withdrawals to be made on the payment date. However, the Class C Floor
may not be greater than the Class C principal amount or less than zero.
Furthermore, if the Class B principal amount immediately prior to any payment
date is less than or equal to the Class B Floor for that payment date, the
Class C Floor for that payment date will equal the Class C principal amount
immediately prior to that payment date.
The CLASS C PERCENTAGE will be approximately 3.6667%.
The CLASS C PRINCIPAL PAYMENT AMOUNT will equal
(1) zero until the payment date on which the Class A-1 principal amount
equals zero; and
(2) for any subsequent payment date, the excess, if any, of (a) the
Class C principal amount over (b) the greater of (x) the Class C
Target Principal Amount and (y) the Class C Floor.
However, the Class C Principal Payment Amount may not exceed the Class C
principal amount.
The CLASS C TARGET PRINCIPAL AMOUNT for any payment date will be the
product of (a) the Class C Percentage and (b) the contract pool principal
balance as of the last day of the collection period immediately preceding the
payment date.
The CLASS D FLOOR for any payment date will equal (1) 1.375% of the initial
contract pool principal balance, plus (2) the Unfunded Loss Amount, if any, for
the payment date, minus, (3) the amount on deposit in the cash collateral
account after giving effect to withdrawals to be made on the payment date.
However, the Class D Floor may not be greater than the Class D principal amount
or less than zero. Furthermore, if the Class C principal amount on any payment
date is less than or equal to the Class C Floor on that payment date, the
Class D Floor for that payment date will equal the Class D principal amount
immediately prior to that payment date.
The CLASS D PERCENTAGE will be approximately 4.0000%.
The CLASS D PRINCIPAL PAYMENT AMOUNT will equal
(1) zero until the payment date on which the Class A-1 principal amount
equals zero; and
(2) for any subsequent payment date, the excess, if any, of (a) the
Class D principal amount minus (b) the greater of (x) the Class D
Target Principal Amount and (y) the Class D Floor.
However, Class D Principal Payment Amount may not exceed the Class D
principal balance.
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The CLASS D TARGET PRINCIPAL AMOUNT for any payment date will be the
product of (a) the Class D Percentage and (b) the contract pool principal
balance as of the last day of the collection period immediately preceding the
payment date.
The COLLECTION PERIOD for any payment date is the calendar month preceding
the month in which the payment date occurs.
A DEFAULTED CONTRACT as to any collection period is any contract (a) which
the servicer has determined is uncollectible in accordance with its credit and
collection policies and procedures, (b) as to which during the collection period
10% or more of a scheduled payment shall have become delinquent 180 days or
more, or (c) as to which the end-user has suffered an insolvency event.
PLEDGED REVENUES means the sum of
all scheduled payments on the contracts received on or after the cut-off
date;
any prepayment received on the contracts on or after the cut-off date;
the purchase amount of any contracts purchased by the seller;
the amount paid by the depositor to purchase the contracts under its
option to purchase all contracts when the aggregate principal amount of
the notes is less than 10% of the initial contract pool principal balance;
the liquidation proceeds received in respect of any contracts; and
any earnings on the investment of amounts credited to the collection
account or the note distribution account.
However, Pledged Revenues shall not include any amounts received with
respect to any residual value of leased equipment except to the extent
guaranteed by a vendor or end-user.
PRINCIPAL AMOUNT means, when used with respect to a class of notes, the
initial principal balance of the class set forth on the cover page of this
prospectus supplement, less the sum of all distributions previously made to the
class and all amounts held on deposit for payment to that class in respect of
principal.
The REALLOCATED PRINCIPAL for any payment date will equal the excess, if
any, of (1) the Total Principal Payment Amount, over (2) the sum of the Class A
Principal Payment Amount, the Class B Principal Payment Amount, the Class C
Principal Payment Amount and the Class D Principal Payment Amount.
The RELATED COLLECTION PERIOD PLEDGED REVENUE means as to any payment date,
the amount of Pledged Revenues in the collection account as of the business day
preceding the payment date which were received by the depositor during the
related collection period, including all liquidation proceeds as to Defaulted
Contracts, but not including the residual value of leased equipment except to
the extent guaranteed by a vendor or end-user.
The REQUIRED PAYOFF AMOUNT as to a collection period for any contract is
the sum of
(1) the scheduled payment due in that collection period plus any scheduled
payments not received that were due in prior collection periods and
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(2) the contract principal balance determined as if the scheduled payment
due in that collection period had been received.
The TOTAL PRINCIPAL PAYMENT AMOUNT for any payment date is the excess of
(x) the aggregate note principal amount immediately prior to that payment date
over (y) the contract pool principal balance as of the last day of the
collection period immediately preceding the payment date. For this purpose, the
contract pool principal balance will be deemed to be zero on any payment date on
which the contract pool principal balance is less than $10,000,000. The contract
principal balance of any contract which became a defaulted contract during a
given collection period or which was a contract subject to a warranty claim
which the depositor was obligated to purchase as of the end of a given
collection period will, for purposes of computing the Total Principal Payment
Amount and the requisite amount for the cash collateral account, be deemed to be
zero on and after the last day of the collection period.
The UNFUNDED LOSS AMOUNT for any payment date will equal any excess of:
(a) the remainder of
(1) the aggregate note principal amount, prior to giving
effect to the payment of principal on the notes on the
payment date, minus
(2) the lesser of
(A) the contract pool principal balance as of the last
day of the collection period immediately preceding
the preceding payment date, minus the contract pool
principal balance as of the last day of the
collection period immediately preceding the payment
date, or
(B) the Related Collection Period Pledged Revenue
remaining after payment of amounts owing to the
servicer and note interest on the payment date plus
any withdrawal from the cash collateral account for
payment of note principal on the payment date,
over
(b) the Required Payoff Amount for all contracts as of the end of
the related collection period.
CLASS A-3 SWAP AGREEMENT
The owner trust will enter into a swap agreement with Westdeutsche
Landesbank Girozentrale, New York Branch as swap counterparty for the sole
benefit of the Class A-3 Notes. Under the swap agreement, the swap
counterparty's payments will be calculated at the Class A-3 Note interest rate
and the owner trust's payments will be calculated at an assumed fixed rate of
6.836%. To the extent that on any payment date interest calculated at the Class
A-3 Note interest rate exceeds interest calculated at the assumed fixed rate:
the swap counterparty will be obligated to pay an amount equal to the
excess to the owner trust,
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the payment will constitute a portion of the Available Pledged
Revenues, but only in respect of the Class A-3 Notes, and
the Class A-3 Notes will be dependent upon the payment for receipt of
the interest to the extent of the excess.
Likewise, under the swap agreement to the extent that interest calculated at the
assumed fixed rate exceeds interest calculated at the Class A-3 Note interest
rate,
the owner trust will be obligated to pay an amount equal to the excess
to the swap counterparty, and
the payment will have the same priority, in terms of application of
the Available Pledged Revenues, as payment of interest on the Class
A-3 Notes.
Any shortfall in the payment of interest on the Class A-3 Notes due
entirely to the failure of the swap counterparty to make a required payment
under the swap agreement will not constitute an event of default under the
indenture. Except to the extent the amount available on any payment date exceeds
the amount necessary to pay the servicing fee, all interest and principal
payable on the notes, with Class A-3 Note interest being calculated at the
assumed fixed rate for this purpose, and all amounts payable in connection with
the cash collateral account, no amounts in addition to those available under the
swap agreement will be available under the indenture to make up the shortfall.
The only remedies in these circumstances will be those available to the owner
trust under the swap agreement.
As a general matter, the obligations of the swap counterparty under the
swap agreement are unsecured. However, if the swap counterparty's long-term
unsecured senior debt ceases to be rated at a level acceptable to Standard &
Poor's and Moody's, the swap counterparty will be obligated either to (a) post
collateral or establish other arrangements to secure its obligations under the
swap agreement or (b) arrange for a substitute swap counterparty to assume the
rights and obligations of the swap counterparty under the swap agreement, in
either case so that the ratings of the notes are maintained or, if applicable,
restored to their level immediately prior to the downgrading or withdrawal of
the swap counterparty's debt. If the swap counterparty fails to take either of
these actions, the owner trust will be entitled to terminate the swap agreement
and to claim from the swap counterparty the cost of obtaining a replacement swap
agreement from a swap counterparty satisfactory to the note rating agencies. The
Class A-3 noteholders bear the risk of any failure by the swap counterparty to
take the actions required of it and the risk of any inability of the owner trust
to obtain a replacement swap agreement.
The swap counterparty currently has an 'AA+' long-term unsecured senior
debt credit rating from Standard & Poor's and an 'Aa1' long-term unsecured
senior debt credit rating from Moody's.
OPTIONAL PURCHASE OF CLASS A-5 NOTES
The depositor may purchase all of the Class A-5 Notes, on any payment date.
The purchase price shall be equal to the Class A-5 principal amount plus a
premium equal to the excess, discounted as described below, of (1) the scheduled
future interest
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payments on the Class A-5 Notes, over (2) the interest that would have accrued
on the Class A-5 Notes over the same period at a per annum rate of interest
equal to 0.25% plus the bond equivalent yield to maturity on the fifth business
day preceding that payment date on a United States Treasury security maturing on
a date closest to the end of the remaining weighted average life of the
Class A-5 Notes. That excess shall be discounted to present value to the payment
date at the yield described in clause (2) above. For purposes of this paragraph
only, the depositor will determine (1) the Class A-5 principal amount upon which
interest will be deemed to accrue, and (2) the weighted average remaining life
of the Class A-5 Notes, based upon the amortization of the contract pool
principal balance remaining at the payment date at a conditional prepayment rate
of 9%. The depositor will pay the holders of record on the related record date
interest payable on the Class A-5 Notes on the payment date in the ordinary
manner. Following purchase, the owner trust will not retire the Class A-5 Notes,
but will, after the authentication and issuance of replacement notes to the
depositor, continue to treat them as being entitled to interest and principal
payments on each payment date in the manner described above. Following the
giving of proper notice of purchase, all holders of Class A-5 Notes must
surrender them for purchase on the relevant purchase date. Effective on the
purchase date, the owner trust will not treat the former holders of the
Class A-5 Notes as the holders of the notes except for purposes of their right
to be paid the purchase price.
CASH COLLATERAL ACCOUNT
The indenture trustee will establish the cash collateral account on or
prior to the closing date. It will be available to the indenture trustee for the
benefit of the noteholders. The depositor will initially fund the cash
collateral account in the amount of $100,972,742 (5.50% of initial contract pool
principal balance), which may include proceeds of loans from third party lenders
to the owner trust under a cash collateral account loan agreement. Available
amounts on deposit from time to time in the cash collateral account shall be
used to fund the amounts specified below in the following order of priority to
the extent that amounts on deposit in the collection account, after payment of
servicer fees and advances, as of any deposit date are insufficient:
(1) to pay interest on the notes in the order of priority described
under 'Distributions' above;
(2) to pay any principal deficiency amount, which is equal to the
lesser of:
(a) the aggregate Liquidation Losses on all contracts that became
Defaulted Contracts during the related collection period, or
(b) the excess, if any, of
(A) the aggregate principal amount of the notes, after
giving effect to all distributions of principal from
Available Pledged Revenues on the payment date, over
(B) the aggregate of the Required Payoff Amounts for all
contracts as of the last day of the related collection
period; and
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(3) to pay principal on the notes at the applicable stated maturity
dates and on the first payment date on which the contract pool
principal balance is less than $10,000,000.
Liquidation Loss means, as to any Defaulted Contract, the excess, if any,
of
(1) the required payoff amount of the contract for the collection
period during which the contract became a Defaulted Contract, over
(2) that portion of the liquidation proceeds for the Defaulted Contract
allocated to the owner trust, as described under 'Description of
the Notes and Indenture -- Liquidation Proceeds' in the
accompanying prospectus.
To the extent that the amount on deposit in the cash collateral account as
of any payment date is less than the required amount, the servicer is to restore
this deficiency from the remaining amount available in the collection account,
after payment of any servicer advances, the servicing fee, interest and
principal on the notes and amounts due to the swap counterparty under the swap
agreement, as described under 'Distributions' above.
The required amount of the cash collateral account will be
(1) for any payment date on or prior to the payment date occurring in
August 2000, $100,972,742 (5.50% of the initial contract pool
principal balance), and
(2) for any payment date after that, the greater of
(a) the sum of
(1) 6.60% of the contract pool principal balance for the
payment date, plus
(2) the excess, if any, of
(A) the sum of the principal amounts of the notes, after
giving effect to all distributions of principal on
the payment date, over
(B) the contract pool principal balance for the payment
date, and
(b) $22,948,350 (1.25% of the initial contract pool principal
balance).
However, in no event will the requisite amount exceed the sum of the
principal amounts of the notes.
The servicer or the indenture trustee acting at the direction of the
servicer will release any amount on deposit in the cash collateral account in
excess of the required amount and all investment earnings on funds in the cash
collateral account. The indenture trustee will pay these amounts to or upon the
servicer's order, and they will not be available to make payments on the notes.
The cash collateral account must be maintained with a qualified
institution. Funds on deposit in the cash collateral account will be invested in
eligible investments, as defined under 'Description of the Notes and
Indenture -- Trust Accounts' in the accompanying prospectus.
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OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF NOTES
The seller may purchase all of the contracts on any payment date following
the date on which the aggregate note principal amount at the time is less than
10% of the initial contract pool principal balance. The purchase price that the
seller would pay in connection with a purchase shall be the sum of the
unpaid servicer fees and advances,
remaining principal amount of the notes, together with accrued
interest calculated at the swap agreement assumed fixed rate in the
case of the Class A-3 Notes,
unreimbursed servicer advances and unpaid servicer fees, and
any other amounts payable at the time from Available Pledged Revenues,
minus
available amounts on deposit in the collection account.
If the seller does purchase the contracts, the notes shall be redeemed on
the payment date on which the purchase occurs. The redemption price will be the
principal amount of the notes redeemed plus accrued and unpaid interest on the
principal amount of each class of notes to but excluding the redemption date.
REPORTS TO NOTEHOLDERS
The servicer will furnish to the indenture trustee, and the indenture
trustee will include with each distribution, a statement in respect of the
related payment date. The statement shall set forth, among other things, all
information necessary to enable the indenture trustee to make the distribution
required for the notes and to reconcile all deposits to and withdrawals from
accounts. See 'Description of the Notes and Indenture -- Reports to Noteholders'
in the accompanying prospectus. You will not receive reports directly from the
indenture trustee. The servicer will file the reports with the Securities and
Exchange Commission. However, in accordance with the Securities Exchange Act of
1934 and the rules and regulations of the Securities and Exchange Commission,
the owner trust expects that its obligation to file these reports will be
terminated at the end of 2000.
SERVICING
The servicer will be responsible for
managing,
administering,
servicing and
making collections
on the contracts. Compensation to the servicer will include
(1) a monthly servicing fee, which will be payable to the servicer from
the amount available on each payment date, in an amount equal to
the product of one-twelfth of one percent per annum multiplied by
the contract pool principal balance determined as of the first day
of the related collection period;
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(2) any late fees, late payment interest, documentation fees, insurance
administration charges, extension fees and other administrative
charges, collectively, the administrative fees, collected with
respect to the contracts during the related collection period; and
(3) any investment earnings on collections prior to their deposit in
the collection account.
The indenture trustee may terminate the servicer as servicer under some
circumstances, in which event the indenture trustee would appoint a successor
servicer to service the contracts. See 'AT&T Capital Corporation' and
'Description of the Pooling and Servicing Agreements -- Servicing -- Events of
Termination' in the accompanying prospectus.
THE INDENTURE TRUSTEE
The Chase Manhattan Bank will serve as the indenture trustee. The indenture
trustee may resign at any time, in which event the owner trust will be obligated
to appoint a successor trustee. The owner trust may also remove the indenture
trustee if
(1) the indenture trustee ceases to be eligible to continue as
indenture trustee under the indenture,
(2) a bankruptcy proceeding results in the event of relief or
appointment of a receiver as to the indenture trustee,
(3) the indenture trustee commences bankruptcy or similar proceedings
or
(4) the indenture trustee becomes incapable of acting.
Any resignation or removal of the indenture trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by a successor trustee.
REPRESENTATION AND WARRANTIES
The seller will make representations and warranties with respect to the
contracts as described in the accompanying prospectus under 'The
Contracts -- Representations and Warranties Made by the Seller.'
On the date that the depositor adds a substitute contract to the contract
pool, the seller and the depositor will make the same representations and
warranties as if the transfer occurred on the closing date. However, for these
purposes (a) the contract pool on the closing date shall be deemed to include
the substitute contract in lieu of the contract being replaced or substituted
and (b) the contract principal balance of the substitute contract shall be equal
to or greater than the contract principal balance of the contract being replaced
or substituted as of the related cut-off date.
The owner trust shall reassign to the depositor, and the seller will be
obligated to purchase from the depositor, any contract transferred by the owner
trust at any time there is a breach of any of these representations or
warranties. However, the cure of the breach in all material respects, or the
waiver of the breach, will be an adequate remedy. This purchase shall occur no
later than the second deposit date after the servicer becomes aware, or receives
written notice, of the breach. The 'deposit date' means the business day
preceding a payment date. This purchase obligation will
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constitute the sole remedy against the depositor and the seller available to the
owner trust, the indenture trustee and the noteholders or equity
certificateholder for a breach of these representations or warranties.
Under the pooling and servicing agreement, a contract transferred by the
owner trust shall be reassigned to the seller and the seller shall make a
deposit in the collection account in immediately available funds in an amount
equal to the contract principal balance of the contract. Any amount the seller
deposits into the collection account in connection with the reassignment of a
contract transferred by the owner trust shall be considered payment in full of
the ineligible contract. This amount shall be treated as Available Pledged
Revenues. In the alternative, the seller may cause the depositor to convey to
the owner trust a substitute contract satisfying the terms and conditions
applicable to substitute contracts in replacement for the affected contract. The
affected contract shall be deemed released by the owner trust and indenture
trustee and reconveyed to the depositor and by the depositor to the seller.
INDEMNIFICATION
The pooling and servicing agreement provides that the servicer will
indemnify
the depositor,
the owner trust,
the owner trustee,
the indenture trustee,
the holder of the equity certificate and
the noteholders
from and against any loss or injury sustained from third party claims resulting
from acts or omissions of the servicer with respect to trust assets or any duty
or obligations of the servicer under the agreement, except where the claims
result from willful misconduct, gross negligence or bad faith of the indemnified
person.
AMENDMENTS
When the pooling and servicing agreement and the indenture may be amended
only with the consent of the required majority of the noteholders, see
'Description of the Notes and Indentures -- Modification of Indenture with
Noteholder Consent' and 'Description of the Pooling and Servicing
Agreements -- Amendment,' the required majority means 66 2/3% of the principal
amount of the Class A Notes until paid in full, then of the Class B Notes until
paid in full, then of the Class C Notes until paid in full and then of the
Class D Notes.
The parties may amend the cash collateral account loan agreement without
noteholder consent to cure any ambiguity or inconsistency or to address any
other matter but only if the amendment will not adversely affect the
noteholders. The parties may also amend the cash collateral account loan
agreement in any other manner with the consent of the required majority of
noteholders determined as provided above. However, without the consent of all
noteholders, no amendment may
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reduce the amount available in the cash collateral account for the payment of
interest or principal on notes or reduce the noteholder consent required for any
amendment.
The parties may amend the swap agreement without noteholder consent to cure
any ambiguity or inconsistency or to address any other matter but only if the
amendment will not adversely affect the Class A-3 noteholders. The parties may
also amend the swap agreement in any other manner with the consent of at least
66 2/3% of the principal amount of the Class A-3 Notes. However, without the
consent of all Class A-3 noteholders, no amendment may reduce the amount
available under the swap agreement for paying Class A-3 Note interest or reduce
the Class A-3 noteholder consent required for any amendment. Also, without the
consent of the swap counterparty, the parties may not amend the pooling and
servicing agreement so as to adversely affect the priority of payments from the
owner trust to the swap counterparty under the swap agreement.
Also, any amendment of the cash collateral account loan agreement or the
swap agreement requiring noteholder approval will not be effective unless each
rating agency confirms that the amendment will not result in a reduction,
qualification or withdrawal of the ratings on the relevant notes.
RATINGS OF THE NOTES
It is a condition of issuance that each of Standard & Poor's Ratings
Services, Moody's Investors Service, Inc. and Duff & Phelps Credit Rating Co.
rate the Class A-1 Notes in its highest short-term rating category,
rate the Class A-2, Class A-3, Class A-4 and Class A-5 Notes in its
highest long-term rating category,
rate the Class B Notes at least AA, Aa3 and AA, respectively,
rate the Class C Notes at least A, A2 and A, respectively, and
rate the Class D Notes at least BBB, Baa3 and BBB, respectively.
The ratings address the likelihood of the timely receipt of interest and
payment of principal on each class of notes on or before the stated maturity
date for the class. The ratings will be based primarily upon the Available
Pledged Revenues, the cash collateral account and the subordination provided by
the Subordinate Classes, in the case of the Class A Notes,
the Class C and Class D Notes, in the case of the Class B Notes and
the Class D Notes, in the case of the Class C Notes.
There is no assurance that any rating will not be lowered or withdrawn by
the assigning rating agency. In the event that ratings with respect to the notes
are qualified, reduced or withdrawn, no person or entity will be obligated to
provide any additional credit enhancement with respect to the notes.
The ratings should be evaluated independently from similar ratings on other
types of securities. A rating is not a recommendation to buy, sell or hold
notes, inasmuch as these ratings do not comment as to market price or
suitability for a particular investor. The ratings do not address the likelihood
of payment of principal on any class of notes
S-57
prior to the stated maturity date or the possibility of the imposition of United
States withholding tax with respect to non-United States Persons.
The term 'United States Person' means
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof,
(3) an estate the income of which is includable in gross income for
United States federal income tax purposes, regardless of its
source, or
(4) a trust, (A) with respect to which a court within the United States
is able to exercise primary supervision over its administration,
and one or more United States fiduciaries have the authority to
control all of its substantial decisions, or (B) otherwise, the
income of which is subject to U.S. federal income tax regardless of
its source.
USE OF PROCEEDS
The owner trust will use the proceeds from the sale of notes, after paying
funds into the cash collateral account and paying expenses, to pay the purchase
price for the contracts to the depositor. The depositor will use the proceeds to
pay amounts owed to another trust for the acquisition of contracts from the
trust. The trust from which the owner trust acquired contracts will use the
proceeds it receives to pay down a warehouse receivables securitization
facility.
LEGAL PROCEEDINGS
None of
the depositor,
the servicer,
the originators,
the seller or
the owner trust
are parties to any legal proceedings which could have a material adverse impact
on noteholders' interests in notes or the owner trust's assets.
PLAN OF DISTRIBUTION
Under the terms of an underwriting agreement dated August 11, 1999, the
underwriters have severally agreed to purchase the following respective initial
principal amounts of notes at the respective public offering prices less the
respective underwriting discounts shown on the cover page of this prospectus
supplement:
S-58
INITIAL INITIAL INITIAL INITIAL INITIAL
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
UNDERWRITER CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES CLASS A-4 NOTES CLASS A-5 NOTES
----------- --------------- --------------- --------------- --------------- ---------------
Credit Suisse First Boston
Corporation 229,485,007 91,792,801 339,635,171 159,259,103 33,505,183
Banc of America Securities
LLC 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
Barclays Capital Inc. 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
Banc One Capital Markets,
Inc. 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
First Union Capital Markets
Corp. 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
Lehman Brothers Inc. 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
Prudential Securities
Incorporated 38,247,000 15,299,000 56,606,000 26,544,000 5,584,000
INITIAL INITIAL INITIAL
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS B NOTES CLASS C NOTES CLASS D NOTES
UNDERWRITER ------------- ------------- -------------
Credit Suisse First Boston
Corporation 22,948,351 50,486,371 55,076,041
Banc of America Securities
LLC 0 0 0
Barclays Capital Inc. 0 0 0
Banc One Capital Markets,
Inc. 0 0 0
First Union Capital Markets
Corp. 0 0 0
Lehman Brothers Inc. 0 0 0
Prudential Securities
Incorporated 0 0 0
In the underwriting agreement, the underwriters have agreed to purchase all
of the notes being offered, if any of the notes are purchased. The underwriters
have advised the depositor that they propose initially to offer the notes to the
public at the respective public offering prices shown on the cover page of this
prospectus supplement, and to certain dealers at that price, less a concession
not in excess of the amount noted in the table below. The underwriters may allow
and the dealers may reallow to other dealers a discount not in excess of the
amount noted in the table below.
DEALER DEALER
CONCESSION DISCOUNT
CLASS OF NOTE NOT TO EXCEED NOT TO EXCEED
- ------------- ------------- -------------
A-1 0.060% 0.050%
A-2 0.099% 0.075%
A-3 0.114% 0.100%
A-4 0.135% 0.100%
A-5 0.110% 0.075%
B 0.150% 0.125%
C 0.180% 0.125%
D 0.240% 0.125%
After the notes are released for sale to the public, the offering prices
and other selling terms may be varied by the underwriters.
S-59
In connection with the offering of the notes, Credit Suisse First Boston
Corporation, on behalf of the underwriters, may engage in overallotment,
stabilizing transactions and syndicate covering transactions in accordance with
Regulation M under the Securities Exchange Act of 1934. 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 markets for the purpose of pegging, fixing or maintaining the price of the
notes. Syndicate covering transactions involve purchases of notes in the open
market after the distribution has been completed in order to cover short
positions. Stabilizing 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 Credit Suisse First Boston Corporation, on behalf of the
Underwriters, engages in stabilizing or syndicate covering transactions, it may
discontinue them at any time.
The depositor and some of its affiliates have agreed to indemnify the
underwriters against some liabilities in connection with the sale of notes,
including liabilities under the Securities Act of 1933, as amended.
The notes are new issues of securities with no established trading market.
The underwriters have advised the depositor that the underwriters intend to make
a market in the notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the notes.
The depositor has estimated that it will spend approximately $1,855,000 for
printing, rating agency, trustee and legal fees and other expenses related to
the offering.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, has provided a legal opinion relating
to the notes in its capacity as special counsel to the owner trust, the
depositor, the originators, the servicer and the administrator. Other legal
matters for the underwriters will be passed upon by Dewey Ballantine LLP, New
York, New York. The indenture, the pooling and servicing agreement, the trust
agreement and the notes will be governed by the laws of the State of New York.
EXPERTS
Ernst & Young, LLP, independent auditors, have audited the balance sheet of
Newcourt Equipment Trust Securities 1999-1 at July 2, 1999 as set forth in their
report. The depositor included this balance sheet in this prospectus supplement
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
S-60
NEWCOURT EQUIPMENT TRUST SECURITIES 1999-1
BALANCE SHEET AS OF JULY 2, 1999
Assets -- Cash.......................................... $ 0
---
---
Beneficial Equity....................................... $ 0
---
---
Liabilities............................................. $ 0
---
---
NOTES TO THE BALANCE SHEET
Newcourt Equipment Trust Securities 1999-1 (the 'Owner Trust') is a limited
purpose business trust established under the laws of the State of Delaware. It
was formed on July 2, 1999 by NCT Funding Company, L.L.C. (the 'Trust
Depositor') and The Bank of New York (Delaware) (the 'Owner Trustee') under a
trust agreement dated as of July 2, 1999 between the Trust Depositor and the
Owner Trustee. The activities of the Owner Trust are limited by the terms of the
trust agreement to acquiring, owning and managing lease and loan contracts and
related assets, issuing and making payments on notes and subordinate securities
and other related activities. Prior to and including July 2, 1999, the Owner
Trust did not conduct any activities.
The Trust Depositor will pay all fees and expenses related to the
organization and operations of the Owner Trust, other than withholding taxes,
imposed by the United States or any other domestic taxing authority. The
depositor has also agreed to indemnify the indenture trustee and Owner Trustee
and certain other persons involved in the sale of notes.
S-61
REPORT OF INDEPENDENT AUDITORS
To the Trustee of
NEWCOURT EQUIPMENT TRUST SECURITIES 1999-1
We have audited the accompanying balance sheet of Newcourt Equipment Trust
Securities 1999-1 (the 'Trust'), as of July 2, 1999. This balance sheet is the
responsibility of the Trust's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Newcourt Equipment Trust Securities
1999-1 at July 2, 1999 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
July 2, 1999
S-62
INDEX OF DEFINED TERMS
PAGE
----
Available Pledged Revenues.................................. S-39
Class A Base Principal Payment Amount....................... S-47
Class A Percentage.......................................... S-47
Class A Principal Payment Amount............................ S-47
Class A Principal Shortfall Amount.......................... S-47
Class A Target Principal Amount............................. S-47
Class B Floor............................................... S-47
Class B Percentage.......................................... S-47
Class B Principal Payment Amount............................ S-47
Class B Target Principal Amount............................. S-48
Class C Floor............................................... S-48
Class C Percentage.......................................... S-48
Class C Principal Payment Amount............................ S-48
Class C Target Principal Amount............................. S-48
Class D Floor............................................... S-48
Class D Percentage.......................................... S-48
Class D Principal Payment Amount............................ S-48
Class D Target Principal Amount............................. S-49
collection period........................................... S-49
contract pool principal balance............................. S-15
contract principal balance.................................. S-15
CPR......................................................... S-29
Defaulted Contract.......................................... S-49
delinquency................................................. S-27
deposit date................................................ S-55
LIBOR Determination Date.................................... S-42
Liquidation Loss............................................ S-53
One-Month LIBOR............................................. S-41
Pledged Revenues............................................ S-49
principal amount............................................ S-49
principal deficiency amount................................. S-52
Reallocated Principal....................................... S-49
Reference Banks............................................. S-42
Related Collection Period Pledged Revenue................... S-49
Required Payoff Amount...................................... S-49
Subordinate Classes......................................... S-39
Telerate Page 3750.......................................... S-42
Total Principal Payment Amount.............................. S-50
Unfunded Loss Amount........................................ S-50
United States Person........................................ S-58
S-63
[THIS PAGE INTENTIONALLY LEFT BLANK]
PROSPECTUS
NCT FUNDING COMPANY, L.L.C.
RECEIVABLE-BACKED NOTES
(ISSUABLE IN SERIES)
NCT FUNDING COMPANY, L.L.C.
DEPOSITOR
The depositor will form an owner trust for each series of notes. Each owner
trust will offer receivable-backed notes under this prospectus and a prospectus
supplement. The prospectus supplement will be prepared separately for each
series of notes. Each series may include one or more classes of notes.
Each owner trust will use the note sale proceeds to acquire a pool of
contracts which the depositor will simultaneously transfer to the owner trust.
The right of each class of notes to receive payments may be senior or
subordinate to the rights of one or more of the other classes of notes. The rate
of payment on the notes of any class will depend on the priority of payment of
the class and the rate and timing of payments of the related contracts.
THE NOTES OF EACH SERIES WILL BE OBLIGATIONS OF THE RELATED OWNER TRUST
ONLY.
------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 11 OF THIS PROSPECTUS AND
THE OTHER RISK FACTORS INCLUDED IN THE ACCOMPANYING PROSPECTUS
SUPPLEMENT.
--------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------------
This prospectus may not be used to consummate sales of notes unless
accompanied by the prospectus supplement relating to the notes.
Prospectus dated July 19, 1999.
TABLE OF CONTENTS
PAGE
----
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT.... 4
PROSPECTUS SUMMARY.......................................... 5
RISK FACTORS................................................ 11
The Absence of an Existing Market for the Notes May
Limit Your Ability to Resell the Notes............... 11
Contract Prepayment, Ineligibility or Default May
Cause Earlier Repayments of the Notes than You Expect
and You May Not Be Able To Find Investments with the
Same Yield as the Notes at the Time of the
Repayment............................................ 11
The Price at Which You Can Resell Your Notes May
Decrease if the Ratings of Your Notes Change......... 12
The Subordination of Some Classes of Notes is Only a
Limited Form of Credit Enhancement and Does Not
Ensure Payment of the More Senior Classes............ 12
Limited Assets are Available for Payment of the Notes;
Noteholders Will Have No Recourse to the Originators,
Depositor, Servicer or their Affiliates in the Event
Delinquencies and Losses Reduce the Trust's Assets... 12
Even if an Owner Trust Repossesses and Sells the
Equipment Relating to a Contract After an Obligor
Defaults, Shortfalls in Amounts Available To Pay the
Notes May Occur if the Market Value of the Equipment
Has Declined......................................... 13
Not Having Possession of Contract Files May Hinder an
Owner Trust's Ability to Realize the Value of
Equipment Securing the Contracts..................... 13
Failure to Take all Steps Necessary to Perfect
Security Interests in Equipment, to Record Assignment
of Security Interests to the Owner Trust or to Record
Security Interests in Titled Equipment May Hinder the
Owner Trust's Ability to Realize the Value of
Equipment Securing the Contracts..................... 13
Repurchase Obligation of the Seller Provides You Only
Limited Protection Against Prior Liens on the
Contracts or Equipment............................... 14
If a Bankruptcy Court Rules that the Transfer of
Contracts from a Vendor to an Originator was not a
True Sale then Payments on the Contracts may be
Reduced or Delayed................................... 15
A Bankruptcy Court Determination that the Transfer of
Contracts from Originators to the Seller, from the
Seller to the Depositor or from the Depositor to the
Owner Trust was not a True Sale then Payments on the
Contracts Could be Reduced or Delayed................ 15
Insolvency of the Vendors Could Delay or Reduce
Payments to You...................................... 16
2
End-User Bankruptcy May Reduce or Delay Collections on
the Contracts and Disposition of Equipment Relating
to These or Other Defaulting End-Users May be Delayed
or May not Result in Complete Recovery of Amounts
Due.................................................. 16
Commingling of Collections Could Result in Reduced
Payments to You...................................... 16
Bankruptcy of Depositor or the Owner Trust May Cause
Delays in or Reduce Collections Under the
Contracts............................................ 17
The Seller's Obligation to Repurchase Contacts Could
be Impaired by Bankruptcy............................ 17
Contracts Relating to Software or Related Support and
Consulting Services are not Secured by the Software
or Related Services.................................. 17
Year 2000 Issues May Impact the Servicer's Ability to
Service the Contracts................................ 18
The Year 2000 Problem May Also Affect The Depository
Trust Company's Record-Keeping and Distributions..... 18
Limitations on Enforceability of Security Interests in
the Equipment May Hinder the Owner Trust's Ability to
Realize the Value of Equipment Securing the
Contracts............................................ 19
Bankruptcy Court Rejection of 'True Leases' May Reduce
Funds Available to Pay Notes......................... 19
THE DEPOSITOR............................................... 19
THE OWNER TRUSTS............................................ 21
NEWCOURT CREDIT GROUP INC................................... 22
THE SERVICER................................................ 23
THE SELLER AND ORIGINATORS.................................. 24
THE CONTRACTS............................................... 33
DESCRIPTION OF THE NOTES AND INDENTURE...................... 52
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS......... 65
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 70
ERISA CONSIDERATIONS........................................ 77
RATINGS OF THE NOTES........................................ 79
USE OF PROCEEDS............................................. 79
PLAN OF DISTRIBUTION........................................ 80
LEGAL MATTERS............................................... 80
WHERE YOU CAN FIND MORE INFORMATION......................... 80
INDEX OF TERMS.............................................. 82
3
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT
The depositor tells you about the notes in two separate documents:
this prospectus, which provides general information, some of which may not
apply to a particular series of notes, including your series of notes; and
the prospectus supplement related to the particular terms of your series
of notes.
SOME PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR IN SOME WAY AFFECT THE PRICE OF THE NOTES. THESE TYPES OF
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF NOTES TO COVER SYNDICATE
SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, PLEASE READ THE SECTION ENTITLED 'PLAN OF DISTRIBUTION' IN YOUR
PROSPECTUS SUPPLEMENT.
4
PROSPECTUS SUMMARY
The following is only a summary of the terms of the notes. It does not
contain all information that may be important to you. You should read this
entire prospectus and any accompanying prospectus supplement. In addition, you
may wish to read the documents governing the sale of the contracts, the
formation of the trust and the issuance of notes. Those documents have been
filed as exhibits to the registration statement of which this prospectus is a
part.
There are material risks associated with an investment in the notes. See
'Risk Factors' beginning on page 11 for a discussion of factors you should
consider before investing in notes.
Issuer and Owner Trust.................... For each series of notes, the depositor will
form an owner trust and prepare a prospectus
supplement. Each owner trust will own a pool
of contracts and other assets. The depositor
will identify the owner trust and trustee in
your prospectus supplement.
Servicer.................................. AT&T Capital Corporation, an indirect
subsidiary of Newcourt Credit Group Inc.,
unless otherwise specified in your prospectus
supplement.
Indenture Trustee......................... For your series of notes, the depositor will
identify the indenture trustee in your
prospectus supplement.
The Notes................................. Each owner trust will issue one or more
classes of notes.
Terms of the Notes........................ See 'Description of the Notes and Indenture'
in this prospectus and your prospectus
supplement.
Payment Dates......................... Each owner trust will pay interest and
principal on notes on the dates specified in a
prospectus supplement.
Interest.............................. The prospectus supplement will state the
interest rates for the notes described in the
prospectus supplement.
Principal............................. The principal payments to be made by the owner
trust on notes will be as described in the
prospectus supplement for the notes.
Subordination......................... A class of notes may not be entitled to
receive payments of principal and interest
until after the owner trust pays one or more
other classes of notes. This makes it more
likely that senior notes will be paid all
interest and principal due on
5
them, and less likely that subordinate notes
will be paid all interest and principal due on
them.
Ratings............................... An owner trust will not issue a series of
notes unless one or more nationally recognized
rating agencies have assigned investment grade
ratings to the notes. For a more complete
description of note ratings, see 'Ratings of
the Notes' in this prospectus and in your
prospectus supplement.
Trust Assets.............................. Each owner trust will make payments on notes
it issues, primarily from funds from the
following assets:
equipment lease contracts,
installment payment contracts,
promissory notes,
conditional sale agreements,
financing agreements, and
deposits in bank accounts.
The Contracts............................. Your prospectus supplement provides the
particular terms of your series of notes and
information about:
the initial principal balance of the contracts
transferred to the owner trust issuing the
notes;
the number of contracts;
the average contract principal balance;
the various types of contracts;
the geographical distribution of the
contracts;
the remaining term of the contracts; and
the weighted average remaining term of the
contracts.
All of the contracts will be commercial
contracts. Most of the contracts are end-user
contracts. End-user contracts relate to the
financing by end-users of equipment or
software and related support and consulting
services. The obligors on the end-user
contracts are the actual end-users. The other
contracts are limited recourse loans to
equipment manufacturers, dealers or
distributors or to computer software
distributors, all of which are secured by one
or more end-user contracts.
6
As of the cut-off date for each pool of
contracts, no contract in that pool will be
delinquent.
The 'contract principal balance' of any
contract is the present value of the unpaid
scheduled payments on that contract,
discounted at a discount rate that will be
stated in your prospectus supplement. This
prospectus and the prospectus supplement refer
to the aggregate of the contract principal
balances as the 'contract pool principal
balance.'
Seller and Originators.................... Newcourt Financial USA Inc., a subsidiary of
Newcourt Credit Group Inc., will be the seller
of the contracts to the depositor for deposit
into the owner trust. The seller will itself
originate or acquire contracts. The seller
will also acquire contracts originated or
acquired by other subsidiaries of Newcourt
Credit Group Inc. Prior to the offering of a
series of notes, the seller may have sold
contracts to the depositor for deposit into a
trust used in connection with temporary
financing arrangements. The depositor may
acquire some or all of these contracts for
deposit into the owner trust in connection
with the offering and sale of a particular
series of notes. See 'Newcourt Credit Group
Inc.' and 'The Seller and Originators' in this
prospectus.
Contract Prepayments...................... Some contracts may:
not permit the obligor to prepay or terminate
the contract prior to its expiration date,
allow for a prepayment or early termination
upon payment of at least the contract
principal balance,
allow for a prepayment or early termination
without the payment of the contract
principal balance, or
permit the obligor to prepay the contract at
any time by paying the unpaid principal
plus accrued interest.
Liquidated Contracts...................... Your prospectus supplement will describe how
liquidation proceeds from a defaulted contract
will be allocated.
7
Mandatory Purchase or Replacement of
Contracts.............................. Newcourt Financial USA, as the seller,
directly or indirectly, of contracts to the
depositor, will make representations regarding
the contracts. In the event of an uncured
material breach of any of these
representations, Newcourt Financial USA must
purchase or replace any contract.
See 'The Contracts -- Representations and
Warranties made by the Seller' in this
prospectus and 'Weighted Average Life of the
Notes' in your prospectus supplement.
Leased Equipment.......................... The depositor will not transfer to any owner
trust the depositor's interest in equipment
covered by lease contracts. Amounts
representing payment of the residual value of
leased equipment are not available to pay
principal or interest on notes, except to the
extent that a vendor or obligor has guaranteed
the residual value of leased equipment.
Credit Enhancement........................ The depositor may arrange for credit
enhancement for some notes. Credit enhancement
may include:
a cash collateral account;
a financial guaranty insurance policy;
subordination of one or more other classes of
notes;
a reserve account;
overcollateralization;
letters of credit or liquidity facilities;
repurchase obligations;
third party payments or other support;
cash deposits; or
other arrangements which may become suitable
in light of credit enhancement practices or
developments in the future.
Your prospectus supplement will describe any
credit enhancement applicable to your notes.
Priority of Payments...................... The indenture trustee for your notes will
apply contract payments as described in the
prospectus supplement for your notes.
8
Optional Purchase of Contracts............ Once the principal balance of a note series is
less than 10% of the initial contract pool
principal balance, the depositor may
repurchase all the contracts held by the owner
trust. That would result in a redemption of
the outstanding notes. See 'Description of the
Notes and Indenture -- Optional Purchase of
Contracts and Redemption of Notes' in this
prospectus and in your prospectus supplement.
Substitution.............................. Newcourt Financial USA and the depositor may
substitute into the owner trust one or more
similar contracts for prepaid contracts or
contracts in default. They may not make
substitutions for defaulted contracts if all
substitutions together would exceed 10% of the
contract pool principal balance in the owner
trust at any time. They are not required to
replace any contract. See 'The
Contracts -- Substitution of Contracts.'
U.S. Taxation............................. In the opinion of the depositor's counsel,
Winston & Strawn, the notes will be
characterized as debt and the owner trusts
will not be characterized as 'associations' or
'publicly traded partnerships' taxable as
corporations for federal income tax purposes.
By purchasing a note, you agree to treat your
note as debt for federal, state and local
income tax purposes.
The depositor suggests that you consult your
own tax advisor about the federal income tax
consequences of purchasing, owning and
disposing of notes, and the tax consequences
in any state or other taxing jurisdiction. See
'Material Federal Income Tax Consequences'
below.
ERISA Considerations...................... Subject to the considerations described in
'ERISA Considerations' in this prospectus,
employee benefit plans that are subject to the
Employee Retirement Income Security Act of
1974, as amended, may purchase notes.
9
Registration, Clearance and Settlement of
Notes.................................. Each of the notes will be registered in the
name of Cede & Co., as the nominee of The
Depository Trust Company. You may purchase the
notes only in book-entry form on the records
of The Depository Trust Company and
participating members. The owner trust will
issue the notes in definitive form only under
the limited circumstances described in this
prospectus under 'Description of the Notes and
Indenture -- Issuance of Certificated Notes at
a Later Date.'
10
RISK FACTORS
You should carefully consider the following risk factors and additional
risk factors listed in your prospectus supplement before you invest in the
notes.
THE ABSENCE OF AN EXISTING MARKET FOR THE NOTES MAY LIMIT YOUR ABILITY TO RESELL
THE NOTES
There is currently no public market for the notes and the depositor cannot
assure you that one will develop. Thus, you may not be able to resell your notes
at all, or may be able to do so only at a substantial discount. The underwriters
may assist in resales of the notes but they are not obligated to do so. The
depositor does not intend to apply for listing of the notes on any securities
exchange or for the inclusion of the notes on any automated quotation system.
Even if a secondary market does develop, it may not continue.
CONTRACT PREPAYMENT, INELIGIBILITY OR DEFAULT MAY CAUSE EARLIER REPAYMENTS OF
THE NOTES THAN YOU EXPECT AND YOU MAY NOT BE ABLE TO FIND INVESTMENTS WITH THE
SAME YIELD AS THE NOTES AT THE TIME OF THE REPAYMENT.
A higher than anticipated level of prepayments or liquidation of contracts
that become defaulted may cause an owner trust to pay principal on the notes
sooner than you expected. Also, an owner trust may pay principal sooner than you
expected if Newcourt Financial USA repurchases ineligible contracts. Similarly,
upon the occurrence of an event of default under the indenture, you may receive
principal of the notes sooner than you expected. See 'Description of the Notes
and Indenture -- Events of Default; Rights Upon Event of Default.' You may not
be able to reinvest those distributions of principal at yields equivalent to the
yield on the notes; therefore, the ultimate return you receive on your
investment in the notes may be less than the return you expected on the notes.
The rate of early terminations or repurchases of contracts due to
prepayments ineligibility, or defaults is influenced by various factors
including:
technological change;
changes in customer requirements;
the level of interest rates;
the level of casualty losses; and
the overall economic environment.
Most contracts do not permit prepayment or early termination. Nevertheless,
AT&T Capital, as servicer, historically has permitted lessees to terminate
leases early either in connection with the execution of a new lease of
replacement equipment or upon payment of a negotiated prepayment premium or
both. Under the pooling and servicing agreement, the servicer may allow an
obligor to prepay a contract at any time if the payment, alone, or together with
the contract's remaining contract principal balance and any scheduled payment
owed and not yet received, is equal to the entire contract principal balance of
the contract. The principal balance of a contract is the present value of the
future scheduled payments under the contract, discounted at a discount rate that
will be specified in the prospectus supplement for your notes.
11
The depositor cannot assure you that prepayments on the contracts held by
the trust will conform to any historical experience. The depositor cannot
predict the actual rate of prepayments which will be experienced on the
contracts. However, your prospectus supplement will present information as to
the principal balances of the notes remaining at various times under several
hypothetical prepayment rates. See 'Weighted Average Life of the Notes' in your
prospectus supplement.
THE PRICE AT WHICH YOU CAN RESELL YOUR NOTES MAY DECREASE IF THE RATINGS OF YOUR
NOTES CHANGE
At any time, the rating agencies may lower their respective ratings of the
notes or withdraw their ratings entirely. In the event that a rating assigned to
any note is subsequently lowered or withdrawn for any reason, you may not be
able to resell your notes or to resell them without a substantial discount. For
more detailed information regarding the ratings assigned to any class of the
notes, see 'Ratings of the Notes' in this prospectus and the prospectus
supplement.
THE SUBORDINATION OF SOME CLASSES OF NOTES IS ONLY A LIMITED FORM OF CREDIT
ENHANCEMENT AND DOES NOT ENSURE PAYMENT OF THE MORE SENIOR CLASSES
An owner trust will pay interest and principal on some classes of notes
prior to paying interest and principal on other classes of notes. The
subordination of some classes of notes to others means that the subordinated
classes of notes are more likely to suffer the consequences of delinquent
payments and defaults on the contracts than the more senior classes of notes.
The more senior classes of notes could lose the credit enhancement provided
by the more subordinate classes if delinquencies and defaults on the contracts
increase and if the collections on the contracts and any credit enhancement
described in your prospectus supplement are insufficient to pay even the more
senior classes of notes.
Your prospectus supplement will describe any subordination provisions
applicable to your notes.
LIMITED ASSETS ARE AVAILABLE FOR PAYMENT OF THE NOTES; NOTEHOLDERS WILL HAVE NO
RECOURSE TO THE ORIGINATORS, DEPOSITOR, SERVICER OR THEIR AFFILIATES IN THE
EVENT DELINQUENCIES AND LOSSES REDUCE THE TRUST'S ASSETS
Each owner trust will be a limited purpose trust with limited assets.
Moreover, you have no recourse to the general credit of the servicer, depositor,
originator or their affiliates. Therefore, you must rely solely upon the
contracts and any credit enhancement described in your prospectus supplement for
payment of principal and interest on the notes.
An increase in delinquent or defaulted payments on contracts could result
in your being paid less than you expect on the notes or in delays in payment.
If a contract is a vendor loan, you must rely solely upon the end-user
contracts securing the vendor loan for payments in respect of that contract.
Most vendor loans are non-recourse to the vendors. In non-recourse loans you are
limited to recovering amounts due solely from the end-user contracts and related
security.
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EVEN IF AN OWNER TRUST REPOSSESSES AND SELLS THE EQUIPMENT RELATING TO A
CONTRACT AFTER AN OBLIGOR DEFAULTS, SHORTFALLS IN AMOUNTS AVAILABLE TO PAY THE
NOTES MAY OCCUR IF THE MARKET VALUE OF THE EQUIPMENT HAS DECLINED.
If a contract held by the trust becomes a defaulted contract, the only
sources of payment for amounts owed on that contract will be the income and
proceeds from the sale of any related equipment and a deficiency judgment, if
any, against the obligor under the defaulted contract. Since the market value of
the equipment may decline faster than the discounted contract balance, the owner
trust may not recover the entire amount due on the contract and might not
receive any recoveries on the equipment. The prospectus supplement for your
notes may describe some forms of credit enhancement which are intended to make
up for deficiencies in the proceeds and recoveries on the contracts. However,
this protection is limited and could be depleted if those deficiencies are
larger than the depositor anticipates.
NOT HAVING POSSESSION OF CONTRACT FILES MAY HINDER AN OWNER TRUST'S ABILITY TO
REALIZE THE VALUE OF EQUIPMENT SECURING THE CONTRACTS.
To facilitate servicing and reduce administrative costs, the servicer or a
sub-servicer will retain possession of the documents evidencing the contracts
held by the owner trust. As a result, a subsequent purchaser of contracts could
take physical possession of the documents without knowledge of their assignment.
That subsequent purchaser could then have a security interest in the contracts
senior to the owner trust's security interest. In the event that the owner trust
must rely upon repossession and sale of the equipment securing defaulted
contracts to recover amounts due on the defaulted contracts, the owner trust's
ability to realize upon the equipment would be limited by the existence of the
third party's senior security interest in those contracts. In this event, there
may be a delay or reduction in distributions to you.
Similarly, with respect to contracts securing vendor loans, the vendor will
retain the original documents associated with some contracts. The applicable
originator will file Uniform Commercial Code financing statements reflecting the
pledge of those contracts to the applicable originator as security for the
vendor loans. However, the related documents will remain in the vendor's
possession. If a subsequent purchaser were able to take physical possession of
the related documents without knowledge of the pledge to the originator, the
owner trust's security interest in those contracts could be defeated. In this
event, there may be a delay or reduction in distributions to you.
FAILURE TO TAKE ALL STEPS NECESSARY TO PERFECT SECURITY INTERESTS IN EQUIPMENT,
TO RECORD ASSIGNMENT OF SECURITY INTERESTS TO THE OWNER TRUST OR TO RECORD
SECURITY INTERESTS IN TITLED EQUIPMENT MAY HINDER THE OWNER TRUST'S ABILITY TO
REALIZE THE VALUE OF EQUIPMENT SECURING THE CONTRACTS
The depositor will receive security interests in financed equipment
securing contracts from Newcourt Financial USA, which will obtain security
interests in financed equipment from the other originators or through its own
origination activities. The depositor will assign the security interests to the
owner trust. However, in some instances, the originators may not file financing
statements for equipment relating to a single obligor in a single jurisdiction
when the value of the equipment is less than the amounts described in the
following paragraph. As a result, the originator
13
will not acquire, and the depositor and owner trust will not have, a perfected
security interest in the equipment. As a result, creditors of the end-user may
acquire superior interests in the equipment.
As originators, none of
Newcourt Commercial Finance Corporation,
Newcourt Leasing Corporation,
Newcourt Communications Finance Corporation or
Newcourt Technologies Corporation.
file financing statements against an obligor in the appropriate 'filing'
jurisdiction unless the fair market value of the equipment relating to a
contract is at least $20,000. However, if the contract is a lease with a 'fair
market value' purchase option, then the threshold fair market value of the
equipment is $50,000. As originator, Newcourt Financial USA Inc., does not file
financing statements against an obligor in the appropriate 'filing' jurisdiction
unless the fair market value of the related equipment relating to a contract is
at least $25,000.
Additionally, regardless of equipment value, the depositor's practice is to
require the originators to annotate their records to note the depositor's
security interest but not to require the filing of assignments of financing
statements for the equipment to reflect the depositor's, the owner trust's or
the indenture trustee's interests. Because of this, an originator or the
servicer could inadvertently release the security interest in the equipment
securing a contract. The owner trust would then not have a security interest in
the equipment.
Also, any transfer to the depositor of an originator's security interest in
motor vehicles securing the contracts is subject to state vehicle registration
laws. The depositor's transfer of a security interest in motor vehicles to the
owner trust is also subject to these registration laws. These registration laws
require that the secured party's name appear on the certificate of title or
similar registration of title to a motor vehicle in order for the secured
party's security interest to be perfected. The applicable originator will be
identified on the certificates or similar registrations of title. However, the
certificates of title or similar registrations of title will not identify the
depositor or owner trust as secured party. In addition, some equipment related
to the contracts may constitute fixtures under the real estate or Uniform
Commercial Code provisions of the state in which the equipment is located. The
relevant originator will not file assignments of fixture filings in favor of the
depositor or owner trusts. Therefore, a third party could acquire an interest in
the motor vehicles or real estate fixtures superior to that of the owner trusts.
REPURCHASE OBLIGATION OF THE SELLER PROVIDES YOU ONLY LIMITED PROTECTION AGAINST
PRIOR LIENS ON THE CONTRACTS OR EQUIPMENT
Federal or state law may grant liens on contracts or equipment that have
priority over the owner trust's interest. If the creditor associated with any
prior lien exercises its remedies it is unlikely that sufficient cash proceeds
from the contract and related equipment will be available to pay the contract
balance to the trust. In that event, there may be a delay or reduction in
distributions to you. An example of a lien arising
14
under federal or state law is a tax lien on property of the originator or the
depositor arising prior to the time a contract is conveyed to the owner trust.
The tax lien has priority over the interest of the owner trust in the contracts.
In most cases where vendors have assigned contracts to originators, the
vendors have warranted to the originators that there are no prior liens on the
contracts. Additionally, where vendors have assigned contracts to originators,
the vendors have agreed not to grant any lien on any contracts transferred to
the originators. In all cases, the seller will warrant to the depositor and the
owner trust that there are no prior liens on the contracts. The seller also will
warrant to the depositor and the owner trust that it will not grant any lien on
the contracts. In the event that those warranties are not true as to any
contract, the seller is required under the pooling and servicing agreement to
repurchase the contract. There can be no assurance that the seller will be able
to repurchase a contract at the time when it is asked to do so.
IF A BANKRUPTCY COURT RULES THAT THE TRANSFER OF CONTRACTS FROM A VENDOR TO AN
ORIGINATOR WAS NOT A TRUE SALE THEN PAYMENTS ON THE CONTRACTS MAY BE REDUCED OR
DELAYED
Vendors sell contracts to the originators, which contracts will be
transferred directly or indirectly to the depositor and then the owner trust. If
a bankruptcy court decides that the acquisition of a contract by an originator
is not a sale of the contract from the vendor to the originator, the contract
would be part of the vendor's bankruptcy estate. Accordingly, the contract would
be available to the vendor's creditors. In that case, it is unlikely the trust
will receive all of the scheduled payments on the contracts, and there may be a
delay or reduction in distributions to you. In order to treat the transfer of
contracts to the trust as not being a true sale, the bankruptcy court would
recharacterize the transfer as a pledge of the contracts to secure borrowings by
the vendor. Additionally, if the transfer of contracts to an originator from a
vendor is recharacterized as a pledge, then a tax or government lien on the
property of the pledging vendor arising before the contracts came into existence
may have priority over the owner trust's interest in the contracts.
A BANKRUPTCY COURT DETERMINATION THAT THE TRANSFER OF CONTRACTS FROM ORIGINATORS
TO THE SELLER, FROM THE SELLER TO THE DEPOSITOR OR FROM THE DEPOSITOR TO THE
OWNER TRUST WAS NOT A TRUE SALE THEN PAYMENTS ON THE CONTRACTS COULD BE REDUCED
OR DELAYED
If an originator, the seller or the depositor became a debtor in a
bankruptcy case, creditors of that party, or that party acting as a
debtor-in-possession, may assert that the transfer of the contracts was
ineffective to remove the contracts from that party's estate. In that case, the
distribution of contract payments to the trust might be subject to the automatic
stay provisions of the United States Bankruptcy Code. This would delay the
distribution of those payments to the noteholders for an uncertain period of
time. Furthermore, if the bankruptcy court rules in favor of the creditors or
the debtor in possession, the result may be reductions in payments under the
contracts to the trust. In either case, you may experience delays or reduction
in distributions to you. In addition, a bankruptcy trustee would have the power
to sell the contracts if the
15
proceeds of the sale could satisfy the amount of the debt deemed owed by the
originator, the seller or the depositor, as the case may be. The bankruptcy
trustee could also substitute other collateral in lieu of the contracts to
secure the debt. Additionally, the bankruptcy court could adjust the debt if the
originator, the seller or the depositor were to file for reorganization under
Chapter 11 of the Bankruptcy Code. Each of these parties will represent and
warrant that the conveyance of the contracts by it is in each case a valid sale
and transfer of the contracts. In addition, in agreements conveying the
contracts, the originators, the seller and the depositor have agreed that they
will each treat the transactions described in this prospectus as a sale of the
contracts.
INSOLVENCY OF THE VENDORS COULD DELAY OR REDUCE PAYMENTS TO YOU
In the event a vendor under a vendor loan becomes subject to insolvency
proceedings, the end-user contracts and equipment securing the vendor loan as
well as the vendor's oligation to make payments would also become subject to the
insolvency proceedings. In that event, payments to the owner trust in respect of
those vendor contracts may be reduced or delayed. Payments to you may be reduced
if collections from the remaining unaffected contracts are insufficient to cover
losses to the owner trust. In those cases in which transfers of end-user
contracts by vendors to originator provide that the originator have recourse to
the vendor for all or a portion of the losses the originator may incur as a
result of a default under those end-user contracts, the vendor's bankruptcy, may
similarly result in reductions or payment delays in amounts due from the vendor.
END-USER BANKRUPTCY MAY REDUCE OR DELAY COLLECTIONS ON THE CONTRACTS, AND
DISPOSITION OF EQUIPMENT RELATING TO THESE OR OTHER DEFAULTING END-USERS MAY BE
DELAYED OR MAY NOT RESULT IN COMPLETE RECOVERY OF AMOUNTS DUE
Bankruptcy and insolvency laws could affect your interests in contracts
with end-user obligors who become subject to bankruptcy proceedings. Those laws
could result in contracts of a bankrupt end-user being written off as
uncollectible or result in delay in payments due on the contracts. As a result,
you may be subject to delays in receiving payments, and you may also suffer
losses if collections from the remaining unaffected contracts are insufficient
to cover losses to the trust. Foreclosure sales of equipment and obtaining
deficiency judgments following foreclosure sales may not yield sufficient
proceeds to pay off the balance owed on a contract. If you must rely on
repossession and disposition of equipment to recover amounts due on defaulted
contracts, those amounts may be insufficient. Factors that may affect whether
you receive the full amount due on a contract include the failure to file
financing statements to perfect the originator's or owner trust's security
interest in the equipment securing the contract. The depreciation, obsolescence,
damage, or loss of any item of equipment will also affect whether you receive
the full amount due on a contract.
COMMINGLING OF COLLECTIONS COULD RESULT IN REDUCED PAYMENTS TO YOU
Cash held by the servicer may be commingled and used for the benefit of the
servicer prior to the date on which the collections are required to be deposited
in a collection account as described under 'Description of the Pooling and
Servicing
16
Agreements -- Collections on Contracts.' In the event of the insolvency or
receivership of the servicer, an owner trust may not have a perfected ownership
or security interest in these collections. In that case, you may suffer losses
on your investment as a result.
BANKRUPTCY OF DEPOSITOR OR THE OWNER TRUST MAY CAUSE DELAYS IN OR REDUCE
COLLECTIONS UNDER THE CONTRACTS
If an owner trust or the depositor becomes insolvent under any federal
bankruptcy or similar state laws, the right of an indenture trustee to foreclose
upon and sell the assets of an owner trust is likely to be significantly
impaired by applicable bankruptcy laws. This would be the case before or
possibly even after an indenture trustee has foreclosed upon and sold the assets
of an owner trust. Under the bankruptcy laws, payments on debts are not made,
and secured creditors are prohibited from repossessing their security from a
debtor in a bankruptcy case or from disposing of security repossessed from the
debtor, without bankruptcy court approval. Moreover, the bankruptcy laws may
permit the debtor to continue to retain and to use collateral even though the
debtor is in default under the applicable debt instruments, if the secured
creditor is provided adequate protection. The meaning of the term adequate
protection may vary according to circumstances, but it is intended in general to
protect the value of the security from any diminution in the value of the
collateral as a result of its use by the debtor during the pendency of the
bankruptcy case. Because there is no precise definition of the term adequate
protection and because the bankruptcy court has broad discretionary powers, it
is impossible to predict if or how you would be compensated for any diminution
in value of the owner trust assets.
THE SELLER'S OBLIGATION TO REPURCHASE CONTACTS COULD BE IMPAIRED BY BANKRUPTCY
Newcourt Financial USA Inc., as the direct or indirect seller of contracts
to the depositor, will make representations and warranties regarding the
contracts, the equipment and other matters. See 'The Contracts --
Representations and Warranties Made by the Seller.' If any representation or
warranty with regard to a specific contract is breached, is not cured within a
specified period of time, and the value of the contract is materially and
adversely affected by the breach, the seller must purchase the contract from the
applicable owner trust at a price equal to the amount required to pay off the
contract. If the seller becomes bankrupt or insolvent, each indenture trustee's
right to compel a purchase would both be impaired and have to be satisfied out
of any available 'assets' of the seller's bankruptcy estate. In that case, you
may suffer a loss on your investment in a note as a result.
CONTRACTS RELATING TO SOFTWARE OR RELATED SUPPORT AND CONSULTING SERVICES ARE
NOT SECURED BY THE SOFTWARE OR RELATED SERVICES
Some of the contracts held by the owner trust will relate to software that
is not owned by an originator or related support and consulting services. In
these cases, the vendor or a licensor traditionally owns the software, and the
software and related support and consulting services do not serve as collateral
for the contracts. Thus, the owner trust will not have an interest in the
software or related support and consulting services. The owner trust will own
solely the associated contracts' cash flow. Accordingly, if any of these
contracts becomes a defaulted contract, the owner trust
17
will not be able to foreclose on the software or related support and consulting
services. Because there will be no proceeds from the software or related support
and consulting services which could be used to make payments to you, the owner
trust must look solely to the obligor to collect amounts due on the contract.
There can be no assurance that the obligor will be able to pay in full amounts
due under the contract.
YEAR 2000 ISSUES MAY IMPACT THE SERVICER'S ABILITY TO SERVICE THE CONTRACTS
If a servicer does not have computerized systems that are Year 2000
compliant by the Year 2000, its ability to service the contracts may be
materially and adversely affected. Similarly, if the indenture trustee does not
have computerized systems that are Year 2000 compliant by the Year 2000, its
ability to make distributions to you may be materially and adversely affected.
The 'Year 2000' issue concerns that potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits to
identify a year in the date field rather than four. These programs could fail or
produce erroneous results during the transition from the Year 1999 to the Year
2000.
The originators' and servicer's indirect parent, Newcourt Credit Group
Inc., has established procedures for evaluating and managing the risks and costs
associated with this problem. However, there can be no assurance that all of
Newcourt Credit Group Inc.'s internal computer systems will be able to handle
all Year 2000 problems. Furthermore, Newcourt Credit Group Inc. does not
guarantee that the systems and software of other companies on which its systems
and operations rely will be able to handle all Year 2000 problems.
THE YEAR 2000 PROBLEM MAY ALSO AFFECT THE DEPOSITORY TRUST COMPANY'S
RECORD-KEEPING AND DISTRIBUTIONS
The Depository Trust Company has reported that it has developed and is
implementing a program so that its systems, as the same relate to
the timely payment of distributions to securityholders,
book-entry deliveries, and
settlement of trades within The Depository Trust Company,
continue to function appropriately on and after January 1, 2000. However, The
Depository Trust Company's ability to perform properly its services is dependent
upon other parties, such as its participating organizations through which you
may hold your notes, and third party service providers of computer systems. The
Depository Trust Company has reported that it is contacting and will continue to
contact third party vendors from whom The Depository Trust Company acquires
services to determine the extent of their efforts for Year 2000 remediation and,
as appropriate, testing of their services. In addition, The Depository Trust
Company has stated that it is in the process of developing contingency plans. If
problems associated with the Year 2000 issue were to occur with respect to The
Depository Trust Company and the services described above, distributions to you
could be delayed or otherwise adversely affected.
18
LIMITATIONS ON ENFORCEABILITY OF SECURITY INTERESTS IN THE EQUIPMENT MAY HINDER
THE OWNER TRUST'S ABILITY TO REALIZE THE VALUE OF EQUIPMENT SECURING THE
CONTRACTS
State law limitations on the enforceability of security interests and the
manner in which a secured party may dispose of collateral may limit the owner
trust's ability to obtain or dispose of collateral in a timely fashion. This
could reduce or delay the availability of funds to pay the notes. Under these
state law limitations:
if the obligor becomes bankrupt or insolvent, the owner trust may need
the permission of a bankruptcy court to obtain and sell its
collateral;
some jurisdictions require that the obligor be notified of the default
and be given a time period within which it may cure the default prior
to repossession; and
the obligor may have the right to redeem collateral for its
obligations prior to actual sale by paying the lessor or secured party
the unpaid balance of the obligation plus the secured party's expenses
for repossessing, holding and preparing the collateral for
disposition.
BANKRUPTCY COURT REJECTION OF 'TRUE LEASES' MAY REDUCE FUNDS AVAILABLE TO PAY
NOTES
A bankruptcy trustee or debtor-in-possession under federal bankruptcy or
similar state laws has the right to assume or reject any executory contract or
unexpired lease which is considered to be a 'true lease' under applicable law. A
'true lease' is a contract under which the applicable originator or vendor holds
a residual interest in equipment of more than a nominal amount. Some contracts
will be true leases and thus subject to rejection by the lessor under federal
bankruptcy or similar state laws. For this reason, the originator, as
debtor-in-possession or the originator's bankruptcy trustee may reject the
leases of which that originator is the lessor. Upon any rejection, payments to
the applicable originator under the rejected contract may terminate and your
investment may be subject to losses. In addition, any contract which is a true
lease that a vendor originated and transferred to an originator in a transaction
whereby the vendor continues to be the lessor, will be subject to rejection by
the vendor, as debtor in possession, or by the vendor's bankruptcy trustee. An
example of this transaction is a transfer by a vendor to an originator of a
security interest in the lease contract or a transfer by a vendor to an
originator of an interest in the right to payments only under the lease
contract. Upon any rejection, payments to the applicable originator under the
rejected contract may terminate and your investment may be subject to losses.
THE DEPOSITOR
The depositor is NCT Funding Company, L.L.C., a limited liability company
organized under the laws of the State of Delaware. Newcourt Financial USA Inc.
owns all of the depositor's membership interests. On or before the closing date
for a series of notes the depositor will arrange for Newcourt Financial USA to
transfer contracts and interests of the originators in the related equipment to
the depositor in exchange
19
for cash proceeds. The transfer of a contract and related equipment to the
depositor will be from either or both of:
Newcourt Financial USA Inc.; or
The Newcourt Equipment Trust -- VFC Series, a trust the depositor
established to finance contracts and related equipment interests
through a warehouse receivable securitization facility.
In each case Newcourt Financial USA Inc. will have obtained contracts and
equipment interests from the originators or shall itself have been the
originator or shall have acquired contracts from third parties not affiliated
with Newcourt Financial USA.
The depositor will pay to Newcourt Financial USA Inc., as seller, or the
receivables securitization facility trust noted above, as the case may be, the
net proceeds received from the sale of the notes of each series.
Newcourt Financial USA Inc. formed NCT Funding Company, L.L.C., the
depositor, solely for the transactions described in this prospectus and other
similar transactions. Under the depositor's formation documents and the pooling
and servicing agreement executed in connection with each owner trust, the
depositor is permitted to engage only in the following activities:
acquiring contracts, interests in pools of contracts and interests of
originators in equipment and other real or personal property;
transferring and conveying the contracts and security interests in the
related equipment to owner trusts and other similar trusts;
issuing and selling notes, certificates or other securities secured by
representing interests in pools of contracts and other property;
executing and performing obligations under the relevant trust
agreements, sale and contribution agreements, and pooling and
servicing agreements covering the transfer and servicing of a pool of
contracts;
holding or transferring other securities issued by each owner trust;
investing proceeds from the sale of securities representing interests
in pools of contracts;
engaging in other transactions, including entering into agreements
that are necessary, suitable or convenient to accomplish the foregoing
or are incidental or connected to the foregoing; and
other transactions of the type described in this prospectus.
The depositor is prohibited from incurring any debt, issuing any obligations or
incurring any liabilities, except in connection with the formation of any owner
trust and the issuance of the related series of securities issued by the owner
trust. The depositor is not responsible for payment of any principal, interest
or any other amount in respect of any series of notes.
20
THE OWNER TRUSTS
The depositor will form each owner trust under a trust agreement between
the depositor and the owner trustee, as described in your prospectus supplement.
Each owner trust may issue one or more classes of securities, representing debt
of or beneficial ownership interests in the owner trust. The trust will not
offer the beneficial ownership interests under this prospectus.
The assets of each owner trust, as further specified in your prospectus
supplement, will consist of:
(1) a pool primarily of the following types of contracts:
equipment lease contracts,
conditional sale/financing agreements,
installment payment agreements,
promissory notes, and
loan and security agreements;
(2) amounts on deposit in, and any eligible investments allocated to,
accounts established under the related indenture and the pooling and
servicing agreement;
(3) the depositor's rights under the related purchase and sale agreement or
other instrument by which it acquired contracts, if any; and
(4) the depositor's rights with respect to any cash collateral account or
other form of credit enhancement for the notes.
The owner trust will have the right to:
all funds payable under the contracts after the cut-off date, the
date on which the owner trust's right to contract payments
commences. This includes all scheduled but unpaid amounts due prior
to the cut-off date, but excludes any scheduled payments due on or
after, but received prior to, the date the depositor transfers the
contracts to an owner trust. This does not include contract payments
in respect of taxes, insurance premiums, security deposits, late
charges, administrative fees or charges;
prepayments, except for any portion allocated to the depositor in
respect of equipment leases;
liquidation proceeds received with respect to defaulted contracts,
except for any portion allocable to the depositor under an equipment
lease;
earnings from the investment of funds in the collection account and
note distribution account maintained by the servicer; and
security interests in the equipment related to the contracts, but
excluding ownership rights.
No owner trust will engage in any business activity other than
issuing notes and ownership interests in the owner trust;
purchasing contracts and related assets;
holding and dealing with the assets of owner trust;
21
making payments on the notes and other securities it issued;
entering into and performing the duties, responsibilities and
functions required under any of the related pooling and servicing
agreement, indenture, contracts, and related documents; and
matters incidental to the above.
The assets of an owner trust will be separate from the assets of all other
owner trusts the depositor creates. Accordingly, the assets of one owner trust
will not be available to make payments on the securities issued by any other
owner trust.
The depositor will specify the owner trustee of the owner trust for notes
being offered in your prospectus supplement. The owner trustee's liability in
connection with the sale of notes will be limited to the express obligations of
the owner trustee in the related trust agreement and indenture. An owner trustee
may resign at any time, in which event the depositor or its designee must
appoint a successor owner trustee. The depositor or its designee may also remove
an owner trustee if the owner trustee ceases to be eligible to continue as such
under the related trust agreement or if the owner trustee becomes insolvent. Any
resignation or removal of an owner trustee will not become effective until
acceptance of the appointment of a successor owner trustee.
NEWCOURT CREDIT GROUP INC.
GENERAL
Newcourt Credit Group Inc. was formed in 1984 as an investment bank. It
originated and structured asset-based financings for the corporate and
institutional asset finance market and syndicated the financings to Canadian
financial institutions. In 1988, Newcourt Credit Group Inc. broadened its
activities to include vendor and direct equipment financing. Today, Newcourt
Credit Group Inc. is one of the world's largest providers of vendor finance and
one of the world's largest non-bank commercial asset finance companies. Newcourt
Credit Group Inc. has approximately U.S. $23.4 billion (Canadian $36.2 billion)
of owned and managed assets and U.S. $3.0 billion (Canadian $4.7 billion)
shareholders' equity at December 31, 1998.
Newcourt Credit Group Inc.'s international origination and servicing
capabilities span 26 countries around the globe. Newcourt Credit Group Inc.
serves clients in Canada, the United States, the United Kingdom, the
Asia/Pacific region, Europe, Mexico and South America.
Newcourt Credit Group Inc.'s United States asset-based operations are
conducted through indirect subsidiaries owned by Newcourt Credit Group USA Inc.,
a wholly owned subsidiary.
Newcourt Credit Group has entered into a business combination agreement
with The CIT Group Inc. The proposed business combination is subject to a number
of conditions. There can be no assurance that the parties will be able to
satisfy these conditions to the completion of the transaction or that they will
complete the transaction in accordance with agreements between them.
22
Newcourt Credit Group Inc.'s principal executive offices are located at
Queens Quay Terminal, 207 Queens Quay West, Floors 6 & 7, Toronto, Ontario
M5J 1A7, (416) 507-2400.
ACQUISITIONS
In January 1998, Newcourt Credit Group Inc. consummated the acquisition of
all of the outstanding shares of AT&T Capital Corporation. The aggregate
purchase price paid by Newcourt Credit Group Inc. on the acquisition closing was
approximately Canadian $2.4 billion (U.S. $1.7 billion). As a result, AT&T
Capital Corporation became a wholly owned subsidiary of Newcourt Credit Group
USA Inc.
THE SERVICER
AT&T Capital Corporation is currently expected to be the servicer. However,
if the depositor selects a different servicer for any particular series of
notes, the relevant prospectus supplement will provide information about that
servicer.
AT&T Capital Corporation is a full-service, diversified, equipment leasing
and finance company that operates principally in the United States and also has
operations in the Asia/Pacific region, Mexico and South America. AT&T Capital
Corporation is one of the largest equipment leasing and finance companies in the
United States and is the largest lessor of telecommunications equipment in the
United States, in each case, based on the aggregate value of equipment leased or
financed.
AT&T Capital Corporation, a Delaware corporation, is a wholly owned
subsidiary of Newcourt Credit Group USA Inc., which in turn is a wholly owned
subsidiary of Newcourt Credit Group Inc. AT&T Capital Corporation's chief
executive offices are currently located at 2 Gatehall Drive, Parsippany, New
Jersey 07054 and its telephone number is (973) 606-3500.
AT&T Capital Corporation, through some of the originators, leases and
finances a wide variety of equipment, including
telecommunications equipment, such as private branch exchanges,
telephone systems and voice processing units,
information technology equipment, such as personal computers, retail
point of sale systems and automated teller machines,
general office, manufacturing and medical equipment, and
transportation and construction equipment.
In addition, the group provides franchise financing for franchises and financing
collateralized by real estate.
AT&T Capital Corporation markets its leasing and financing services to
customers of equipment manufacturers, distributors and dealers with which AT&T
Capital Corporation has a marketing relationship for financing services and
directly to end-users of equipment. AT&T Capital Corporation's approximately
500,000 customers include large global companies, small and mid-sized businesses
and federal, state and local governments and their agencies.
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As of December 31, 1998, AT&T Capital Corporation had, on a consolidated
basis, total assets of $10.8 billion, total liabilities of $9.9 billion and net
income for the year ended December 31, 1998 of $97.5 million.
AT&T Corp. founded AT&T Capital Corporation in 1985 as a captive finance
company to assist AT&T Corp.'s equipment marketing and sales efforts by
providing its customers with sophisticated financing.
THE SELLER AND ORIGINATORS
The information in this section describes several companies which may be
originators in respect of a particular pool of contracts. Your prospectus
supplement may provide information on other originators. Each of the seller and
originators will be an indirect wholly owned subsidiary of Newcourt Credit Group
Inc.
NEWCOURT FINANCIAL USA INC.
Newcourt Financial USA Inc., an originator and the direct or indirect
seller of contracts of the depositor, was incorporated on January 8, 1992 in
Delaware and is a wholly owned subsidiary of Newcourt Credit Group USA Inc.
Newcourt Credit Group USA Inc. is a wholly owned subsidiary of Newcourt Credit
Group Inc. Newcourt Financial USA originates and acquires
conditional sales/financing agreements,
equipment lease contracts,
promissory notes,
installment payment agreements and
loan and security agreements.
These contracts finance equipment of the following types:
transportation,
construction,
information technology (including software),
communications,
commercial and
industrial and resource.
Newcourt Financial USA typically structures its vendor financing
arrangements as
direct originations with customers and end-users of a vendor's
products, either with or without recourse, or
assignments of contracts, either with or without recourse, by a vendor
to Newcourt Financial USA.
Newcourt Financial USA will sell to the depositor contracts which the
seller will have originated or acquired from other originators. The seller will
sell its contracts to the depositor under a purchase and sale agreement
containing seller representations and warranties as to the contracts. Prior to
the offering of your series of notes, the seller may have sold contracts to the
depositor for deposit into a trust used in
24
connection with a warehouse receivables securitization facility. The depositor
may reacquire some or all of these contracts for deposit into the owner trust in
connection with the offering and sale of a particular series of notes.
Newcourt Financial USA's principal executive offices are located at 2
Gatehall Drive, Parsippany, New Jersey 07054 and its telephone number is (973)
606-3500.
NEWCOURT LEASING CORPORATION
Newcourt Leasing Corporation, an originator formerly known as AT&T Capital
Leasing Services, Inc., provides leasing and financing programs for certain
targeted manufacturers and distributors as well as leasing and financing to
existing customers. Newcourt Credit Group Inc. acquired Newcourt Leasing
Corporation as part of the acquisition of AT&T Capital Corporation. Newcourt
Leasing Corporation is a wholly owned subsidiary of AT&T Capital Corporation.
Newcourt Leasing Corporation is headquartered in Westborough,
Massachusetts. The Newcourt Leasing Corporation portfolio, which includes both
contracts owned by Newcourt Leasing Corporation and contracts serviced on behalf
of others, is primarily comprised of leases of and loans on the following
equipment types:
computer,
machine tool manufacturing,
copier,
medical/dental,
printing and
automobile test/repair.
NEWCOURT COMMUNICATIONS FINANCE CORPORATION
Newcourt Communications Finance Corporation, an originator formerly known
as AT&T Credit Corporation, supports the sales of Lucent Technologies Inc. and
NCR Corporation equipment by providing leasing and financing options to
customers who have selected equipment manufactured or supplied by these vendors.
AT&T Corp. established Newcourt Communications Finance Corporation's predecessor
as a captive finance company in 1985. Newcourt Credit Group Inc. acquired
Newcourt Communications Finance Corporation as a result of the acquisition of
AT&T Capital Corporation. Newcourt Communications Finance Corporation is a
wholly owned subsidiary of AT&T Capital Corporation.
Lucent Technologies and NCR Corporation generate substantially all of
Newcourt Communications Finance Corporation's transactions. Lucent Technologies
manufactures and distributes telecommunications and related equipment. NCR
Corporation manufactures and distributes information technology, including
retail point-of-sale systems, automated teller machines and computers. The
Newcourt Communications Finance Corporation portfolio of contracts is primarily
comprised of both leases and loans on the following equipment types:
telecommunication,
retail point-of-sale system,
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automatic teller machine and
computer.
NEWCOURT COMMERCIAL FINANCE CORPORATION
The Portland Division of Newcourt Commercial Finance Corporation, formerly
known as AT&T Commercial Finance Corporation, an originator, provides financing
and leasing programs for manufacturers and distributors of material handling and
construction equipment. Newcourt Commercial Finance Corporation is a wholly
owned subsidiary of AT&T Capital Corporation. Newcourt Commercial Finance
Corporation was formed in December 1989 in connection with the acquisition of
substantially all the assets of two divisions of Pacificorp Credit, Inc.
Newcourt Commercial Finance Corporation is headquartered in Parsippany, New
Jersey. The Newcourt Commercial Finance Corporation portfolio, which includes
both contracts owned by Newcourt Commercial Finance Corporation and contracts
serviced on behalf of others, is comprised entirely of leases of, loans on and
conditional sales and installment payment agreements covering construction and
material handling equipment.
NEWCOURT TECHNOLOGIES CORPORATION
Newcourt Technologies Corporation, formerly known as AT&T Systems Leasing
Corporation, provides leasing, financing and remarketing of computer equipment,
electronics, manufacturing and other capital equipment. Newcourt Technologies
Corporation's predecessor was established in 1987 and acquired by AT&T Capital
in 1990. Newcourt Credit Group Inc. acquired Newcourt Technologies as a result
of the acquisition of AT&T Capital. Newcourt Technologies Corporation is a
wholly owned subsidiary of AT&T Capital and is headquartered in Bloomfield
Hills, Michigan.
UNDERWRITING AND SERVICING
CREDIT MANAGEMENT PHILOSOPHY
Each originator strives to manage risks in connection with its business,
including credit risk and residual value risk associated with acquiring and
holding contracts. The management of these risks is critical to the success of
each originator. Each originator has in place policies, controls, systems and
procedures intended to manage and limit these risks and promote early problem
recognition and corrective action, as well as facilitate consistent portfolio
performance measurements. Newcourt Credit Group Inc.'s risk management
department, which includes credit and asset management personnel, Newcourt
Credit Group Inc.'s internal and external auditors and Newcourt Credit Group
Inc.'s audit committee periodically reviews these policies, controls, systems
and procedures. In addition, the investment committee of Newcourt Credit Group
Inc. monitors overall risk profile.
Each originator seeks to minimize its credit risk through diversification
of its portfolio by customer, industry segment, equipment type, geographic
location and transaction maturity. The originators' financing activities cover a
wide range of equipment types, including, general equipment, telecommunications
equipment, office
26
equipment, information technology and transportation equipment, and a large
number of end-users located throughout the United States and, to a lesser
extent, abroad.
CREDIT APPROVAL
Each originator has a chief credit officer who is responsible for
overseeing the quality, integrity and performance of the originator's credit
portfolios. Before any transaction can be committed to, it must first qualify
for credit approval under one of Newcourt Credit Group Inc.'s proprietary credit
scoring models. Alternatively, a duly authorized credit officer must approve the
transaction in accordance with clearly defined authorities, policies and
procedures. Each originator's chief credit officer has the responsibility of
establishing credit policies appropriate for the originator's business and
periodically reviewing its credit personnel's exercise of credit authority for
adherence to the established credit policies.
Credit authorities are an important tool that each originator uses to
manage and control its portfolio risk. The originators set credit authorities in
order to enable individual credit officers to handle approximately 80-85% of the
transactions flowing to them. This approach results in higher credit authorities
reviewing approximately 15-20% of the transactions. This ensures oversight of an
individual's judgment, credit skills and compliance with credit policy by more
senior credit officials. Each originator's chief credit officer is empowered to
establish credit authorities for qualified members of their credit staff for up
to $500,000. Approval of new credit authorities up to $5,000,000 requires the
approval of Newcourt Credit Group Inc.'s chief investment officer in addition to
the approval of the originator's chief credit officer. Approval of new credit
authorities in excess of $5,000,000 also requires the approval of the president
of Newcourt Credit Group Inc. services business unit or Newcourt Credit Group
Inc.'s chief executive officer. The existing credit authorities allow each
originator's chief credit officer to approve transactions:
up to $7,500,000 in the case of Newcourt Communications Finance
Corporation,
up to $5,000,000 in the case of Newcourt Leasing Corporation,
up to $1,500,000 in the case of Newcourt Commercial Finance
Corporation and
up to $5,000,000 in the case of Newcourt Technologies Corporation and
Newcourt Financial USA.
Approval of Newcourt Credit Group Inc.'s chief investment officer is required
for transactions in excess of an originator's credit authority. Each originator
reports all investment decisions involving amounts in excess of $10,000,000 to
the Investment Committee of Newcourt Credit Group, Inc.'s Board of Directors
each month. The Investment Committee must approve amounts in excess of
$20,000,000 for transactions risk rated below investment grade, while each
originator's authority for transactions risk rated low investment grade or
higher is $35,000,000.
The credit authority granted to approve transactions may not be delegated.
Each originator monitors portfolio quality regularly to assess the overall
condition of the portfolio and identify the major exposures within the
portfolio. Each originator
27
utilizes the 'one obligor concept' in computing total credit exposure; this
means that the level of credit authority required to approve an incremental
transaction must be sufficient to approve the customer's total credit exposure.
Newcourt Credit Group Inc. tracks credit exposure in an automated fashion
aggregating all originators' exposure to each customer including its
subsidiaries, affiliates and commonly controlled companies. Unless otherwise
specifically approved, credit approvals are valid for up to 180 days.
UNDERWRITING -- GENERAL
The purpose of each originator's underwriting standards is to evaluate a
prospective customer's credit standing and repayment ability. Each originator
makes credit decisions based upon the credit characteristics of the applicant,
loss experience with comparable customers, the amount and terms and conditions
of the proposed transaction and the type of equipment to be leased or financed.
For almost all transactions under $50,000, the originators, other than Newcourt
Commercial Finance Corporation and Newcourt Technologies Corporation, utilize
credit scoring systems to make credit decisions. In a credit scoring system, a
computer makes the initial credit decision after inputting credit application
data and credit bureau information into a statistical model of such originator's
prior loss experience. Newcourt Credit Group Inc. intends the proprietary credit
scoring systems to improve credit decisions on new lease applications, expedite
response times to customers and increase business volume and portfolio
profitability while maintaining credit quality.
With respect to credit decisions for those transactions which are not based
on credit scoring, each originator's credit officers conduct various credit
investigations, including reference calling and the procurement and analysis of
data from credit reporting agencies such as Dun & Bradstreet and other credit
bureaus. In the case of larger sized transactions (generally over $100,000),
each originator's credit officers will obtain and analyze financial statements
from the customer. The analysis is to determine the reliability of the financial
statements and to ascertain the financial condition and operating performance of
the potential customer. Each originator carefully reviews asset quality and
compares stated liabilities to the information obtained from reference checking
and credit reports. Each originator checks cash flow for reliability and
adequacy to service funded debt maturities and other fixed charges. The
financial analysis typically involves a review of the potential customer's
leverage, profitability, liquidity and cash flow utilizing a variety of
financial ratios and comparing the company to other companies its size in
similar businesses. In this connection, the analysis utilizes various reference
sources, such as Robert Morris Associates Annual Statement Studies.
Additionally, the originator may obtain information from rating agencies,
securities firms, Bloomberg and numerous other sources. The credit officer then
prepares a written analysis summarizing the amount and terms of the credit
request and setting forth the credit officer's recommendation including detailed
supporting rationale. Each originator also considers alternative exit
strategies, including an analysis of the value of the equipment as well as its
essentiality of use, in the event the customer fails to honor its payment
obligations, No originator imposes either rigid loan-to-value ratios in its
underwriting processes or a maximum loan-to-value ratio.
28
The credit approval will also set forth any conditions of approval such as
personal or corporate guarantees, shorter lease terms, more advance payments or
other credit enhancements, and it will dictate the necessary documentation. One
of Newcourt Credit Group Inc.'s authorized credit officers must re-approve any
subsequent modification of approval terms or required documentation. Newcourt
Credit Group Inc. also requires the credit personnel of each originator to rate
the creditworthiness of each of unit's customer accounts over $100,000. In the
process, the credit personnel are also required to take into account other
factors affecting the credit risk of a particular transaction, such as
collateral value, credit enhancement and duration of the credit.
UNDERWRITING -- ADVANCED CREDIT SCORING SYSTEMS
In 1992, AT&T Capital Corporation commissioned the Bell Laboratories
Operations Research Department to design decision support systems and associated
strategies for credit risk management throughout the customer's financing life
cycle. This life cycle approach, while commonplace in the consumer credit field,
is not common in commercial leasing. This process developed and implemented
three sets of decision support systems, covering each stage of the small ticket
leasing life cycle:
front-end credit decisions,
credit line management, and
delinquent account collections.
See ' -- Collections' below. Each system includes
a suite of statistically derived risk prediction models,
a sequential decision strategy which determines the model to be used
in each instance, and
a risk based strategy which determines the optimal decision based upon
the model results.
The current front-end credit decisioning systems follow a series of steps
including:
the selection and electronic retrieval of credit bureau information,
the quantification of credit risk and
the decision to accept, reject or manually review the credit
applicant.
While both Newcourt Leasing Corporation and Newcourt Communications Finance
Corporation have been using credit application scoring models based on more
traditional credit scorecards since 1991 and 1989, respectively, Newcourt
Leasing Corporation implemented an improved decisioning system in March 1993,
while Newcourt Communications Finance Corporation implemented this system in May
1995.
Additionally, Newcourt Communications Finance Corporation has developed and
implemented credit line management models since May 1995. This originator
monitors the credit scoring systems using various reporting mechanisms and has
upgraded the system over time to incorporate the value of more recent data and
to take advantage of improved statistical techniques. Authorized credit officers
may override credit
29
scoring decisions, but are discouraged from doing so unless the originator
uncovers additional information which materially strengthens the transaction or
if sufficient credit enhancements can be obtained to mitigate the risk.
Operating units track overrides each month. Overrides are more common at
Newcourt Communications Finance Corporation than they are at Newcourt Leasing
Corporation. Newcourt Commercial Finance Corporation and Newcourt Technologies
Corporation do not use these advanced scoring systems because the contracts
originated by them have larger original balances.
The originators also underwrite contracts representing smaller ticket
commercial assets originated through some of Newcourt Financial USA's vendor
programs utilizing computerized credit scoring models. The computer makes the
initial credit decision after consideration of the credit application data and
credit bureau information based on statistical historical loss analysis and
developed in conjunction with Fair Isaac. Fair Isaac is a major credit scoring
company and has a long history of consumer, small business and related credit
data. This empirical data is used to develop specific parameters within a
designated group and to predict future delinquency and default rates. By setting
approval cutoff levels on total scores at levels associated with predetermined
default rates, Newcourt Financial USA is able to provide a program level credit
score according to its internal policies.
In the third quarter of 1998, Newcourt Credit Group Inc. hired four full
time Phd's formerly employed by AT&T Labs and who constituted the principal
development team behind AT&T Capital's credit automation program. This program,
which is briefly described above, involves dozens of individual credit models as
well as behavioral collections programs. Newcourt Credit Group Inc. refers to
this group as the Management Science Team and is based in Shrewsbury, NJ. In
addition to monitoring and periodically refreshing the existing credit models,
this group will also expand the scope of credit automation within Newcourt
Credit Group, Inc.'s portfolio.
UNDERWRITING -- VENDOR PROGRAMS
In initially establishing a program agreement or other form of financing
arrangement with a vendor, Newcourt Financial USA completes a formal
underwriting review of the vendor to ensure that the vendor can perform the
financial and other obligations contained in any vendor agreement. This review
typically encompasses a financial review, a product review (including an
analysis of market acceptance of the vendor's products) and a general
operational and managerial review of the vendor. Vendors must generally be
established in their field and must market industry accepted equipment or other
products. The vendor must have sufficient financial resources to support the
financing relationship contemplated by the respective originator. Program
agreements are continually monitored by the respective originator. Each
originator performs a formal annual review of a vendor's financial condition for
a vendor which generates a substantial amount of contracts.
DOCUMENTATION
Contract documentation may include:
a credit application,
30
a signed lease/installment sale or financing agreement,
a vendor invoice, initial lease/advance payment,
proof of insurance, where relevant,
delivery and acceptance acknowledgments and
financing statements.
The originators typically require filing of financing statements as
follows:
in the case of originations by Newcourt Commercial Finance
Corporation, Newcourt Leasing Corporation, Newcourt Communications
Finance Corporation and Newcourt Technologies Corporation, in the
appropriate 'filing' jurisdiction if the fair market value of the
equipment is at least $20,000 or, in the alternative, at least $50,000
if the equipment relates to a lease with a 'fair market value'
purchase option, and
in the case of originations by Newcourt Financial USA Inc., in the
appropriate 'filing' jurisdiction if the fair market value of the
related equipment is at least $25,000.
BILLING
Third parties handle billing for the originators. The third parties prepare
and mail monthly invoices. All customers have a billing cycle, and the billing
party generates invoices automatically and mails them out before the due date,
with the exception of end-users as to whom payment coupon books evidence their
payment obligations or from whose accounts the billing party automatically
debits their payments. From time to time to facilitate customer needs, the
originators will provide manual invoices. Monthly invoices include the scheduled
payment, taxes, insurance and late charges, if any. The vast majority of
contracts provide for level payments throughout their term. Substantially all
customers forward payments to lockboxes with certain financial institutions.
PORTFOLIO MONITORING
The originators track and calculate delinquency monthly for each major
portfolio segment, including segmentation by classification of days past due.
They monitor credit losses each month and compare them with credit losses for
previous months and the corresponding month in a number of prior years. Each
originator also employs other techniques in evaluating the performance of its
portfolio. These techniques include:
roll rate analysis -- a type of portfolio analysis examining the rate
at which accounts in various stages of delinquency become, or 'roll'
into, losses, and
a type of vintage analysis -- another type of portfolio analysis in
which each originator's assets are classified by age and then compared
across different years, e.g., comparing loss experience for
two-year-old portfolio in 1996 with that in 1995.
31
For transactions over $1,000,000, each originator conducts annual reviews
of customer financial condition and risk rating. The originators conduct these
annual reviews on transactions over $500,000 which have high risk ratings. They
monitor all other transactions via the normal collection process, meaning that
they would receive individual attention only if they became delinquent or for
some other reason came to the attention of the company's credit and collections
personnel. For example, a material adverse change in the financial condition of
the obligor in the transaction would trigger an individual review.
In addition to providing an initial credit review, ongoing credit review
procedures exist to identify at an early stage those customers that may be
experiencing financial difficulty. Credit personnel monitor these customers once
they are identified. The credit personnel periodically make recommendations to
the originator's chief credit officer as to
what remedial actions the originator should take;
what portion, if any, of total credit exposures the originator should
write off; or
whether the originator should make a specific allocation of the
originator's loss reserves.
In establishing allowances for credit losses, each originator's management
reviews:
the aging of the originator's portfolio,
all non-performing leases and receivables,
prior collection experience, and
originator's overall exposure and changes in credit risk.
COLLECTIONS
Each originator collects overdue payments using several different methods.
Newcourt Communications Finance Corporation and Newcourt Leasing Corporation
have deployed computerized collection management systems. Newcourt Leasing
Corporation has used outbound call management systems and behavioral scoring
systems in prioritizing collection activities in its collection process since
March 1994. Newcourt Communications Finance Corporation has utilized similar
technology in its collection activities since 1989 with the exception of
behavioral scoring, which it implemented in September 1996 following a testing
period in several of Newcourt Communications Finance Corporation's units. The
collection management systems prioritize delinquent accounts into automated
queues using delinquent account scoring systems, also referred to as behavioral
scoring. Telephone calls to delinquent accounts are automatically dialed by the
system eliminating no answer and busy line calls, which the system automatically
reschedules.
Newcourt Financial USA, Newcourt Technologies Corporation and Newcourt
Communication Finance Corporation rank accounts using a suite of statistically-
derived risk prediction indicators for handling in order of risk weighted
exposure. The collection management systems utilize different account collection
strategies as a function of risk level and account balance. Accounts with low
balances or low risk or
32
both get a low impact collection strategy which involves greater reliance upon
letters in the early stages of delinquency and less reliance on telephone calls
until the later stages of delinquency. Also, the number of days between actions
is greater for a low risk account than in the case of a high risk account. A
high impact collection strategy applies to accounts with high balances and/or
high risk scores. In this case, telephone calls commence sooner in the
collection process, and the originators space collection actions more closely.
During 1999, the originators will continue to move some of their small to
mid-ticket collection activities into a centralized call center located in
Memphis, Tennessee. The call center employs approximately 200 people, primarily
collectors and customer service representatives, and utilizes a Davox call
management system and other collection technologies such as behavioral scoring
to efficiently collect on past due accounts.
The originators frequently use outside collection agencies and attorneys to
supplement collection activity. Typically, the originators place an account with
an outside collection agency or attorney when it is 180 days or more past due.
However, they may place accounts past due less than 180 days with a collection
agency or attorney depending upon the circumstances of its delinquency. They may
repossess equipment at any time after the contractual default but typically do
not do so until the account is past due between 90 and 180 days, or earlier if
they determine the equipment to be at risk.
NON-ACCRUAL AND WRITE-OFF POLICY
Each originator maintains non-accrual and write-off policies. The policies
require that all accounts which are 90 days past due, or less in the event of a
bankruptcy, be categorized as non-performing. The majority of delinquent
accounts will be written off or specifically reserved for no later than 180 days
past due. While smaller accounts, generally $50,000 or less, will be written off
at that time, larger accounts will have specific reserves recorded which
appropriately reduce the carrying value of the contracts to an amount roughly
equivalent to the estimated market value. However, the servicer will evaluate
some delinquent accounts and if the obligor appears likely to make payment in
full despite the delinquency, the servicer may decide not to write-off or
reserve at that time.
THE CONTRACTS
With respect to any series of notes, this prospectus and any prospectus
supplement refer to the aggregate of the contracts in an owner trust, as of any
particular date, as the contract pool. This prospectus and any prospectus
supplement refer to the contract pool, as of the cut-off date specified in the
prospectus supplement for your notes, as the cut-off date or initial contract
pool. Changes in the characteristics of the contracts between the cut-off date
and the closing date will not affect more than 5% of the cut-off date contract
pool principal balance. This prospectus and any prospectus supplement refer to
equipment, software and services collectively as financed items.
33
DESCRIPTION OF THE CONTRACTS
All of the contracts in each owner trust will be commercial, rather than
consumer, leases or loans. The following description of the contracts describes
the material terms of the contracts to be included in each contract pool,
although an immaterial number of contracts in a contract pool may differ in one
or more provisions from the description below.
END-USER CONTRACTS
Each owner trust will include contracts to which the end-user of the
equipment is a party. The depositor lists the types of contracts under 'The
Owner Trusts' above.
There will be no limit on the number of contracts in a particular contract
pool which may consist of any of those types. Each contract is required,
however, to be an 'eligible contract,' as of the date the depositor transfers
the contracts to the respective owner trusts. An eligible contract is a contract
as to which the representations and warranties listed below under
' -- Representations and Warranties Made by the Seller' are true as of the
transfer date.
CONDITIONAL SALE AGREEMENTS
Each originator will offer financing for equipment under conditional sale
agreements assigned to the applicable originator by the vendor of the equipment.
Each originator will generally use its standard pre-printed form to document the
conditional sale agreements in a contract pool. In some instances, the
originator will use a vendor's standard, pre-printed form. The conditional sale
agreement sets forth the description of each financed item and the schedule of
installment payments. Typically, loans under conditional sale agreements are
fixed rate and are for a term of one to seven years. Payments under conditional
sale agreements typically are due monthly. Conditional sale agreements
typically:
provide for a grant by the end-user of the equipment of a security
interest in the equipment, which security interest is assigned by the
vendor to the originator;
may allow prepayment of the obligation upon payment, where allowed by
applicable state law, of an additional prepayment fee;
require the end-user to maintain the equipment, keep it free and clear
of liens and encumbrances and pay all taxes related to the equipment;
restrict the modification or disposal of the equipment without the
vendor's, or its assignee's, consent;
include a disclaimer of warranties;
include the end-user's indemnity against liabilities arising from the
use, possession or ownership of the equipment;
include the end-user's absolute and unconditional obligation to pay
the installment payments on the loan; and
include specific events of default and remedies for default.
34
A conditional sale agreement typically requires each end-user to maintain
insurance, the terms of which may vary. The terms of a conditional sale
agreement may be modified at its inception at the end-user's request. The
originator's legal department must approve material modifications before the
originator will agree to accept an assignment of the conditional sale agreements
from a vendor unless the vendor has indemnified the originator against any
losses or damages it may suffer as a result of modifications.
LEASES
The originators, either directly or by assignment from vendors, will offer
financing of equipment, software and services under leases. Leases may consist
of individual lease agreements relating to a single, separate transaction and
financed item. Alternatively, the individual leases may be governed by a master
lease agreement which contains the general terms and conditions of the
transaction. Specific terms and conditions, such as descriptions of the specific
equipment, software and services being leased or financed and the schedule of
related rental payments, are typically contained in a supplement or schedule to
the master lease agreement, which is signed by the end-user as lessee, and
either the vendor or the originator, as lessor. The supplement to the master
lease agreement incorporates the master lease agreement by reference, and is
treated by the originator as a separate lease. The originator or the vendor
originates each lease in the ordinary course of business. Vendors who originate
leases assign them to the originator. An originator also may purchase leases on
a portfolio basis.
The initial terms of the leases in the contract pool typically range from
one to seven years. Each lease provides for the periodic payment by the end-user
of rent in advance or arrears, generally monthly or quarterly. The periodic
payments represent the amortization, generally on a level basis, of the total
amount that an end-user is required to pay throughout the term of a lease.
A contract pool will include 'net leases' under which the end-user assumes
responsibility for
the financed items, including operation, maintenance, repair, and
insurance or self-insurance,
return of the equipment at the expiration or termination of the lease,
and
the payment of all sales, use and property taxes relating to the
financed items during the lease term.
The end-user further agrees to indemnify the lessor for any liabilities
arising out of the use or operation of the financed items. In most cases, the
end-user also authorized the lessor to perform the end-user's obligations under
the lease at the end-user's expense, if it so elects, in cases where the
end-user has failed to perform. In addition, the leases often contain 'hell or
high water' clauses unconditionally obligating the end-user to make periodic
payments, without setoff, at the times and in the amounts specified in the
lease. If an originator is the lessor, the lease will contain no express or
implied warranties with respect to the financed items other than a warranty of
quiet enjoyment. If a vendor is the lessor, the lease or a related agreement may
contain representations and warranties with respect to the financed items in
35
addition to a warranty of quiet enjoyment. However, the end-user typically
agrees not to assert any warranty claims against any assignee, including the
originator, of the vendor by way of setoff, counterclaim or otherwise, and
further agrees that it may only bring that type of claim against the vendor.
Leases of equipment often require the end-user to maintain, at its expense,
casualty insurance covering damage to or loss of the equipment during the lease
term or to self-insure against these risks, if approved in advance by the
originator or vendor, as applicable.
The leases will include both 'true leases' and leases intended for security
as defined in Section 1-201(37) of the Uniform Commercial Code. Under a 'true
lease', the lessor bears the risk of ownership, except for the risk of loss of
the equipment, which is passed to the end-user under the leases. The lessor also
takes any tax benefits associated with the ownership of depreciable property
under applicable law. No title is conferred upon the lessee. The lessee under a
'true lease' has the right to the temporary use of property for a term shorter
than the economic life of the property in exchange for payments at scheduled
intervals during the lease term. Additionally, the lessor retains a significant
'residual' economic interest in the leased property. End of lease options for
'true leases' include purchase or renewal at fair market value.
Under leases intended for security, the lessor in effect finances the
'purchase' of the leased property by the lessee and retains a security interest
in the leased property. The lessee retains the leased property for substantially
all its economic life and the lessor retains no significant residual interest.
Such leases are considered conditional sales type leases for federal income tax
purposes and, accordingly, the lessor does not take any federal tax benefits
associated with the ownership of depreciable property. End of lease options for
these leases depend on the terms of the related individual lease agreement or
master lease agreement supplement, but often these terms provide for the
purchase of the equipment at a prestated price, which may be nominal. The
inclusion of 'true leases' in a contract pool should have no federal income tax
impact on holders of notes since the notes are treated as debt for federal
income tax purposes. However, the inclusion of 'true leases' may result in the
imposition of state and local taxes which would reduce cash available for
payment on the notes.
A lease will either prohibit the end-user from altering or modifying the
equipment or permit the end-user to alter or modify the equipment only to the
extent the alterations or modifications are readily removable without damage to
the equipment. Under some master lease agreements, the end-user may assign its
rights and obligations under the lease, but only upon receiving the prior
written consent of the lessor. Under some leases, the lessee may relocate the
equipment upon giving the lessor prompt written notice of the relocation. The
right to grant or deny consent or to receive written notice will be exercised by
the servicer under the authority delegated to it in the related pooling and
servicing agreement. Some leases will permit the end-user to substitute
substantially identical leased equipment for leased equipment scheduled to be
returned to the lessor under the lease.
While the terms and conditions of the leases will not usually permit
cancellation by the end-user, the lessor and the end-user may modify or
terminate some leases before the end of the lease term. The originator, or a
vendor, with the consent of the originator, may permit the modifications to a
lease term or early lease terminations.
36
The modifications typically arise in connection with additional financing
opportunities from the same end-user. End-users may also negotiate with the
originator, at the originator's discretion, an early termination arrangement
allowing the end-user to purchase the equipment during the term of a lease. The
early-termination purchase price is often equal to or in excess of the present
value of the remaining rental payments under the lease plus the anticipated
market value of the related equipment as of the end of the lease term. The
originator may permit early termination of a lease in connection with the
acquisition of new technology requiring replacement of the equipment. In these
cases, the end-user returns the related equipment to the vendor or originator
and pays an amount generally equal to the present value of the remaining rental
payments under the lease plus an early termination fee to the originator.
Modifications usually involve repricing a lease or modification of the lease
term. Occasionally the lessor and the end-user may modify a lease in connection
with an increase in the capacity or performance of equipment by adding
additional equipment that includes new technology. Coincident with the financing
of an upgrade to the equipment, the originator may reprice and extend the
related base lease term to be coterminous with the desired term of the lease
relating to the upgrade. In some cases, subject to conditions described under
'Description of the Pooling and Servicing Agreements -- Servicing,' base lease
extensions may remain in a contract pool. The depositor expects that the
servicer will continue to permit these modifications and terminations with
respect to leases included in a contract pool under the authority delegated to
it in the related pooling and servicing agreement. The servicer's ability to
modify leases is limited by the conditions and covenants of the servicer
described under 'Description of the Pooling and Servicing
Agreements -- Servicing.'
The originator may modify the standard terms and conditions of the lease
agreement at the inception of a lease at the request of the end-user. The
originator's legal department must approve material modifications before the
originator will agree to enter into the lease or accept an assignment of the
lease from a vendor unless the vendor indemnifies the originator against any
losses or damages it may suffer as a result of the modifications. Common
permitted modifications include, but are not limited to:
prearranged mid-lease purchase options, early termination options and
lease extension options as described above;
modifications to the lessor's equipment inspection rights;
modifications to the end-user's insurance requirements permitting the
end-user to self-insure against casualty to the equipment;
the end-user's right to assign the lease or sub-lease the financed
items to an affiliated entity, so long as the end-user remains liable
under the lease and promptly notifies the lessor or its assignee of
the assignment or sublease; and
extended grace periods for late payments of rent.
In some cases, after a lease term expires the originator may permit the
end-user to continue to use the related equipment for so long as the end-user
continues to make lease payments. After the expiration of the term of a lease,
any continued lease payments will belong to the depositor, not the owner trust.
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SECURED NOTES
Each originator will also provide direct initial financing or refinancing
of equipment and software under secured promissory notes, which consist of an
installment note and a separate security agreement. In an initial financing
transaction, the originator pays to the vendor the purchase price for the
equipment or software. In a refinancing transaction, the originator pays off an
end-user's existing financing source, and the initial financing or refinancing
is documented as a direct loan by the originator to the end-user of the
equipment or software using a secured note. In the case of a refinancing
transaction, upon payment to the existing financing source, the originator
obtains a release of the original financing party's lien on the financed
equipment. In either case, the originator records its own lien against the
financed equipment or software and takes possession of the secured note. Except
for the lack of references to 'sale' or 'purchase' of equipment, a secured note
contains terms and conditions substantially similar to those contained in
conditional sale agreements.
INSTALLMENT PAYMENT/FINANCING AGREEMENTS
Each originator will provide financing for software license fees and
related support and consulting services under
installment payment supplements to software license agreements,
separate installment payment agreements, and
other forms of financing agreements assigned to the originator by
vendors of software.
Each financing agreement of this type:
is an unsecured obligation of the end-user;
generally provides for a fixed schedule of payments with no end-user
right of prepayment;
is noncancellable for its term;
generally contains a 'hell or high water' clause unconditionally
obligating the end-user to make periodic payments, without setoff, at
the times and in the amounts specified. If a financing agreement does
not provide for noncancellability or a 'hell or high water' clause,
the financing agreement will have the benefit of a vendor guarantee.
See 'The Contracts -- Program Agreements with Vendors;'
permits the assignment of the payment agreement to a third party,
including the originator, and includes the end-user's agreement not to
assert against assignee any claims or defenses the end-user may have
against the vendor; and
contains default and remedy provisions that usually include
acceleration of amounts due and to become due and, in some cases, the
right of the vendor, or the originator by assignment, to terminate the
underlying software license and all related support and consulting
activities.
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EQUIPMENT
The end-user contracts will cover a wide variety of new and used:
information technology equipment, including:
computer work stations,
personal computers,
data storage devices,
mainframe and mini-computers and
computer related peripheral equipment,
communications equipment, such as telephone switching and networking
systems,
commercial business and industrial equipment, such as:
printing presses,
machine tools and other manufacturing equipment,
photocopiers, facsimile machines and other office equipment,
energy savings and control equipment,
automotive diagnostic and
automated testing equipment,
medical equipment, such as diagnostic and therapeutic examination
equipment for radiology, nuclear medicine and ultrasound and
laboratory analysis equipment,
resources equipment, such as feller-bunchers and grapplers,
transportation and construction equipment, such as:
heavy and medium duty trucks and highway trailers,
school buses,
bulldozers,
loaders,
graders,
excavators,
forklifts,
other materials handling equipment,
golf carts,
other road and off-road machinery and
electronics manufacturing equipment.
In each case, the depositor will transfer the security interests of the
originator in the equipment subject to each related end-user contract, but not
ownership interests in the case of leased equipment, to the relevant owner
trust.
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SOFTWARE AND SERVICES
Some end-user contracts will cover license fees and other fees owed by the
end-user under either perpetual or term software license agreements and other
related agreements in connection with the end-user's use of computer software
programs. The end-user contracts may also cover related support and consulting
services which are provided by the vendor, an affiliate of the vendor or a third
party contract party and which facilitate the obligor's use of the software.
Neither the vendors or licensors of the software nor the end-users under the
related end-user contracts will convey to the originator any interest in the
software or the software license agreement, other than the right to collect the
payment of software license fees. However, in some cases, the vendors may convey
to the originator the right to exercise rights and remedies under the relevant
software license agreement or related agreements. Consequently, an owner trust
will not have title to or a security interest in the software, nor will it own
the related services, and would not be able to realize any value from the
software or related servicer under a related end-user contract upon a default by
the end-user.
VENDOR LOANS
The contracts may include limited recourse loan or repayment obligations of
a vendor. These may take the form of promissory notes with related security
interests documented by security agreements or specific provisions in related
program agreements. Each of the obligations is secured by all of the vendor's
interest in an individual end-user contract originated by the vendor and by the
equipment related to the end-user contract.
The originator may originate vendor loans through, and the vendor loans may
incorporate terms and conditions of, a program agreement. See 'Program
Agreements with Vendors.' Vendor loans generally are non-recourse to the vendor,
meaning that the originator may obtain repayment solely from the proceeds of the
end-user contracts and related equipment securing the vendor loan. In a few
instances, however, the originator may have recourse to a vendor for nonpayment
of a vendor loan through a limited recourse arrangement in the related program
agreement or other related agreement. The repayment terms under a vendor loan,
including periodic amounts payable and schedule of payments, will correspond to
the payment terms of the end-user under the end-user contract collaterally
assigned under the vendor loan. Each vendor loan will either include most, if
not all, of the representations and warranties regarding the end-user contract
and related equipment typically included in a vendor agreement, or incorporate
these representations and warranties included in any related program agreement
by reference.
PROGRAM AGREEMENTS WITH VENDORS
An originator's program agreement is typically an agreement with equipment
manufacturers, dealers and distributors, or software licensors or distributors,
located in the United States. The program agreement provides an originator with
the opportunity to finance transactions relating to the acquisition or use by an
end-user of a vendor's equipment, software, services or other products. Vendor
program arrangements provide an originator with a steady, sustainable flow of
new business, often with lower costs of origination than asset-based financings
marketed directly to
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end-users. Some of the program agreements take the form of a referral
relationship, which is less formal, and may or may not include credit or
remarketing support to the originator from the vendor.
Each program agreement under which vendors or another party originate and
document contracts and assign them to the originator typically includes vendor
representations, warranties and covenants regarding each contract assigned to an
originator, including that:
the obligations of the end-user under the assigned contract are
absolute, unconditional, noncancellable, enforceable in accordance
with their terms and free from any rights of offset, counterclaim or
defense;
the originator holds the sole original of the contract and has either
title to or a first priority perfected security interest in the
equipment, except with respect to situations where no financing
statement is filed due to the minimum value involved;
the equipment and the contract are free and clear of all liens, claims
or encumbrances except for permitted liens;
the end-user has irrevocably accepted the equipment or the software;
and
the end-user duly authorized and signed the assigned contract;
Each program agreement under which the originators document and originate
contracts typically include vendor representations, warranties and covenants
regarding each contract, including that
the equipment has been delivered to and accepted by the end-user;
the vendor has not received any advance payments;
the vendor has good title to the equipment; and
the vendor has not made any misrepresentations to the end-user.
In each of the two above described program structures, relevant agreements
also typically provide for
remedies for misrepresentations or breaches of warranties or covenants
by the vendor regarding an assigned contract. These remedies usually
require the vendor to repurchase the affected end-user contract for
the originator's investment balance in the contract plus costs
incurred by the originator in breaking any underlying funding
arrangement; and
the right of an originator to further assign its interests in assigned
contracts, all related payments and any related interest in equipment.
In addition, the originators may enter into profit sharing arrangements
with some vendors. These arrangements typically will provide for sharing of
revenues generated under the program and for joint participation in management.
Under the terms of these arrangements, the originators maintain direct or
indirect control over all credit decision-making activities.
Also, a program agreement or profit sharing arrangement may include
recourse against a vendor with respect to end-user defaults under some end-user
contracts,
by specifying that the assignment of the contract from the vendor to
the originator is with full recourse against the vendor;
41
by specifying that the vendor will absorb a limited fixed dollar or
percentage amount of 'first losses' on the contract;
by inclusion of the contract in an ultimate net loss pool created
under the program agreement as well as guarantees by the applicable
vendor with respect to certain contracts which are cancelable or which
do not contain 'hell or high water' provisions; or
by providing for vendor repurchase of the contract or vendor
indemnification payments for breaches of certain representations and
warranties made by the vendor with respect to the contract.
If an end-user defaults under a contract subject to a net loss pool, the
originator may be permitted to draw against the net loss pool up to the amount
of the originator's remaining unpaid investment balance in the defaulted
contract. The originator may also be permitted to draw against the net loss pool
with respect to contracts that are not included in the pool of contracts in a
particular owner trust and, accordingly, there can be no assurance that any
amounts contributed by a vendor to a net loss pool will be available with
respect to a defaulted contract included in the pool of contracts owned by a
particular owner trust.
The manner in which the vendor assigns contracts to the originator varies
from one program agreement to another, depending upon
the nature of the items financed,
the form of the contract,
the accounting treatment sought by the vendor and the end-user, and
tax considerations.
For example, an originator might:
accept a vendor loan and collateral assignment of the contract and
related equipment or security interest therein from the vendor; or
accept a full assignment of the contract and a collateral assignment
of the related equipment or security interest from the vendor, which
collateral assignment secures the end-user's obligations under the
contract or lease.
The originator also may receive, from a vendor with respect to software, a full
assignment of leases, installment payment agreements, installment payment
supplements to license agreements, and other types of financing agreements used
in financing software license payments and related support and consulting
services. These assignments may include an assignment of the software vendor's
or licensor's right, or the agreement of the vendor or licensor, at the
originator's instructions, to terminate the software license covered by the
contract and suspend related support in the event of an end-user default under
the contract. In some cases, the software vendor also agrees not to relicense
the same or similar software to a defaulted end-user for some period of time,
e.g., one year, unless the end-user cures its default.
Some portion of the contracts included in the pool of contracts, especially
in the case of conditional sale agreements, are likely to consist of contracts
originated by vendors and assigned to the originator in vendor assignments, each
of which relates to an individual contract, rather than under a program
agreement. Each vendor assignment will either be with or without recourse
against the vendor for end-user
42
defaults. Each vendor assignment will typically contain many, if not all, of the
representations, warranties and covenants typically contained in program
agreements, as well as a vendor repurchase requirement in the event of a breach
by the vendor of the representations, warranties or covenants. Vendor
assignments may or may not provide for any vendor remarketing support in the
event of an end-user default.
RESIDUAL INVESTMENTS
Any of the originators may finance all or a portion of the residual
interest in the equipment under program agreements and under direct transactions
between an obligor and the applicable originator. Any investment by the
originator in a residual interest shall be referred to as a residual investment.
Program agreements may provide that the originator may, at its sole discretion
and in connection with the funding of a lease of equipment, make a residual
investment in that equipment by advancing additional funds against a portion of
the anticipated residual value of the equipment, and not just against the
discounted present value of the rental payments due under the contract. Residual
investments may take the form of an advance of the present value of some
specified percentage of the anticipated residual value of the equipment or a
specified percentage, typically not greater than 10%, of the amount to be paid
by the originator in funding the present value of the rental payments due under
the contract.
With respect to vendor assignments, the originator may advance the entire
purchase price of the equipment subject to a true lease, take title to the
equipment, and accept an assignment of the true lease contract from a vendor.
With respect to the leases originated by the originator the originator may
advance the entire purchase price of the equipment to the vendor, take title to
the equipment from the vendor, and enter into a true lease contract with an
obligor. In either of the two foregoing types of transactions, the originator
will have advanced more than the discounted present value of the rents payable
under the true lease contracts by paying the purchase price for the equipment,
and so will have made a residual investment in the equipment.
In some program agreements, the originator may make the residual investment
in the form of a full recourse loan of additional funds to the vendor. That loan
is repayable by the vendor at the expiration or termination of the contract with
interest and is secured by a security interest in the financed equipment. In
some transactions involving vendor assignments or direct transactions with
obligors under true lease contracts, the originator may obtain the obligation of
either the vendor or the obligor to purchase the equipment at the end of the
lease term for the full amount of the originator's residual investment in the
equipment with accrued interest. Any transaction in which the originator may
look to either the vendor or the obligor, and not just the value of equipment
itself, to recover its residual investment with interest shall be referred to as
a 'guaranteed residual investment'. Other than guaranteed residual investments,
a residual investment will not be included in the discounted contract balance of
any contract and, therefore, would not be financed with the proceeds of the
notes. This type residual investment is referred to herein as the 'excluded
residual investment.'
The seller or an affiliate of the seller will transfer the excluded
residual investment associated with any contract included in a pool of contracts
to the depositor or another affiliate under the terms of a purchase and sale
agreement or
43
other transfer agreement. The depositor will not transfer the excluded residual
investment to an owner trust under the related pooling and servicing agreement.
The related owner trust's interest in contracts with associated residual
investments, other than with guaranteed residual investments, will be limited to
the discounted present value of the rental payments due under the contract and a
security interest in the related equipment. The originator may assign its
excluded residual investment to a third party, including the security interest
in the equipment in respect of the residual investment.
CONTRACT FILES
Each originator will indicate in the appropriate computer files relating to
the contracts being transferred to an owner trust that the originator has
transferred the contracts for the benefit of the holders of the notes. Each
originator will also deliver to the indenture trustee a computer file,
microfiche or written list containing a true and complete list of all contracts
which it has transferred, identified by account number and by the discounted
contract balance of the contracts as of the transfer date.
COLLECTIONS ON CONTRACTS
Your prospectus supplement will describe how all collections received with
respect to the contracts will be allocated.
PAYMENTS GENERALLY
The contracts usually require that an obligor make periodic payments on a
monthly basis. Some contracts, however, provide for quarterly, semi-annual or
annual payments. Obligors must make the payments under all of the contracts in
United States dollars. Payment requirements usually are fixed and specified,
rather than being tied to a formula or are otherwise at a floating rate.
Payments under the contracts are ordinarily payable in advance, although a small
percentage provide for payments in arrears.
EXPENSES RELATING TO EQUIPMENT
The contracts require the obligors to assume the responsibility for payment
of all expenses of the related equipment including, without limitation,
any expenses in connection with the maintenance and repair of the
related equipment,
the payment of any and all premiums for casualty and liability
insurance, and
the payment of all taxes relating to the equipment.
INSURANCE; REPAIR AND REPLACEMENT
Most lease contracts require that the obligors will maintain liability
insurance which must name the lessor as additional insured. Contracts which are
subject to
leases,
installment sales contracts,
44
promissory notes or
loan and security agreements
require obligors to procure property insurance against the loss, theft or
destruction of, or damage to, the equipment for its full replacement value,
naming the lessor, or lender, as loss payee. An originator will waive this
requirement from time to time for a small number of transactions. For some lease
contracts, the obligor's already existing self-insurance program permits the
obligor to self-insure the equipment. The originators do not track or verify
insurance coverage as to the equipment related to a contract after the
commencement of the contract.
For lease contracts that Newcourt Communications Finance Corporation
originates relating to equipment with a cost of $100,000 or less, and for lease
contracts which Newcourt Leasing Corporation, Newcourt Technologies Corporation,
Newcourt Financial USA Inc. or Newcourt Commercial Finance Corporation
originates relating to equipment with a cost of $250,000 or less, the originator
often provides the obligor with written information concerning its property
insurance obligations under the contract. The obligor is given a specified time
period in which to provide evidence of insurance coverage. A third party
independently verifies proper evidence of coverage at the commencement of the
contract. If the obligor does not provide satisfactory evidence of insurance
coverage then the originator will provide insurance to protect its interest in
the equipment. If the originator provides the insurance coverage, the originator
charges the obligor a monthly fee covering the insurance charges and other
related administrative charges. If, at any time, the obligor provides evidence
of its own coverage, these monthly charges cease. The obligor has the ability to
opt out of the program by providing evidence of its own coverage.
For transactions involving equipment with a cost of more than $100,000, in
the case of lease contracts that Newcourt Communications Finance Corporation
originates, or more than $250,000, in the case of lease contracts that Newcourt
Leasing Corporation, Newcourt Technologies Corporation, Newcourt Financial USA
Inc. or Newcourt Commercial Finance Corporation originates, insurance coverage
generally is verified at the commencement of the contract by the respective
originator. The failure to maintain this insurance constitutes an event of
default under the applicable contract. Usually, the obligor also agrees to
indemnify the originator for all liability and expenses arising from the use,
condition or ownership of the equipment.
If the equipment is damaged or destroyed, each lease contract requires that
the obligor:
repair the equipment;
make a termination payment to the lessor in an amount not less than
the amount required to pay off the contract; or
in some cases, replace the damaged or destroyed equipment with other
equipment of comparable use and value.
The related pooling and servicing agreement permits the servicer, in the case of
the destruction of the equipment related to a particular lease contract, either
to:
allow the lessee to replace this equipment, provided that the
replacement equipment is, in the judgment of the servicer, of
comparable use and at
45
least equivalent value to the value of the equipment which was
destroyed, or
accept the termination payment referred to above.
ASSIGNMENT OF CONTRACTS
The contracts will permit the assignment of the contract by the lessor or
secured party without the consent of the obligor. However, a small number of
contracts require notification of the assignment to, or the consent of, the
obligor. The seller will represent and warrant in the purchase and sale
agreement that these notices have been given, or approvals will have been
received, not more than ten days following the date of the transfer of the
contract to the depositor. The contracts do not permit assignment of the
contracts, or the related equipment, by the obligor without the prior consent of
the lessor or secured party, except the contracts may permit:
assignments to a parent, subsidiary or affiliate;
the assignment to a third party, provided the obligor remains liable
under the contract; or
assignment to a third party with a credit standing, which the
originator determines in accordance with its underwriting policy and
practice at the time for an equivalent contract type, term and amount,
to be equal to or better than the original obligor.
Under the related pooling and servicing agreement, the servicer may permit an
assignment of a particular contract from an obligor to a third party only if the
servicer, utilizing the current underwriting criteria for its contract
origination activities, determines that the third party is of sufficient credit
quality that the servicer would permit the third party to become an obligor with
respect to a contract that the servicer originates.
EVENTS OF DEFAULT AND REMEDIES
Events of default under the contracts ordinarily include:
the failure to pay all amounts required by the contract when due;
the failure of the obligor to perform its agreements and covenants
under the applicable contract;
material misrepresentations made by the obligor;
the bankruptcy or insolvency of the obligor or the appointment of a
receiver for the obligor; and
in some cases, default by the obligor under other contracts or
agreements.
Some of these default provisions are, in some instances, subject to notice
provisions and cure periods. Remedies available to the lessor or secured party
upon the occurrence of an event of default by the obligor include the right
to cancel or terminate in the case of a contract subject to a true
lease,
to accelerate payments in the case of a contract subject to financing,
to recover possession of the related equipment and
46
to receive an amount intended to make the lessor or secured party, as
the case may be, whole plus costs and expenses, including legal fees,
which the lessor or secured party incurs as a result of the default.
Notwithstanding these events of default and remedies, the pooling and servicing
agreement, permits the servicer to take the actions, with respect to delinquent
and defaulted contracts, a reasonably prudent creditor would take under similar
circumstances. See 'Description of the Pooling and Servicing
Agreements -- Servicing'. The originators may occasionally provide payment
extensions, typically of three months or less. Longer extensions are
occasionally granted to customers experiencing delays in payment due to cash
flow shortages or other reasons. However, originators do not intend extensions
to be used to provide a temporary solution for a delinquent account. Rather,
extensions are intended to be used when, in the judgment of the relevant credit
authority, the extension is necessary to avoid a termination and liquidation of
the contract and will maximize the amount to be received by the related owner
trust with respect to the contract.
PREPAYMENTS AND EARLY TERMINATION
Any contract may either:
not permit the obligor to prepay the amounts due under the contract or
otherwise terminate the contract prior to its scheduled expiration
date;
allow for a prepayment or early termination upon payment of an amount
that is at least equal to the contract principal balance, determined
using a discount rate specified in your prospectus supplement; or
allow for a prepayment or early termination without the payment of the
contract principal balance.
Some contracts, often written as installment sales contracts, promissory notes
or loan and security agreements, permit the obligor to prepay the contract, in
whole or in part, at any time at par plus accrued interest.
Under each pooling and servicing agreement, the servicer may allow the
prepayment of any contract, but only if the amount paid, or, in the case of a
partial prepayment, the sum of that amount and the remaining principal balance
of the contract after application of that amount, is at least equal to the
amount required to pay off the contract. The required payoff amount, with
respect to any collection period for any contract, is equal to the sum of:
the scheduled payment due in that collection period and not yet
received, together with any scheduled payments due in prior collection
periods and not yet received; plus
the discounted contract principal balance of the contract as of the
last day of that collection period, after taking into account the
scheduled payment due in that collection period.
In no event will revenues pledged for a series of notes include, nor will
the notes otherwise be payable from, any portion of a prepayment on a contract
that exceeds the required payoff amount for that contract.
47
Under the pooling and servicing agreement, the depositor may replace any
prepaid contract with a substitute contract. See ' -- Substitution of Contracts'
below.
DISCLAIMER OF WARRANTIES
The contracts which are subject to a true lease contain provisions whereby
the lessor, or the originator, as assignee of the lessor, disclaims all
warranties with respect to the equipment. In the majority of cases, the lessor
assigns the manufacturer's warranties to the obligor for the term of the lease.
Under true leases, the obligor accepts the equipment under the applicable
contract following delivery and an opportunity to inspect the related equipment.
ADDITIONAL EQUIPMENT
Some of the contracts which are subject to a true lease constitute leases
of additional equipment, generally costing $25,000 or less, with existing
obligors. Pursuant to the terms of the original contract between the lessor and
the obligor, the parties document leases for additional equipment on a written
form that the lessor prepares and delivers to the obligor, but the obligor does
not execute, which written form describes all of the terms of the lease. Under
the terms of the contract, the obligor agrees that unless it objects in writing
within a specified period of time, it is deemed to have accepted the lease of
this additional equipment.
REPRESENTATIONS AND WARRANTIES MADE BY THE SELLER
Newcourt Financial USA Inc., as the direct or indirect seller of contracts
to the depositor, will make the following representations and warranties
regarding the contracts and the related equipment included in each pool of
contracts transferred to an owner trust as of the related transfer date. The
representations and warranties will also apply to contracts that the depositor
reacquires from a trust to which the depositor previously transferred the
contracts in connection with a warehouse receivables securitization facility.
(1) the information with respect to the contracts is true and correct in
all material respects;
(2) immediately prior to the transfer of a contract, the contract was
owned by the transfering party free and clear of any adverse claim
except for permitted claims;
(3) the contract is not a defaulted or delinquent contract;
(4) no provisions of the contract has been waived, altered or modified in
any material respect, except by instruments or documents contained in
the files relating to the contract;
(5) the contract is a valid and binding payment obligation of the obligor
and its terms are enforceable, except the enforcement may be limited
by insolvency, bankruptcy, moratorium, reorganization, or other
similar laws affecting enforceability of creditors' rights and the
availability of equitable remedies;
(6) the contract is not and will not be subject to rights of rescission,
setoff, counterclaim or defense;
48
(7) the contract, at the time it was made, did not violate the laws of the
United States or any state in any material respect;
(8) (a) the contract and any related equipment have not been sold,
transferred, assigned or pledged by the originator to any person
other than the end-user, the seller, the depositor or any related
financing trust; and
(b) either
(i) the contract is secured by a perfected lien, subject to
permitted liens and subject to minimum filing value
exceptions, on the related equipment or, in the case of any
vendor loan, related end-user contract or equipment or
(ii) in the case of a contract secured by a vehicle, within 90
calendar days of the origination or a acquisition of the
contract by the originator all required state registration
or recording procedures were initiated, and the originator's
interest will be so noted or recorded within 180 days of the
acquisition or origination;
(9) if the contract constitutes either an 'instrument' or 'chattel paper'
for purposes of the Uniform Commercial Code, there is not more than
one 'secured party's original' counterpart of the contract;
(10) all filings necessary to evidence the conveyance or transfer of the
contract to the depositor have been made or provided for in all
appropriate jurisdictions, except that the parties have not made
filings to note the seller, the depositor or the trust as an assignee
of the interests of originators other than the seller, and except that
only filings in the State of New Jersey have been made or provided for
in favor of the owner trust describing security interests in
equipment;
(11) the obligor is not, to the seller's knowledge, subject to bankruptcy
or other insolvency proceedings;
(12) the contract is a U.S. dollar-denominated obligation and the obligor's
billing address is located in the United States or Puerto Rico;
(13) the contract does not require the prior written notifications to a
consent of an obligor or contain any other restriction on the transfer
or assignment of the contract other than notifications that will have
been given and consents or waivers of restrictions that will have been
obtained within ten days after the date of the contract was sold to
the trust;
(14) the obligations of the related obligor under the contract are
irrevocable and unconditional and non-cancelable or, if not
irrevocable and unconditional, are guaranteed by the vendor; or in the
case of leases with governments, upon a cancellation of the lease,
either the vendor is obligated to repurchase the lease or the seller
will indemnify the trust depositor in respect of the cancellation;
(15) no adverse selection procedure was used in selecting the contract for
transfer;
(16) the obligor under the contract is required to maintain casualty
insurance with respect to the related equipment or to self-insure
against casualty with
49
respect to the related equipment in an amount that is consistent with
the servicer's normal servicing requirements;
(17) the contract constitutes chattel paper, an account, an instrument or a
general intangible as defined under the Uniform Commercial Code;
(18) no lease is a 'consumer lease' as defined in Section 2A-103(1)(e) of
the Uniform Commercial Code;
(19) to the best knowledge of the relevant originator each lessee has
accepted the related equipment and has had a reasonable opportunity to
inspect the equipment;
(20) except as provided in (14) above, the contract is not guaranteed by
any originator nor has the originator established any specific credit
reserve with respect to the related obligor;
(21) each lease is a 'triple net lease' under which the obligor is
responsible for the maintenance of the related equipment in a manner
that conforms with general industry standards;
(22) each vendor loan is secured by an eligible end-user contract(s) having
an aggregate contract principal balance(s) equal to the outstanding
principal amount of the vendor loan. In this context, an eligible
end-user contract is one that
satisfies all of these representations and warranties except
number (2) above and number (8) above, in respect of ownership
by the applicable originator;
in which the relevant originator or financing trust has a
perfected lien; and
in which the transfer of the relevant originator's or
financing trust's security interest in the contract to the
owner trust creates a duly perfected lien;
(23) the obligor is not the United States of America or any agency,
department, subdivision or instrumentality of the United States of
America;
(24) the contract contains customary provisions for this type of financing,
and the provisions are sufficient and enforceable, except as listed as
noted in (5) above, to enable the relevant originator or its assignees
to realize against the financed items securing the contract; and
(25) if the obligor is a state or local government entity, the transfer of
the contract does not violate any applicable state or local laws
restricting or prohibiting transfer.
The owner trust may modify the above representations and warranties and
will describe any modification in the relevant prospectus supplement.
In the event of a breach of any representation or warranty with respect to
a contract that materially and adversely affects the owner trust's or any
noteholder's or equity certificateholder's interest in the contract or the
collectibility of the contract, the owner trust will have a warranty claim
against the seller. The seller will then be obligated to repurchase the
contract. However, the seller need not do so if the seller cures the breach by
the second deposit date after the date on which the servicer
50
becomes aware and gives notice to the seller of the breach. Any purchase shall
be made on the deposit date immediately following the end of the second
collection period at a price equal to the required payoff amount of the
contract. The purchase price will be allocated to the related owner trust plus,
if applicable, the book value of the related equipment which will be allocated
to the depositor. The related indenture trustee may enforce this purchase
obligation on your behalf, and will constitute your sole remedy available
against the seller the depositor, the trust or the originators for any uncured
breach, except that the seller will indemnify
the related indenture trustee,
the related owner trustee,
the related owner trust and
you
against losses, damages, liabilities and claims which may be asserted against
any of them as a result of third-party claims arising out of the facts giving
rise to that breach. The seller may, in lieu of repurchasing the contract, cause
the depositor to deliver a substitute contract as provided in the next-following
section of this prospectus.
Upon the purchase by the seller of a contract, the depositor will release
the contract and related equipment to the seller.
SUBSTITUTION OF CONTRACTS
The depositor will have the option to substitute one or more contracts
having similar characteristics for contracts which are in default or have been
prepaid or which have undergone material modification. In addition, in the case
of a contract subject to a warranty claim, as described in ' -- Representations
and Warranties Made by the Seller' above, the seller may choose to replace the
contract with a substitute contract.
Some contracts may permit the obligor to prepay the amounts due under the
contract or otherwise to terminate the contract prior to its scheduled
expiration date. The depositor may replace any prepaid contract with a
substitute contract in lieu of applying the proceeds of the prepaid contract to
the pledged revenues as described in this section.
Material modification of a contract means a termination, release,
amendment, modification or waiver of a contract that is not otherwise permitted
under the pooling and servicing agreement. The depositor may provide substitute
contracts for any that have been so materially modified. The depositor may also
replace any defaulted contract with a substitute contract. The aggregate
contract principal balances of the defaulted contracts for which the depositor
may cause substitution is limited to 10% of the cut-off contract pool principal
balance. The depositor may replace a prepaid contract with a substitute contract
and the seller may choose to replace contracts subject to a warranty claim or a
material modification with substitute contracts, in either case without regard
to the 10% limitation described above.
The same credit criteria and eligibility standards for the contracts in the
contract pool on the closing date will also apply to substitute contracts added
to the assets of the owner trust. The servicer will include information with
respect to these substitute contracts, to the extent the servicer deems them
material, in required periodic reports
51
under the Securities Exchange Act of 1934 filed with the Securities and Exchange
Commission on behalf of the owner trust. The substitute contracts will have
contract principal balances equal to or greater than the contracts being
replaced. The representations and warranties the seller makes with respect to
the contracts in ' -- Representations and Warranties Made by the Seller' above
will be equally applicable to substitute contracts.
DELINQUENCY AND NET LOSS EXPERIENCE
Your prospectus supplement will set forth statistics relating to the
delinquency and net loss experience on contracts within the originators' owned
and managed portfolios of receivables similar to the contracts in a contract
pool.
DESCRIPTION OF THE NOTES AND INDENTURE
GENERAL
The issuance of each series of notes will be under an indenture, a form of
which was filed with the Securities and Exchange Commission as an exhibit to the
registration statement of which this prospectus is a part. In addition, a copy
of the indenture for a series of notes will be filed with the Securities and
Exchange Commission following the issuance of each series. The following summary
describes certain material terms which may be common to each indenture and the
related notes, but does not purport to be complete and is subject to all of the
provisions of the indenture, the related notes and the description set forth in
your prospectus supplement.
The notes of each series will be issued in fully registered form only and
will represent the obligations of a separate owner trust.
Payments on the notes will be made by the indenture trustee on each payment
date to persons in whose names the notes are registered as of the related record
date. Unless otherwise specified in your prospectus supplement, the payment date
for the notes will be the 20th day of each month, or if the 20th is not a
business day, the next succeeding business day. For so long as the notes are in
book-entry form, the record date for any payment date will be the business day
immediately preceding the payment date. If the owner trust issues certificated
notes, the record date will be the last business day of the month immediately
preceding the payment date.
A business day is any day other than a Saturday, Sunday or legal holiday on
which commercial banks in New York City are open for regular business.
DISTRIBUTIONS
Your prospectus supplement will describe as to your series of notes
the timing and priority of distributions,
the amount or method of determining distributions,
allocations of loss and
the interest rates.
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CREDIT ENHANCEMENT
As further specified in the your prospectus supplement, a
cash collateral account,
a financial guaranty insurance policy,
subordination of one or more classes of notes,
overcollateralizations,
letters of credit or liquidity facilities,
repurchase obligations,
third party payments or other support,
cash deposits,
reserve fund or
other form of credit enhancement which may become suitable in light of
credit enhancement practices or developments in the future
may be established on or prior to the date the contracts are transferred. The
credit enhancement would be available to the related indenture trustee to pay
interest and principal on the notes in the manner and to the extent specified in
your prospectus supplement.
LIQUIDATION AND INSURANCE PROCEEDS
The allocation of liquidation proceeds which will consist generally of all
amounts the servicer receives in connection with the liquidation of a contract
and disposition of the related equipment, net of any related out-of-pocket
liquidation expenses, and the allocation of insurance proceeds for physical
damage to or loss of equipment covered by contracts, will be as follows:
with respect to any contract subject to financing, the proceeds will
be allocated to the owner trust; and
with respect to any contract subject to a lease, the proceeds will,
unless otherwise specified in your prospectus supplement, be allocated
on a pro rata basis between the depositor, on the one hand, and the
owner trust, on the other, based respectively on
(a) the book value of the related equipment and
(b) the required payoff amount for the contract.
However, if the proceeds in respect of any contract subject to a
lease and the related equipment exceed the sum of the required
payoff amount for the contract and the book value of the
equipment, the excess shall be allocated solely to the depositor.
For example, if the servicer, in connection with a defaulted contract subject to
a lease, derived liquidation proceeds in the amount of $100 from the liquidation
of the contract and disposition of the related equipment, and if the required
payoff amount of the contract was, as of the collection period during which the
contract became a liquidated contract, $120 and the book value of the equipment
was $30, the liquidation proceeds would be allocated to the owner trust in the
amount of $80 and to the
53
depositor in the amount of $20. All liquidation proceeds which are so allocable
to the owner trust will be deposited in a collection account and constitute
pledged revenues to be applied to the payment of interest and principal on the
notes in accordance with the priorities described under ' -- Distributions'
above.
OPTIONAL PURCHASE OF CONTRACTS AND REDEMPTION OF NOTES
The seller may purchase all of the contracts owned by an owner trust on any
payment date following the date on which the unpaid principal balance of the
related notes is less than 10% of the initial contract pool principal balance.
Except as otherwise described in the prospectus supplement for your notes, the
purchase price to be paid in connection with the purchase shall be at least
equal to the sum of
the unpaid principal balance of the related notes as of that payment
date,
accrued but unpaid interest,
unreimbursed servicer advances, and
accrued but unpaid servicer fees.
If the seller does purchase the contracts, the related notes shall be redeemed
on the payment date on which the purchase occurs. The redemption price will be
the principal amount of the notes plus accrued and unpaid interest to but
excluding the redemption date.
TRUST ACCOUNTS
Except as otherwise specified in your prospectus supplement, the applicable
indenture trustee will establish and maintain under each indenture segregated
trust accounts which need not be deposit accounts, but which must be with a
qualified institution. These accounts will include, among others, the
'Collection Account' and the 'Distribution Account.' The accounts may, as
described in the prospectus supplement for your notes, also include a cash
collateral or reserve fund account as credit enhancement. All of these accounts
are referred to collectively as the 'Trust Accounts.'
'Qualified institution' means the corporate trust department of the
indenture trustee or any other depository institution
organized under the laws of the United States or any state or any
domestic branch of a foreign bank,
the deposits of which are insured by the Federal Deposit Insurance
Corporation and
which has, or whose parent corporation has, short-term or long-term
debt ratings acceptable to Moody's Investors Service, Inc., Standard &
Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
and Duff & Phelps Credit Rating Co.
The servicer, as agent for the indenture trustee of any series, may
designate, or otherwise arrange for the purchase by the indenture trustee of,
investments to be made with funds in the trust accounts. All investments shall
be eligible investments as defined in the related indenture that will mature not
later than the business day
54
preceding the applicable monthly payment date or any other date approved by the
rating agencies. Eligible investments include, among other investments:
obligations of the United States or of any agency thereof backed by
the full faith and credit of the United States;
demand deposits, certificates of deposit, time deposits demand notes
or bankers acceptance of eligible financial institutions;
highly rated commercial paper or money market funds;
repurchase agreements in respect of United States government
securities or securities guaranteed or otherwise backed by the full
faith and credit of the United States Government with eligible
institutions; and
other investments which have been approved by each rating agency.
REPORTS TO NOTEHOLDERS
With respect to each series of notes, the servicer will furnish to the
applicable indenture trustee, and the indenture trustee will include with each
distribution to you, a statement, as specified in your prospectus supplement, in
respect of the related payment date.
If you purchase a note, you may receive these reports by making a written
request to The Depository Trust Company. These reports do not constitute
financial statements prepared in accordance with generally accepted accounting
principles. Neither the depositor nor the servicer intends to send any of their
respective financial reports to owners of notes. The servicer, on behalf of an
owner trust, will file with the Securities and Exchange Commission legally
required periodic reports concerning the owner trust.
With respect to any series, the notes will be registered in the name of a
nominee of The Depository Trust Company and will not be registered in the names
of the beneficial owners or their nominees. As a result, unless and until
definitive notes are issued in the limited circumstances described under
' -- Issuance of Certificated Notes at a Later Date' below, the indenture
trustee will not recognize you as a noteholder, as that term is used in the
related indenture. Hence, until that time, you will receive reports and other
information provided for under the related indenture only if, when and to the
extent The Depository Trust Company and its participating organizations provide
this information. The servicer will file a copy of each report with the
Securities and Exchange Commission on Form 8-K to the extent the Securities
Exchange Act of 1934 and the rules and regulations of the Securities and
Exchange Commission thereunder require it.
BOOK-ENTRY REGISTRATION
Unless your prospectus supplement states otherwise, you may hold your notes
through The Depository Trust Company, referred to as 'DTC,' in the United
States, or Cedel Bank or Euroclear System in Europe, if you are a participant of
those systems, or indirectly through organizations that are participants in
those systems.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a 'clearing
corporation' within
55
the meaning of the New York Uniform Commercial Code and a 'clearing agency'
registered under to Section 17A of the Exchange Act. DTC was created to hold
securities for its direct participants and to facilitate the clearance and
settlement of securities transactions between its direct participants through
electronic book-entries, thereby eliminating the need for physical movement of
certificates. DTC's direct participants include
the underwriters offering the notes to you,
securities brokers and dealers,
banks,
trust companies and
clearing corporations, and may include other organizations.
Indirect access to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly.
To facilitate subsequent transfers, DTC will register all deposited notes
in the name of DTC's nominee, Cede & Co. You will maintain beneficial ownership
of the notes despite the deposit of notes with DTC and their registration in the
name of Cede. DTC has no knowledge of the actual noteholders; DTC's records
reflect only the identity of its direct participants to whose accounts the notes
are credited, which may or may not be the noteholders. DTC's direct and indirect
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
You have no entitlement to receive a certificate representing your interest
in a class of notes. As long as the notes are registered in the name of Cede &
Co., any action to be taken by you or any other noteholders will be taken by DTC
upon instructions from DTC's participants. All distributions, notices, reports
and statements to noteholders will be delivered to Cede, as the registered
holder of the notes, for distribution to noteholders in compliance with DTC
procedures.
You will receive all payments of principal and interest on the notes
through direct participants or indirect participants. DTC will forward the
payments to its direct participants which will forward them to indirect
participants or noteholders. Under a book-entry format, you may experience some
delay in their receipt of payments, since payments will be forwarded to Cede as
nominee of DTC. The indenture trustee will not recognize you as a noteholder, as
that term is used in the indenture. You may exercise the rights of noteholders
only indirectly through DTC and its direct participants and indirect
participants. Because DTC can act only on behalf of direct participants, who in
turn act on behalf of indirect participants, and on behalf of banks, trust
companies and other persons approved by it, there may be limits on your ability
to pledge the notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to notes, due to the absence of
physical notes for the notes.
Arrangements among the various parties govern conveyance of notices and
other communications by
DTC to direct participants,
by direct participants to indirect participants and
56
by direct participants and indirect participants to noteholders,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Standing instructions and customary practices govern payments by DTC
participants to noteholders, 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 the DTC participant and not of DTC, the indenture trustee,
the owner trustee, the originators or the originator, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
principal and interest to DTC is the responsibility of the indenture trustee,
disbursement of the payments to direct participants shall be the responsibility
of DTC and disbursement of payments to noteholders shall be the responsibility
of direct participants and indirect participants.
Purchases of notes under the DTC system must be made by or through direct
participants, which will receive a credit for the notes on DTC's records. The
ownership interest of each actual noteholder is in turn to be recorded on the
direct participants' and indirect participants' records. Noteholders will not
receive written confirmation from DTC of their purchase, but noteholders are
expected to receive written confirmations providing details of the transaction,
as well as periodic statements of their holders, from the direct participant or
indirect participant through which the noteholder entered into the transaction.
Entries made on the books of DTC's participants acting on behalf of noteholders
evidence transfers of ownership interests in the notes.
DTC will not comment or vote with respect to the notes. DTC has advised
that it will take any action permitted to be taken by a noteholder under the
indenture only at the direction of one or more direct participants to whose
accounts with DTC the notes are credited. Additionally, DTC has advised that to
the extent that the indenture requires that any action may be taken only by
noteholders representing a specified percentage of the aggregate outstanding
principal amount of the notes, DTC will take the action only at the direction of
and on behalf of direct participants, whose holdings include undivided interests
that satisfy the specified percentage.
DTC may discontinue providing its services as securities depositary with
respect to the notes at any time by giving reasonable notice to the indenture
trustee. Under these circumstances, in the event that a successor securities
depositary is not obtained, fully registered, certificated notes are required to
be printed and delivered. The originator may decide to discontinue use of the
system of book-entry transfers through DTC or a successor securities depositary.
In that event, fully registered, certificated notes will be delivered to
noteholders. See ' -- Issuance of Definitive Notes at a Later Date.'
The information in this section concerning DTC and DTC's book-entry system
are from sources that the depositor believes to be reliable, but neither the
depositor nor the owner trustee take any responsibility for the accuracy of this
information.
Cedel and Euroclear will hold omnibus positions on behalf of the
participants in the Cedel and Euroclear systems, respectively, through
customers' securities accounts in Cedel's and Euroclear's names on the books of
their respective depositaries which in
57
turn will hold these positions in customers' securities accounts in the
depositaries' names on the books of DTC.
Cedel is incorporated under the laws of Luxembourg as a professional
depositary. Cedel holds securities for its participants and facilitates the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates.
Indirect access to Cedel is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Cedel participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear and to clear and settle transactions between Euroclear's 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. The Brussels, Belgium
office of Morgan Guaranty Trust Company of New York operates Euroclear, under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation. Euroclear's operator conducts all operations and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with
Euroclear's operator. Euroclear Clearance Systems S.C. establishes policy for
Euroclear on behalf of Euroclear's participants, including banks, securities
brokers and dealers, and other professional financial intermediaries.
Indirect access to Euroclear is also available to other firms that clear
through or maintain a custodial relationship with a Euroclear participant,
either directly or indirectly.
Morgan Guaranty Trust Company of New York is the Belgian branch of a New
York banking corporation which is a member bank of the Federal Reserve System.
As such, the Board of Governors of the Federal Reserve System and the New York
Banking Department, as well as the Belgian Banking Commission, regulates and
examines it.
Euroclear holds all securities on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
operator acts under the Euroclear Terms and Conditions only on behalf of
Euroclear's participants, and has no record of or relationship with persons
holding through Euroclear's participants.
Transfers between direct participants will comply with DTC rules. Transfers
between Cedel's participants and Euroclear's participants will comply with their
rules and operating procedures.
DTC will effect, under DTC rules, cross-market transfers between persons
holding directly or indirectly through DTC in the United States, on the one
hand, and directly or indirectly through Cedel or Euroclear, on the other,
through the relevant European international clearing system through its
Depositary; however, these cross-market transactions will require delivery of
instructions to the relevant European international clearing system by the
counterparty in this system as required by its rules and procedures and within
its established deadlines, European time. The relevant European international
clearing system will, if the transaction meets its settlement requirements,
deliver instructions to its depositary to take action to effect final
58
settlement on its behalf by delivering or receiving securities in DTC, and
making or receiving payment using its normal procedures for same-day funds
settlement applicable to DTC. Cedel participants and Euroclear participants may
not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Cedel or
Euroclear as a result of a transaction with a DTC participant will be made
during the subsequent securities settlement processing day, dated the business
day following the DTC settlement date, and the credits or any transactions in
the securities settled during the processing day will be reported to the
relevant Cedel participant or Euroclear participant on that business day. Cash
received in Cedel or Euroclear as a result of sales of securities by or through
a Cedel participant or a Euroclear participant to a DTC participant will be
received with value on the DTC settlement date but will be available in the
relevant Cedel or Euroclear cash account only as of the business day following
settlement in DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform these
procedures and these procedures may be discontinued at any time.
Except as required by law, none of the seller, any originator, the owner
trustee, the depositor or the indenture trustee will have any liability for any
aspect of the records relating to, actions taken or implemented by, or payments
made on account of, beneficial ownership interests in the notes held through
DTC, or for maintaining, supervising or reviewing any records or actions
relating to beneficial ownership interests.
ISSUANCE OF CERTIFICATED NOTES AT A LATER DATE
The owner trust will issue notes in fully registered, certificated form to
beneficial owners or their nominees rather than to DTC or its nominee, only if:
(1) the owner trustee advises the indenture trustee in writing that DTC
is no longer willing or able to discharge properly its responsibilities as
depository with respect to the notes, and the owner trustee or the
indenture trustee is unable to locate a qualified successor,
(2) the owner trustee elects to terminate the book-entry system, or
(3) after the occurrence of an event of default under the indenture,
the holder of at least 66 2/3% of the principal amount of its outstanding
notes advises the indenture trustee that the continuation of the book-entry
system is met in their best interests.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the indenture trustee must notify all beneficial owners for
each class of notes held through DTC of the availability of notes in fully
registered, certificated form. Upon surrender by DTC of the global note
representing the notes and instructions for reregistration, the indenture
trustee will issue these fully registered, certificated notes, and the indenture
trustee will recognize the holders of fully registered, certificated notes as
noteholders under the indenture.
59
Additionally, upon the occurrence of any event described above, the
indenture trustee will distribute principal of and interest on the notes
directly to you as required by the indenture. Distributions will be made by
check, mailed to your address as it appears on the note register. Upon at least
five days' notice to noteholders for the class, however, the indenture trustee
will make the final payment on any note only upon presentation and surrender of
the note at the office or agency specified in the notice of final distribution
to noteholders. The indenture trustee will make the final payment in this manner
whether the notes are fully registered, certificated notes or the note for the
class registered in the name of Cede & Co. representing the notes of the class.
You may transfer any fully registered, certificated notes of any class at
the offices of the indenture trustee or its agent in New York, New York, which
the indenture trustee shall designate on or prior to the issuance of any fully
registered, certificated notes with respect to that class. There is no service
charge for any registration of transfer or exchange, but the indenture trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection with the transfer or exchange.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
Unless your prospectus supplement states otherwise, the owner trust and the
indenture trustee for a note series may, without your consent, enter into one or
more supplemental indentures for any of the following purposes:
to change the collateral description;
to provide for a successor to the owner trust to assume the notes and
the indenture obligations;
to add additional covenants for your benefit, or to surrender any
rights or power of the owner trust;
to transfer or pledge any property to the indenture trustee;
if not adverse to the interests of noteholders, to correct or
supplement any provision in the indenture that is ambiguous or
inconsistent with any other provision of the indenture or to make any
other provision in respect of matters under the indenture;
to accept a successor indenture trustee or to change the provisions of
the indenture to facilitate the administration by more than one
trustee;
to comply with the Trust Indenture Act of 1939, as amended; or
to elect to come under the FASIT provision of the Internal Revenue
Code, if the owner trust provides an opinion of counsel as to no
adverse impact on noteholders.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
Unless your prospectus supplement states otherwise, with the consent of the
required majority of the noteholders determined as described in the prospectus
supplement for your notes, prior notice to each rating agency and an opinion of
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counsel, the owner trustee and the indenture trustee may modify the indenture
and your rights under it.
Without the consent of the holder of each outstanding note affected,
however, no modification of the indenture may:
reduce the note principal amount, interest rate or redemption price or
change the timing of payments;
modify the manner of application of payments in respect to contracts
to the notes;
impair your right to sue to enforce payment provisions of the
indenture;
reduce the percentage needed for consents of noteholders;
permit the creation of any lien on collateral under the indenture
ranking prior to or on a parity with the lien of the indenture;
adversely affect the manner of determining notes outstanding or the
requisite note for liquidating the trust estate; or
modify the provisions of the indenture relating to these types of
indenture modification without the consent of all noteholders.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Except as otherwise provided in the prospectus supplement for your notes,
events of default under each indenture will consist of:
a default for five calendar days or more in the payment of interest
due on any note;
failure to pay the unpaid principal amount of any class of notes on
the maturity date for the notes;
failure of the owner trust or the depositor to observe any provisions
set forth in the pooling and servicing agreement or the indenture,
which failure has a material adverse effect on the noteholders and
continues for 60 calendar days after written notice;
any representation or warranty made by the owner trust or the
depositor in the pooling and servicing agreement or indenture was
incorrect as of the time made, and continues to be incorrect for a
period of 60 calendar days after notice is given and as a result of
which the noteholders are materially and adversely affected. A breach
of a representation or warranty as to a contract will be considered
not to have occurred if the seller purchases the contract or effects a
substitution for it, as provided in 'The Contracts -- Representations
and Warranties Made by the Seller' and ' -- Substitution of Contracts'
above;
events of bankruptcy, insolvency, receivership or liquidation of the
owner trust or the depositor; or
the owner trust becomes an investment company.
If an event of default should occur and be continuing with respect to the
notes of a series, the required holders may, except as to a bankruptcy or
insolvency event of default, deem the event not to have occurred.
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If the indenture trustee declares the notes of a series due and payable
following an event of default, the applicable indenture trustee may:
institute proceedings to collect amounts due or foreclose on the
indenture collateral,
exercise remedies as a secured party, or
sell the indenture collateral, or elect to have the owner trust
maintain possession of the pledged revenues.
The indenture trustee, however, may not sell the indenture collateral
following an event of default, except an event arising from the owner trust's
failure to pay interest or principal, unless:
the holders of all the outstanding notes consent to the sale;
the proceeds of the sale distributable to holders of the notes are
sufficient to pay in full the principal and accrued interest on all
the outstanding notes at the date of the sale; or
the indenture trustee determines, in complete reliance on investment
banking or accounting firm certifications, that the trust estate would
not be sufficient on an ongoing basis to make all payments on the
notes as the payments would have become due if the obligations had not
been declared due and payable, and the indenture trustee obtains the
consent of the required holders.
Following a declaration upon an event of default that the notes are immediately
due and payable, the application of any proceeds of liquidation of the pledged
revenues will be in the order of priority described in the prospectus supplement
for your class of notes.
If an event of default occurs and is continuing, the indenture trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any of the holders of the notes, if the
indenture trustee reasonably believes it will not be adequately indemnified
against the costs, expenses and liabilities which it may incur in complying with
that request. A majority of the noteholders will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the indenture trustee. Additionally, a majority of the noteholders may, in some
cases, waive any default, except a default in the payment of principal or
interest or a default in respect of a covenant or provision of the indenture
that cannot be modified without the waiver or consent of all of the holders of
the outstanding notes.
No holder of a note will have the right to institute any proceeding with
respect to the indenture, unless:
the holder previously has given to the indenture trustee written
notice of a continuing event of default;
the holders of not less than 25% in principal amount of the
outstanding notes make written request of the indenture trustee to
institute the proceeding in its own name as indenture trustee;
the holder or holders offer the indenture trustee reasonable
indemnity;
the indenture trustee has for 60 days failed to institute the
proceeding; and
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no direction inconsistent with that written request has been given to
the indenture trustee during the 60-day period by the holders of a
majority in principal amount of the outstanding notes.
In addition, the indenture trustee and you, by accepting the notes, will
covenant that they will not at any time institute against the seller, the
depositor or the owner trust any bankruptcy, reorganization or other proceeding
under any federal or state bankruptcy or similar law.
Neither the indenture trustee nor the owner trustee in its individual
capacity, nor the seller, the depositor, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will be personally liable for the payment of the notes or for any
agreement or covenant of the owner trust contained in the indenture.
OWNER TRUST COVENANTS
Each indenture will provide that the related owner trust may not
consolidate with or merge into any other entity, unless:
the entity formed by or surviving the consolidation or merger is
organized under the laws of the United States or any state;
the entity expressly assumes the owner trust's obligation to make due
and punctual payments upon the notes and the performance or observance
of every agreement and covenant of the owner trust under the
indenture;
no event of default shall have occurred and be continuing immediately
after the merger or consolidation;
the rating agencies advise the owner trustee that the rating of the
notes then in effect would not be reduced or withdrawn as a result of
the merger or consolidation;
the owner trustee has received an opinion of counsel to the effect
that the consolidation or merger would have no material adverse tax
consequence to the owner trust or to any noteholder or equity
certificate holder; and
the owner trust or the person, if other than the owner trust, formed
by or surviving the consolidation or merger has a net worth,
immediately after the consolidation or merger, that is (a) greater
than zero and (b) not less than the net worth of the owner trust
immediately prior to giving effect to the consolidation or merger.
Each owner trust will not, among other things:
except as expressly permitted by the related indenture or trust
agreement, transfer any of the assets of the owner trust;
claim any credit on or make any deduction from, the principal and
interest payable in respect of the related notes, other than amounts
withheld under the bankruptcy code or applicable state law, or assert
any claim against any present or former holder of notes because of the
payment of taxes levied or assessed upon the owner trust;
dissolve or liquidate in whole or in part;
permit the validity or effectiveness of the indenture to be impaired
or permit the release of any person from any covenants or obligations
relating
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to the notes under the indenture except as expressly permitted in the
indenture; or
except as expressly permitted in the indenture, the pooling and
servicing agreement or the trust agreement, permit any lien or claim
to burden any assets of the owner trust.
No owner trust may engage in any activity other than as specified above
under 'The Owner Trusts.' Each owner trust will not incur, assume or guarantee
any indebtedness other than indebtedness incurred under the related notes and
the related indenture or otherwise in accordance with the related indenture,
trust agreement and pooling and servicing agreement.
ANNUAL COMPLIANCE STATEMENT
Each owner trust will be required to file annually with the applicable
indenture trustee a written statement as to the fulfillment of its obligations
under the indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT
Each indenture trustee will be required to mail each year to all
noteholders of the related series 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 certain indebtedness
owing by the owner trust to the indenture trustee in its individual
capacity,
the property and funds physically held by the indenture trustee and
any action taken by it that materially affects the notes and that has
not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The discharge of an indenture will occur with respect to the collateral
securing the notes of a series upon the delivery to the related indenture
trustee for cancellation of all the notes or, with certain limitations, upon
deposit with the indenture trustee of funds sufficient for the payment in full
of all of the notes.
THE INDENTURE TRUSTEE
The indenture trustee for any series will be specified in your prospectus
supplement. An indenture trustee may resign at any time, in which event the
depositor will be obligated to appoint a successor trustee. The owner trust may
also remove an indenture trustee
if the indenture trustee ceases to be eligible to continue to serve
under the indenture,
if the indenture trustee becomes subject to bankruptcy proceedings, or
if the indenture trustee becomes incapable of acting.
In these circumstances, the owner trust will be obligated to appoint a successor
trustee. Any resignation or removal of an indenture trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by a successor trustee.
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DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS
The following summarizes the material terms of each pooling and servicing
agreement, a form of which was filed with the registration statement of which
this prospectus is a part. In addition, a copy of the pooling and servicing
agreement relating to a series of notes will be filed with the Securities and
Exchange Commission following the sale of those notes. This summary describes
terms expected to be common to each pooling and servicing agreement, but the
depositor does not intend this summary to be complete. This summary is subject
to the provisions of the pooling and servicing agreement relating to a
particular series and the description set forth in your prospectus supplement.
You should read the form of the pooling and servicing agreement filed as noted
above.
TRANSFER OF CONTRACTS AND EQUIPMENT
Newcourt Financial USA Inc., a subsidiary of Newcourt Credit Group Inc.,
will be the seller of contracts to the depositor for deposit into the owner
trust. The seller will originate contracts and acquire contracts originated by
other subsidiaries of Newcourt Credit Group Inc. Prior to the offering of a
series of notes, the seller may have sold contracts to the depositor for deposit
into a trust used in connection with temporary financing arrangements. The
depositor may reacquire some or all of these contracts for deposit into the
owner trust in connection with the offering and sale of a particular series of
notes. On or before the applicable closing date, the seller will transfer to the
depositor under one or more purchase agreements all of its interest in the
following:
the contracts and the related equipment,
the right to receive all scheduled payments and prepayments received
on the contracts on or after the date of transfer, but excluding any
scheduled payments due on or after, but received prior to, the
transfer date,
all rights under insurance policies maintained on the equipment under
the contracts,
all documents contained in the files and
all proceeds derived from any of the above.
Under the pooling and servicing agreement, on the applicable closing date,
the depositor will transfer to the owner trust:
all of its rights in the contracts and rights in the equipment and
other rights listed above, except that in the case of leased
equipment, the depositor will retain ownership of the equipment, any
rights to payments made or attributable to the leased equipment upon
expiration of the related lease contract, of contract prepayments and
liquidation proceeds allocable to the depositor under the pooling and
servicing agreement and of any portion of the purchase amount
attributable to the book value of the leased equipment, other than any
guaranteed residual investment;
all funds on deposit from time to time in the trust accounts; and
all its rights under the purchase and sale agreement.
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Each pooling and servicing agreement will designate the servicer as
custodian to maintain possession, as the owner trust's agent, of the contracts
and all related documents. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the servicer's possession. Financing statements will be
filed on the transfer date in the applicable jurisdictions reflecting:
the transfer of the contracts and the equipment by the originators, other
than the seller, to the seller,
the transfer of the contracts and the equipment by the seller to the
depositor and, as applicable by any temporary financing trust to the
depositor,
the transfer by the depositor to the owner trust, and
the pledge by the owner trust to the indenture trustee.
The originators' accounting records and computer systems will also reflect
these assignments and this pledge.
COLLECTIONS ON CONTRACTS
The applicable indenture trustee will maintain a collection account, into
which the servicer will deposit the following amounts no later than the second
business day after their processing:
all scheduled payments made under the contracts;
all prepayments, excluding any portion which your prospectus supplement
states is allocable to the depositor;
amounts constituting liquidation proceeds on liquidated contracts, to the
extent specified in your prospectus supplement;
all payments made by the seller under the pooling and servicing agreement
to repurchase any contract as a result of a breach of a representation or
warranty, as described under 'The Contracts -- Representations and
Warranties Made by the Seller,' excluding, in the case of a lease
contract, any portion which your prospectus supplement states is allocable
to the depositor; and
the amount paid by the depositor to purchase the contracts, as described
under 'Description of the Notes and Indenture.'
So long as no event of termination shall have occurred and be continuing
with respect to the servicer, the servicer may make the required remittances to
the collection account net of its servicing fees.
The servicer may withdraw from the collection account any amounts deposited
in error or required to be repaid to an obligor, based on the servicer's
good-faith determination that the amount was deposited in error or must be
returned to the obligor.
The servicer will pay to the depositor all proceeds from the disposition of
equipment subject to a true lease, to the extent allocable to the depositor.
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SERVICING
Your prospectus supplement will identify the servicer for your trust. The
servicer will be obligated under each pooling and servicing agreement to service
the contracts with reasonable care, using that degree of skill and attention
that the servicer generally exercises with respect to all comparable contracts
and related assets that it services for itself or others in accordance with its
credit and collections policy and applicable law. In performing these duties, it
shall comply in all material respects with its credit and collection policies
and procedures described under 'The Originators -- Underwriting and Servicing,'
as modified from time to time. The servicer may delegate servicing
responsibilities to third parties or affiliates, provided that the servicer will
remain obligated to the related owner trust and the depositor for the proper
performance of the servicing responsibilities.
The servicer is obligated to act in a commercially reasonable manner with
respect to the repossession and disposition of equipment following a contract
default with a view to realizing proceeds at least equal to the equipment's fair
market value. The servicer may choose to dispose of equipment through a new
lease or in some other manner which provides for payment for the equipment over
time. In these cases, the servicer will be required to pay from its own funds an
amount which, in its reasonable judgment, is equal to the fair market value of
the equipment, less liquidation expenses, and the servicer will be entitled to
all subsequent payments in respect of the equipment. Any amounts the servicer
pays will constitute additional liquidation proceeds with respect to the related
contract and equipment and will be allocated as described under 'Description of
the Notes and Indenture -- Liquidation and Insurance Proceeds.'
The servicer is responsible for:
reviewing and certifying that the contract files are complete;
monitoring and tracking any property and sales taxes to be paid by
obligors;
billing, collecting, and recording payments from obligors;
communicating with and providing billing records to obligors;
deposit of funds into the collection account;
receiving payments as the owner trust's agent on the insurance
policies maintained by the obligors and communicating with insurers;
issuance of reports to the indenture trustee specified in the
indenture and in the pooling and servicing agreement;
repossession and remarketing of equipment following obligor defaults;
and
paying the fees and ordinary expenses of the indenture trustee and the
owner trustee.
The servicer shall be entitled to recover all reasonable out-of-pocket
expenses incurred by it in liquidating a contract and disposing of the related
equipment. The servicer is entitled to retain, from liquidation proceeds, a
reserve for out-of-pocket liquidation expenses in an amount equal to the
expenses, in addition to those previously incurred, as it reasonably estimates
will be incurred. The servicer is
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permitted to grant payment extensions on a contract in accordance with its
credit and collection policies and procedures if the servicer believes in good
faith that an extension is necessary to avoid a termination and liquidation of
the contract and will maximize the amount to be received by the owner trust
under the contract. The servicer is permitted to agree to modifications or
amendments to a contract in accordance with its credit and collection policies
and procedures.
PREPAYMENTS
The servicer may allow a prepayment of any lease contract, but only if the
amount paid or, in the case of a partial prepayment, the sum of its prepayment
and the remaining contract principal balance, is at least equal to the required
payoff amount of the contract.
EVIDENCE AS TO COMPLIANCE
Annually, the servicer must deliver to the indenture trustee a report from
a nationally recognized accounting firm stating that the accounting firm has
audited the financial statements of the servicer or its parent and issued an
opinion on those financial statements and that the accounting firm has examined
and provided a report as to statements of the servicer concerning the servicer's
controls over the servicing of:
equipment contracts,
installment sales contracts,
promissory notes,
loan and security agreements and
other similar types of receivables under servicing agreements
substantially similar one to another.
MATTERS REGARDING THE SERVICER
The servicer may not resign from its obligations under a pooling and
servicing agreement except if its duties are no longer permissible under
applicable law. No resignation will become effective until a successor servicer
has assumed the servicer's obligations and duties under the pooling and
servicing agreement. Removal of the servicer is permissible only upon the
occurrence of an event of termination as discussed below.
The servicer must maintain an insurance policy or financial guarantee bond
in customary form covering errors and omissions by the servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Compensation to the servicer will include a monthly fee equal:
to the product of one-twelfth of a percentage per annum specified in
your prospectus supplement multiplied by the contract pool principal
balance as of the last day of the second preceding collection period,
or
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in the case of the servicing fee with respect to the collection period
commencing on the date of transfer of the contracts, the contract pool
principal balance as of the cut-off date,
plus any
late fees,
late payment interest,
documentation fees,
insurance administration charges, other administrative fees and
any extension fees collected with respect to the contracts
during the prior collection period and investment earnings on
collections prior to deposit thereof in the collection account.
The servicer will pay all expenses incurred by it in connection with its
activities under the pooling and servicing agreement and the annual fees and
expenses of the owner trustee as indenture trustee in connection with the notes.
The servicer is authorized to waive any administrative fees or extension fees
that may be collected in the ordinary course of servicing any contract.
EVENTS OF TERMINATION
An event of termination under a pooling and servicing agreement will occur
if:
the servicer fails to make any required payment or deposit and the failure
continues for five business days after notice from the indenture trustee
or discovery by the servicer;
the servicer fails to observe in any material respect any agreements of
the servicer set forth in the pooling and servicing agreement and the
failure (1) materially and adversely affects the rights of the owner
trust, the equity certificate holder or you, and (2) continues unremedied
for 30 days after written notice to the servicer;
events of bankruptcy or insolvency occur with respect to the servicer; or
any representation, warranty or statement of the servicer made under the
pooling and servicing agreement is incorrect in any material respect, and
(1) has a material adverse effect on the owner trust or holders of the
notes, and (2) continues uncured for 30 days after the acquiring of
written notice.
RIGHTS UPON EVENT OF TERMINATION
If an event of termination remains unremedied, the indenture trustee may,
and at the written direction of the required majority of the noteholders, which
shall be the same as that required for amendment of the pooling and servicing
agreement, see 'Amendment' below, shall, terminate all of the rights and
obligations of the servicer under the pooling and servicing agreement. A
successor servicer will succeed to all the responsibilities, duties and
liabilities of the servicer under the pooling and servicing agreement. The
successor servicer will be entitled to similar compensation arrangements, except
that any successor servicer will not be liable for any acts or omissions of the
prior servicer occurring prior to a transfer of the servicer's servicing and
related
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functions or for any breach by the prior servicer of any of its obligations. A
majority of the noteholders may waive any default by the servicer under the
pooling and servicing agreement and its consequences.
AMENDMENT
The parties may amend any pooling and servicing agreement:
to cure any ambiguity,
to correct or supplement any provision therein that may be
inconsistent with any other provision, or
to make any other provisions with respect to matters or questions
arising under the pooling and servicing agreement but only if the
amendment will not adversely affect in any material respect the
interests of the noteholders.
Any pooling and servicing agreement may also be amended in any respect by
the parties with the consent of the required majority of the noteholders
determined as described in the prospectus supplement for your notes, except that
no amendment
that reduces the amount or changes the timing of any contract
collections on any contracts or payments required to be distributed on
any note,
that changes the interest rate on any note, that adversely affects the
priority of payment of principal or interest to noteholders or
that reduces the noteholder percentage required to consent to these
amendments or any waiver under the pooling and servicing agreement,
may be effective without the consent of the holder of each note. Also, an
amendment under the foregoing sentence will not be effective unless each rating
agency confirms that the amendment will not result in a reduction, qualification
or withdrawal of the ratings on the notes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general and brief discussion of the material United
States federal income tax consequences of the purchase, ownership and
disposition of the notes. The discussion that follows constitutes the opinion of
Winston & Strawn, special tax counsel to the trust depositor, and is based upon
current provisions of the Internal Revenue Code of 1986, as amended, existing
and proposed Treasury Regulations, current administrative rulings, judicial
decisions and other applicable authorities in effect as of the date hereof, all
of which are subject to change, possibly with retroactive effect. There are no
cases, regulations, or Internal Revenue Service rulings on comparable
transactions or instruments to those described in this prospectus. As a result,
there can be no assurance that the Internal Revenue Service will not challenge
the conclusions reached in this description of Material Federal Income Tax
Consequences, and no ruling from the Internal Revenue Service has been or will
be sought on any of the issues discussed below. Furthermore, legislative,
judicial or administrative changes may occur, perhaps with retroactive effect,
which could affect the accuracy of the statements set forth below.
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The following does not attempt to explain fully every relevant technical
aspect of the applicable tax provisions. Additionally, this summary does not
include some of the complex technical rules which would not be applicable to
most investors but may apply to some specific types of investors, such as
dealers in securities. Also, the descriptions of the relevant tax rules are
intended to explain the general application of the rules. BECAUSE THIS SUMMARY
OF MATERIAL FEDERAL INCOME TAX CONSEQUENCES IS INTENDED TO BE GENERAL IN NATURE,
THE DEPOSITOR SUGGESTS THAT YOU CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE
FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO YOU OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES.
This summary of material federal income tax matters is divided into two
parts. The first part describes the classification of the notes as debt and the
treatment of the trust as a pass-through entity rather than as a corporation or
other entity subject to tax at the entity level. The second part describes the
taxation of an investor in the notes. Under the caption 'General Tax Treatment
of Noteholders' is a description of the tax consequences for what is expected to
be the typical investment situation. The description of 'General Tax Treatment
of Noteholders' provides a summary of federal income tax consequences for
investors who are citizens or residents of the United States who purchase U.S.
dollar denominated notes for investment at a purchase price equal to the
principal amount of the notes plus accrued interest, if any. There are a variety
of technical tax rules which can be expected to apply only to particular types
of investors or in particular special circumstances. Those rules and the
investors and circumstances to which they apply are separately described under
the caption 'Special Tax Rules.' THE DEPOSITOR SUGGESTS THAT YOU CONSULT A TAX
ADVISOR TO DETERMINE WHETHER ANY OF THE SPECIAL TAX RULES ARE APPLICABLE.
CLASSIFICATION OF THE NOTES AND THE TRUST
Under existing federal income tax law each trust will not be treated as an
association or publicly traded partnership taxable as a corporation and the
notes will be treated as indebtedness. In rendering these opinions Winston &
Strawn has assumed that the terms of the various documents relating to the
issuance of the notes will be complied with by all of the parties to the
transaction. Those terms include a requirement, which each investor agrees to by
virtue of acquiring ownership of any beneficial interest in a note, that the
trust and the investors in the notes treat the notes as indebtedness for federal
income tax purposes. The opinion of Winston & Strawn does not foreclose the
possibility of a contrary determination by the Internal Revenue Service or by a
court or of a contrary position by the Internal Revenue Service or Treasury
Department in regulations or rulings issued in the future.
Although it is the opinion of Winston & Strawn that the trust will not be
treated as an association or publicly traded partnership taxable as a
corporation and the notes will be characterized as indebtedness for federal
income tax purposes, no assurance can be given that this characterization of the
trust or the notes will prevail. If, contrary to the opinion of Winston &
Strawn, the Internal Revenue Service 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. As a result, the trust might
be classified as a publicly traded partnership taxable as a corporation. If the
trust were classified as a publicly traded partnership taxable as a corporation,
the
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trust would be subject to United States federal income tax on its net income. An
imposition of a corporate-level income tax could materially reduce the amount of
cash that would be available to make payments of principal and interest on the
notes. Alternatively, if the trust were classified as a partnership, other than
a publicly traded partnership taxable as a corporation, the trust itself would
not be subject to United States federal income tax. Instead, holders of notes
that were determined to be equity interests in the partnership would be required
to take into account their allocable share of the trust's income and deductions.
This treatment may have adverse federal income tax consequences for some
noteholders. For example:
(1) income to some tax-exempt entities, including pension funds, may
constitute 'unrelated business taxable income,'
(2) income to foreign holders generally would be subject to U.S. tax
and U.S. tax return filing and withholding requirements,
(3) individual holders might be subject to certain limitations on their
ability to deduct their share of trust expenses, and
(4) income from the trust's assets would be taxable to noteholders
without regard to whether cash distributions are actually made by the trust
or any particular noteholder's method of tax accounting.
The discussion that follows assumes that the notes will be treated as
indebtedness for federal income tax purposes.
GENERAL TAX TREATMENT OF NOTEHOLDERS
Payments of Interest. An investor will be taxed on the amount of payments
of interest on a note as ordinary interest income at the time it accrues or is
received in accordance with the investor's regular method of accounting for
United States federal income tax purposes.
Sale or Other Disposition of a Note. An investor who disposes of a note,
whether by sale, exchange for other property, or payment by the trust, will
recognize taxable gain or loss equal to the difference between the amount
realized on the sale or other disposition, not including any amount attributable
to accrued but unpaid interest, and the investor's adjusted tax basis in the
note. In general, an investor's adjusted tax basis in a note will be equal to
the initial purchase price. Any gain or loss recognized upon the sale or other
disposition of a note will be capital gain or loss. For non-corporate investors,
capital gain recognized on the sale or other disposition of a note held by the
investor for more than one year will be taxed at a maximum rate of 20%. Capital
gain for a note held for one year or less is taxed at the rates applicable to
ordinary income, i.e., up to 39.6%. Taxpayers must aggregate capital gains and
losses for each taxable year. In the event a taxpayer realizes a net capital
loss for any year there are limits on the amount of these capital losses which
can be deducted.
Information Reporting and Backup Withholding. The trust or an agent acting
on its behalf will be required to report annually to the Internal Revenue
Service, and to each non-corporate noteholder, the amount of interest paid on
the notes for each calendar year. Each non-corporate noteholder, other than
noteholders who are not
72
subject to the reporting requirements, will be required to provide, under
penalties of perjury, a certificate, Form W-9, containing the noteholder's:
name,
address,
correct federal taxpayer identification number, and
a statement that the noteholder is not subject to backup withholding.
Should a non-exempt noteholder fail to provide the required certification, the
trust will be required to withhold or cause to be withheld 31% of the interest
otherwise payable to the noteholder and remit the withheld amounts to the
Internal Revenue Service as a credit against the noteholder's federal income tax
liability.
SPECIAL TAX RULES
Special Types of Investors. The reference to United States citizens or
residents in the description of 'General Tax Treatment of Noteholders' set forth
above applies not only to individuals but also to any investor who is:
(1) a corporation or partnership created or organized in or under the
laws of the United States or of any political subdivision thereof,
(2) an estate the income of which is subject to United States federal
income taxation regardless of its source, or
(3) a trust if a court within the United States is able to exercise
primary jurisdiction over the administration of the trust and one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust.
Any investor which is not a United States citizen or resident should review
the summary below for investment in notes by foreign persons. Also, neither the
description of 'General Tax Treatment of Noteholders' above nor this discussion
of 'Special Tax Rules' describes tax consequences to special classes of
investors, including investors who are:
dealers in securities or currencies,
persons holding notes as a part of a hedging transaction,
certain financial institutions, or
insurance companies.
Those particular types of investors are subject to specific federal income tax
treatment which is not generally applicable to other investors. This summary of
'Material Federal Income Tax Consequences' does not describe tax consequences
for those types of investors.
Purchase at a Discount. An investor who purchases a note as part of the
initial offering by the trust for an issue price that is less than its 'stated
redemption price at maturity' will generally be considered to have purchased the
note at an original issue discount for United States federal income tax
purposes. In general, the stated redemption price at maturity for a note is
equal to the principal amount. If a note is acquired with original issue
discount the investor will be required to include in income each year, taxable
as ordinary income in the same manner as cash interest payments, a
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portion of the original issue discount. For cash basis investors, such as
individuals, the requirement that original issue discount be accrued as income
each year means the investor recognizes taxable income even though the investor
does not receive cash corresponding to that income. The amount of original issue
discount accrued as income each year is based upon a formula which looks at the
constant yield on the notes and the term to maturity so as to annually allocate
a proportionate share of original issue discount. Under these rules, investors
generally will be required to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
In determining whether a note has original issue discount, the issue price
of the note may not necessarily equal the investor's purchase price, although
they generally should be the same. The issue price of a note will equal the
initial offering price to the public, not including bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters or
wholesalers, at which price a substantial amount of the notes is sold.
If an investor acquires a note in a secondary market transaction for a
purchase price which is less than the principal amount or other amount payable
at maturity of the note, the difference is referred to for tax purposes as
market discount. Similarly to original issue discount, an investor must accrue a
portion of the market discount each year. The amount of market discount which
accrues annually will be calculated on a straight-line basis over the remaining
term to maturity of the note unless the investor elects to accrue market
discount using the constant yield method, i.e., the original issue discount
method. Unlike original issue discount, however, an investor does not include
accrued market discount in ordinary income each year. Rather, the aggregate
amount of accrued market discount is included in income when an investor sells
or otherwise disposes of the note. At that time, the portion of the amount
realized by the investor on the sale or other disposition of the note equal to
accrued market discount is taxed as ordinary income, which has a maximum tax
rate of 39.6%, rather than long term capital gain maximum tax rate of 20%.
If an investor would prefer to be taxed on the annual accrual of market
discount each year rather than being taxed on the aggregate amount of all
accrued market discount when the note is sold or otherwise disposed of, the
investor can file an election to do so. This election would apply to all of the
investor's debt investments acquired in or after the taxable year in which the
notes are acquired and not just to the notes.
Limitations imposed by the federal tax law which are intended to match
deductions with the taxation of income may defer deductions for interest paid by
an investor on indebtedness incurred or continued, or short sale expenses
incurred, to purchase or carry a note with market discount. A noteholder who
elects to include market discount in gross income as it accrues is exempt from
this rule.
Whenever an investor accrues and includes in income an amount of original
issue discount or market discount, the investor's adjusted basis in the
corresponding note is increased by that same amount. As a result, the investor
would recognize a lower capital gain or greater capital loss on the sale or
other disposition of the note.
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In general, if the amount of original issue discount or market discount
would be less than 1/4th of one percent of the note's principal or other stated
redemption price at maturity, the investor can disregard the original issue
discount or market discount rules.
Purchase at a Premium. If an investor purchases a note for a price that
exceeds the principal amount or other amount payable at maturity, the investor
will be considered to have an amortizable bond premium. An investor can elect to
accrue a portion of the premium each year as a deduction to offset interest
income on the corresponding note. The amount of premium which can be amortized
and deducted each year is calculated using a constant yield method over the
remaining term to maturity of the note. The deduction is available only to
offset interest income on the corresponding note; it cannot be used as a
deduction to the extent it exceeds taxable note interest. The adjusted tax basis
which an investor has in a note must be reduced by the amount of premium for
which a deduction is claimed. Because the basis is reduced, the investor would
recognize a larger taxable capital gain, or a smaller capital loss, on the sale
or other disposition of the note. If an investor elects to amortize and deduct
premium, the election will apply to all of the investor's debt investments and
not just to the notes.
If an investor purchases in a secondary market transaction a note which was
originally issued with original issue discount for an amount which is less than
the sum of all amounts payable on the note after the purchase date other than
payments of qualified stated interest but in excess of its adjusted issue price,
i.e., the original issue price plus any accrued original issue discount as those
terms are described above, the excess is referred to for tax purposes as
'acquisition premium.' The investor would be permitted to reduce the daily
portions of original issue discount the investor would otherwise include in
income by an amount corresponding to the ratio of (1) the excess of the
investor's purchase price for the note over the adjusted issue price of the note
as of the purchase date to (2) the excess of all amounts payable on the note
after the purchase date, other than payments of qualified stated interest, over
the note's adjusted issue price.
Election to Treat All Interest as Original Issue Discount. An investor may
elect to include in gross income all interest that accrues on a note using the
constant-yield method described above under the heading 'Purchase at a Discount'
with modifications described below. For purposes of this election, interest
includes:
qualified stated interest,
original issue discount,
de minimis original issue discount,
market discount,
de minimis market discount, and
unstated interest,
as adjusted by any amortizable bond premium or acquisition premium.
In applying the constant-yield method to a note with respect to which this
election has been made, the issue price of the note will equal the electing
investor's adjusted
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basis in the note immediately after its acquisition. The issue date of the note
will be the date of its acquisiton by the electing investor, and no payments on
the note will be treated as payments of qualified stated interest. This
election, if made, may not be revoked without the consent of the Internal
Revenue Service. Investors should consult with their own tax advisors as to the
effect in their circumstances of making this election.
Foreign Investors. Special tax rules apply to the purchase of notes by
foreign persons. For U.S. tax purposes, foreign investors include any person who
is not
(1) a citizen or resident of the United States,
(2) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof,
(3) an estate the income of which is includible in gross income for
U.S. federal income tax purposes, regardless of its source, or
(4) a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one or more
United States fiduciaries have the authority to control all substantial
decisions of the trust.
Interest paid or accrued to a foreign investor that is not effectively
connected with the conduct of a trade or business within the United States by
the investor will generally be considered 'portfolio interest' and generally
will not be subject to United States federal income tax or withholding tax as
long as the foreign investor is not actually or constructively a 10 percent
shareholder of the trust or a controlled foreign corporation related to the
trust through stock ownership. Additionally, the foreign investor must provide
or have a financial institution provide on its behalf to the trust or paying
agent an appropriate statement Form W-8, that is signed under penalties of
perjury, certifying that the beneficial owner of the note is a foreign person
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign investor must provide a new Form
W-8 within 30 days. The Form W-8 is generally effective for three years. If the
foreign investor fails to satisfy these requirements so that interest on the
investor's Notes was not portfolio interest, interest payments would be subject
to United States federal income and withholding tax at a rate of 30% unless
reduced or eliminated under an applicable income tax treaty. To qualify for any
reduction as the result of an income tax treaty, the foreign investor must
provide the paying agent with Form 1001. This form is also effective for three
years.
The realization of any capital gain on the sale or other taxable
disposition of a note by a foreign investor will be exempt from United States
federal income and withholding tax, provided that
(1) the gain is not effectively connected with the conduct of a trade
or business in the United States by the investor and
(2) in the case of an individual foreign investor, the investor is not
present in the United States for 183 days or more during the taxable year.
If an individual foreign investor is present in the U.S. for 183 days or
more during the taxable year, the gain on the sale or other disposition of
the Notes could be subject to a 30% withholding tax unless reduced by
treaty.
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If the interest, gain or income on a note held by a foreign investor is
effectively connected with the conduct of a trade or business in the United
States by the investor, the noteholder will be subject to United States federal
income tax on the interest, gain or income at regular federal income tax rates.
At the same time, the noteholder may be exempt from withholding tax if a
Form 4224 is furnished to the paying agent. Form 4224 is effective for only one
calendar year. In addition, if the foreign investor is a foreign corporation, it
may be subject to a branch profits tax equal to 30% of its 'effectively
connected earnings and profits' for the taxable year, as adjusted for certain
items, unless it qualifies for a lower rate under an applicable tax treaty.
Regardless of when a foreign investor acquired a note, Treasury Regulations
which will become effective for note payments made after December 31, 2000 may
change reporting requirements for certain withholding agents.
If a foreign investor fails to provide necessary documentation to the trust
or its paying agent regarding the investor's taxpayer identification number or
certification of exempt status, a 31% backup withholding tax may be applied to
note payments to that investor. Any amounts withheld under the backup
withholding rules will be allowed as a refund or a credit against the foreign
investor's U.S. federal income tax liability provided the required information
is furnished to the Internal Revenue Service.
STATE AND LOCAL TAX CONSEQUENCES
Because of the differences in state and local tax laws and their
applicability to different investors, it is not possible to summarize the
potential state and local tax consequences of purchasing, holding or disposing
of the notes and no opinions of counsel have been obtained regarding state tax
matters. ACCORDINGLY, THE DEPOSITOR RECOMMENDS THAT YOU CONSULT YOUR OWN TAX
ADVISORS REGARDING THE STATE AND LOCAL TAX CONSEQUENCES OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended, imposes
specific requirements on employee benefit plans subject to ERISA and prohibits
some transactions between ERISA-regulated plans and persons who are 'parties in
interest,' as defined under ERISA, with respect to assets of these plans.
Section 4975 of the Internal Revenue Code prohibits a similar set of
transactions between specified plans or individual retirement accounts and
persons who are 'disqualified persons,' as defined in the Internal Revenue Code,
with respect to Internal Revenue Code-regulated plans. Some employee benefit
plans, such as governmental plans and church plans, if no election has been made
under Section 410(d) of the Internal Revenue Code, are not subject to the
requirements of ERISA or Section 4975 of the Internal Revenue Code and assets of
the plans may be invested in the notes, subject to the provisions of other
applicable federal and state law, including Section 503 of the Internal Revenue
Code.
Investments by ERISA-regulated plans are subject to ERISA's general
fiduciary requirements, including the requirement of investment prudence and
diversification and the requirement that investments comply with the terms of
the documents governing the ERISA-regulated plan. Before investing in the notes,
an ERISA-
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regulated plan fiduciary should consider, among other factors, whether to do so
is appropriate in view of the overall investment policy and liquidity needs of
the ERISA plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Internal Revenue
Code prohibit parties in interest and disqualified persons with respect to plans
subject to those sections from engaging in some transactions involving the plans
or plan assets of the plans, unless a statutory or administrative exemption
applies to the transaction. Section 4975 of the Internal Revenue Code of 1986,
as amended and Sections 502(i) and 502(1) of ERISA provide for the imposition of
excise taxes and civil penalties on persons that engage or participate in
prohibited transactions. The
originators,
depositor,
underwriters,
servicer,
indenture trustee or
owner trustee,
or their affiliates may be considered or may become parties in interest or
disqualified persons with respect to a plan. If so, the acquisition or holding
of the notes by, on behalf of or with plan assets of the plan may be considered
to give rise to a prohibited transaction within the meaning of ERISA and/or
Section 4975 of the Internal Revenue Code, unless an administrative exemption
described below or some other exemption is available.
The notes may not be purchased with the assets of a plan if the
originators, depositor, the underwriters, the servicer, the indenture trustee,
or the owner trustee or any of their affiliates either;
(a) has discretionary authority or control with respect to the
investment or management of the assets: or
(b) has authority or responsibility to give, or regularly gives,
investment advice with respect to the assets under an
agreement or understanding that the advice will serve as a
primary basis for investment decisions with respect to the
assets and that the advice will be based on the particular
needs of the plan; or
(c) is an employer of employees covered under the plan unless the
investment is made through an insurance company general or
pooled separate account or a bank collective investment fund
and an exemption is available.
Depending on the relevant facts and circumstances, some prohibited
transaction exemptions may apply to the purchase or holding of the notes -- for
example,
Prohibited Transaction Class Exemption ('PTCE') 96-23, which exempts
transactions effected on behalf of a plan by an in-house asset
manager;
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PTCE 95-60, which exempts transactions between bank collective
investment funds and parties in interest;
PTCE 91-38, which exempts transactions between bank collective
investment funds and parties in interest;
PTCE 90-1, which exempts transactions between insurance company pooled
separate accounts and parties in interest; or
PTCE 84-14, which exempts transactions effected on behalf of a plan by
a qualified professional asset manager.
There can be no assurance that any of these exemptions will apply with respect
to any plan's investment in the notes or, even if an exemption were deemed to
apply, that any exemption would apply to all prohibited transactions that may
occur in connection with that investment.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other plan investor who proposes to invest assets of a plan in the
notes should consult with its counsel with respect to the potential consequences
under ERISA and Section 4975 of the Internal Revenue Code of doing so.
RATINGS OF THE NOTES
The owner trust will not sell notes of a series unless one or more
nationally recognized rating agencies rate the notes of that series in a rating
category that signifies investment grade. Any rating that is made may be lowered
or withdrawn by the assigning rating agency at any time if, in its judgment,
circumstances so warrant. If a rating or ratings of notes is qualified, reduced
or withdrawn, no person or entity will be obligated to provide any additional
credit enhancement with respect to the notes so qualified, reduced or withdrawn.
The rating of the notes should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy,
sell or hold notes, inasmuch as a rating does not comment as to market price or
suitability for a particular investor. The ratings of the notes do not address
the likelihood of payment of principal on any class of notes prior to the stated
maturity date of the notes, or the possibility of the imposition of United
States withholding tax with respect to non-United States persons.
USE OF PROCEEDS
The proceeds from the sale of the notes of each series, after funding a
portion of the cash collateral account or other form of credit enhancement for
the series and paying the expenses of the depositor, will be used by the
depositor to pay the purchase price due to Newcourt Financial USA Inc., as
seller, under the purchase and sale agreement or the trust through which the
depositor has arranged a warehouse receivables securitization facility relating
to the financing of contracts sold by the depositor to the owner trust. That
trust will use proceeds it receives to make payments on that facility.
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PLAN OF DISTRIBUTION
The owner trust may sell notes to or through underwriters by a negotiated
firm commitment underwriting and public reoffering by the underwriters, and also
may sell notes directly to other purchasers or through agents. The depositor
intends to offer the notes through these various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular series of notes may be made through a
combination of these methods.
The originators, the depositor and certain of its affiliates may agree to
indemnify the underwriters and agents who participate in the distribution of the
notes against certain liabilities, including liabilities under the Securities
Act of 1933, as amended, or contribute to payments the underwritten may be
required to make.
Funds in cash collateral accounts and the trust accounts may, from time to
time, be invested in certain investments acquired from the underwriters.
LEGAL MATTERS
Winston & Strawn, Chicago, Illinois, will provide a legal opinion relating
to the notes in its capacity as special counsel to the owner trust, the
depositor, the seller, the originators, the servicer and the administrator.
Other legal matters for undewriters will be passed upon by counsel to
underwriters.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires the filing of certain information with the
Securities and Exchange Commission, including annual, quarterly and special
reports, proxy statements and other information. You can read and copy these
documents at the public reference facility maintained by the Securities and
Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You can also read and copy the reports, proxy statements
and other information at the following regional offices of the Securities and
Exchange Commission:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
more information about the public reference rooms or visit the Securities and
Exchange Commission's web site at http://www.sec.gov to access available
filings.
The Securities and Exchange Commission allows offerors of securities to
incorporate by reference some of the information they file with it. This means
that offerors can disclose important information to you by referring you to
those documents. The information that the depositor incorporates by reference is
considered to be part of this prospectus, and later information that the
depositor files with the Securities and Exchange Commission will automatically
update and supersede this information.
All documents filed by the servicer, on behalf of a respective owner trust,
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
after the date of this prospectus and prior to the termination of the offering
of the notes will be incorporated by reference into this prospectus.
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If you are a beneficial owner of the notes to whom a prospectus has been
delivered, the depositor will, on request, send you a copy of the information
that has been incorporated by reference in this prospectus. The depositor will
provide this information at no cost to you. Please address requests to: Newcourt
Credit Group Inc., at 2 Gatehall Drive, Parsippany, New Jersey 02054, Telephone
No. (973) 606-3500.
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INDEX OF TERMS
TERM PAGE
- ---- ----
Collection Account.......................................... 54
contract pool principal balance............................. 7
contract principal balance.................................. 7
Distribution Account........................................ 54
DTC......................................................... 55
ERISA....................................................... 77
excluded residual investment................................ 43
guaranteed residual investment.............................. 43
material modification....................................... 51
PTCE........................................................ 78
Qualified institution....................................... 54
true lease.................................................. 19
Trust Account............................................... 54
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NEWCOURT EQUIPMENT TRUST SECURITIES 1999-1
RECEIVABLE-BACKED NOTES
NCT FUNDING COMPANY, L.L.C.
DEPOSITOR
[AT&T LOGO]
SERVICER
THE DEPOSITOR AND SERVICER ARE MEMBERS OF THE NEWCOURT GROUP OF COMPANIES.
[NEWCOURT LOGO]
Until 90 days after the date of this prospectus supplement, all dealers
effecting transaction in the notes, whether or not participating in this
distribution, may be required to deliver this prospectus supplement and the
accompanying prospectus. Dealers acting as underwriters also have an obligation
to deliver a prospectus supplement and prospectus with respect to their unsold
allotments or subscriptions.