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THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY , 1996
OWNER TRUST PROSPECTUS SUPPLEMENT
(To Prospectus dated July , 1996)
$
NATIONSBANK AUTO OWNER TRUST 1996-A
$ % CLASS A-1 MONEY MARKET ASSET BACKED NOTES
$ % CLASS A-2 ASSET BACKED NOTES
$ % CLASS A-3 ASSET BACKED NOTES
$ % CLASS A-4 ASSET BACKED NOTES
$ % CLASS B-1 ASSET BACKED CERTIFICATES
$ % CLASS B-2 ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
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NATIONSBANK, N.A.
SERVICER
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The NationsBank Auto Owner Trust 1996-A (the "Trust") will be governed by a
Trust Agreement, to be dated as of July , 1996, among NationsBank, N.A.,
NationsBank, N.A. (South), NationsBank of Texas, N.A. (each, a "Seller" and a
"Bank" and collectively, the "Sellers" and the "Banks") and Bankers Trust
(Delaware), as Owner Trustee. The Trust will issue $ aggregate initial
principal amount % Class A-1 Money Market Asset Backed Notes (the "Class
A-1 Notes"), $ aggregate initial principal amount of % Class A-2
Asset Backed Notes (the "Class A-2 Notes"), $ aggregate initial principal
amount of % Class A-3 Asset Backed Notes (the "Class A-3 Notes") and
$ aggregate initial principal amount of % Class A-4 Asset Backed
Notes (the "Class A-4 Notes" and, together with the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes, the "Notes") pursuant to an Indenture to be
dated as of July , 1996, between the Trust and The Chase Manhattan Bank
(National Association), as Indenture Trustee. The Trust will also issue
$ aggregate initial principal balance of % Class B-1 Asset Backed
Certificates (the "Class B-1 Certificates") and $ aggregate initial
principal balance of % Class B-2 Asset Backed Certificates (the "Class B-2
Certificates" and, together with the Class B-1 Certificates, the "Certificates"
and, together with the Notes, are referred to herein as the "Securities"). The
assets of the Trust will include a pool of retail motor vehicle installment
sales contracts (the "Receivables") secured by security interests in the motor
vehicles financed thereby including certain monies received thereunder after the
related Cut-Off Date (as defined herein), which will be purchased by the Trust
from the Seller on or prior to the Closing Date, and certain other property, as
more fully described herein. See "Summary -- The Trust Property" herein. The
Notes will be secured by the assets of the Trust pursuant to the Indenture.
(Certain capitalized terms used in this Prospectus Supplement are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" beginning on page ).
PROSPECTIVE INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" BEGINNING ON PAGE S- HEREIN AND ON PAGE OF THE
ACCOMPANYING PROSPECTUS.
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THE NOTES REPRESENT OBLIGATIONS OF, AND THE CERTIFICATES REPRESENT BENEFICIAL
INTERESTS IN, THE TRUST ONLY AND DO NOT REPRESENT OBLIGATIONS OF OR
INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED BY, THE FEDERAL DEPOSIT
INSURANCE CORPORATION, ANY GOVERNMENTAL AGENCY, ANY OF THE SELLERS,
THE SERVICER OR NATIONSBANK CORPORATION OR ANY OF THEIR RESPECTIVE
AFFILIATES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE SELLER(1)(2)
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Per Class A-1 Note.............................. % % %
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Per Class A-2 Note.............................. % % %
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Per Class A-3 Note.............................. % % %
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Per Class A-4 Note.............................. % % %
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Per Class B-1 Certificate....................... % % %
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Per Class B-2 Certificate....................... % % %
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Total........................................... $ $ $
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(1) Plus accrued interest, if any, from Closing.
(2) Before deducting expenses, estimated to be $ .
The Notes and the Certificates are offered by the Underwriters when, as and
if issued and accepted by the Underwriters and subject to their right to orders
in whole or in part. It is expected that delivery of the Notes will be made in
book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, and that delivery of the Certificates will be made in fully
registered, certificated form in New York, New York, in each case on or about
July , 1996 against payment therefor in immediately available funds.
NATIONSBANC CAPITAL MARKETS, INC.
The date of this Prospectus Supplement is July , 1996.
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Interest on the Notes will accrue at the fixed per annum interest rates
specified above. Interest on the Notes will generally be payable on the 15 day
of each month (each, a "Distribution Date"), commencing on the August 1996
Distribution Date. Interest will accrue from and including the Closing Date (in
the case of the first Distribution Date), or the 15th of the most recent month
in which interest has been paid, to but excluding the 15th of the current month
(each an "Interest Period"). Principal on the Notes will be payable on each
Distribution Date to the extent described herein; however, no principal will be
paid on the Class A-2 Notes until the Class A-1 Notes have been paid in full and
no principal will be paid on the Class A-3 Notes until the Class A-2 Notes have
been paid in full and no principal will be paid on the Class A-4 Notes until the
Class A-3 Notes have been paid in full.
The Certificates will represent fractional undivided interests in the
Trust. Interest, to the extent of the Certificate Rate specified above, will be
distributed to the Certificateholders on each Distribution Date. Principal, to
the extent described herein, will be distributed to the Certificateholders on
each Distribution Date commencing with the Distribution Date on which the Notes
are paid in full. Distributions of principal and interest on the Certificates
will be subordinated in priority to payments due on the Notes as described
herein. No principal will be paid on the Certificates until the Notes have been
paid in full. In addition, no principal will be paid on the Class B-2
Certificates until the Class B-1 Certificates have been paid in full. In
addition, upon the occurrence and during the continuation of an Event of Default
which has resulted in an acceleration of the Notes or following an Insolvency
Event or a dissolution with respect to NationsBank Auto Funding Corporation
("NAFC"), distributions of any amounts on the Certificates will be subordinated
in priority of payment to payment in full of principal of the Notes.
The Class A-1 Notes will be payable in full on the Distribution Date,
the Class A-2 Notes will be payable in full on the Distribution Date, the
Class A-3 Notes will be payable in full on the
Distribution Date and the Class A-4 Notes will be payable in full on the
Distribution Date. The final scheduled Distribution Date with respect to the
Class B-1 Certificates will be the Distribution Date and with respect to the
Class B-2 Certificates will be the Distribution Date (the "Final Scheduled
Distribution Date"). However, payment in full of a class of Notes or of the
Certificates could occur earlier or later than such dates as described herein.
In addition, the Certificates will be subject to prepayment in whole, but not in
part, on any Distribution Date on which the Servicer exercises its option to
purchase the Receivables. The Servicer may purchase the Receivables when the
aggregate principal balance of the Receivables shall have declined to 5% or less
of the initial aggregate principal balance of the Receivables purchased by the
Trust.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES AND THE CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE NOTES OR THE
CERTIFICATES MAY NOT BE CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES AND THE
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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REPORTS TO SECURITYHOLDERS
Unless and until Definitive Notes are issued, monthly and annual unaudited
reports containing information concerning the Receivables will be prepared by
the Servicer and sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and registered holder of the Notes. See
"Book-Entry and Definitive Securities; Reports to Securityholders -- Book-Entry
Registration" and "-- Reports to Securityholders" in the accompanying Prospectus
(the "Prospectus"). Such reports will not constitute financial statements
prepared in accordance with generally accepted accounting principles. The
Servicer, on behalf of the Trust, will file with the Securities and Exchange
Commission (the "Commission") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. The Servicer intends to continue
to file with respect to the Trust such periodic reports pursuant to the
requirements of the Exchange Act for the period after such filings could be
discontinued in reliance on Section 15(d) thereof until the Notes and the
Certificates issued by the Trust are no longer outstanding.
The Sellers have filed with the Commission, on behalf of the Trust, a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to such Registration
Statement, and the exhibits thereto, which are available for inspection without
charge at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, as well as the Midwest Regional Offices of the
Commission at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and at the Northeast Regional Office of the Commission at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
information can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In
addition, the Commission maintains a public access site on the Internet through
the World Wide Web at which site reports, information statements and other
information, including all electronic filings, regarding the Sellers and
NationsBank Corporation, the parent corporation of each of the Sellers, may be
viewed. The Internet address of such World Wide Web site is http://www.sec.gov.
See "Available Information" in the Prospectus.
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SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used herein are defined elsewhere in this Prospectus
Supplement on the pages indicated in the "Index of Terms" or, to the extent not
defined herein, have the meanings assigned to such terms in the Prospectus.
ISSUER..................... NationsBank Auto Owner Trust 1996-A (the "Trust" or
the "Issuer"), a Delaware business trust to be
formed by the Sellers and the Owner Trustee
pursuant to a trust agreement (as amended, and
supplemented from time to time, the "Trust
Agreement"), dated as of July , 1996, among the
Sellers and the Owner Trustee.
SELLER..................... NationsBank, N.A., NationsBank, N.A. (South)
("NationsBank South") and NationsBank of Texas,
N.A. ("NationsBank Texas") (each a "Seller" and a
"Bank" and, collectively, the "Sellers" and the
"Banks").
SERVICER................... NationsBank, N.A., in its capacity as servicer (the
"Servicer").
INDENTURE TRUSTEE.......... The Chase Manhattan Bank (National Association), a
national banking association, as trustee under
the Indenture (the "Indenture Trustee").
OWNER TRUSTEE.............. Bankers Trust (Delaware), a , as trustee under
the Trust Agreement (the "Owner Trustee").
THE NOTES.................. The Trust will issue four classes of Asset Backed
Notes (the "Notes") pursuant to an Indenture to
be dated as of July , 1996 (as amended,
modified and supplemented from time to time, the
"Indenture"), between the Issuer and the
Indenture Trustee, as follows: (1) % Class
A-1 Money Market Asset Backed Notes (the "Class
A-1 Notes") in the aggregate initial principal
amount of $ ; (2) % Class A-2 Asset
Backed Notes (the "Class A-2 Notes") in the
aggregate initial principal amount of $ ; (3)
% Class A-3 Asset Backed Notes (the "Class
A-3 Notes") in the aggregate initial principal
amount of $ ; and (4) % Class A-4
Asset Backed Notes (the "Class A-4 Notes") in the
aggregate initial principal amount of
$ .
The Notes will be secured by the assets of the
Trust pursuant to the Indenture.
The Notes will be available for purchase in book
entry form only in minimum denominations of
$1,000 and integral multiples thereof. The
Noteholders will not be entitled to receive
Definitive Notes except in the limited
circumstances described herein. See "Book-Entry
and Definitive Securities; Reports to
Securityholders -- Definitive Securities" in the
Prospectus.
THE CERTIFICATES........... The Trust will issue two classes of Asset Backed
Certificates (the "Certificates" and, together
with the Notes, the "Securities") as follows: (1)
% Class B-1 Asset Backed Certificates (the
"Class B-1 Certificates") in the aggregate
initial Certificate Balance of $ ; and
(2) % Class B-2 Asset Backed Certificates
(the "Class B-2 Certificates") in the aggregate
initial Certificate Balance of $ . The
Certificates will represent fractional undivided
interests in the Trust and will be issued
pursuant to the Trust Agreement. $
aggregate principal amount of Class B-1
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Certificates and $ aggregate principal
amount of Class B-2 Certificates will initially
be held by NationsBanc Auto Funding Corporation,
a Delaware corporation ("NAFC"), a limited
purpose wholly owned subsidiary of NationsBank,
N.A. and are not offered hereby.
The Certificates will be available for purchase in
fully registered definitive form in minimum
denominations of $1,000 and integral multiples
thereof. The rights of the Certificateholders to
receive distributions with respect to the
Certificates will be subordinated to the rights
of the Noteholders to receive principal and
interest on the Notes as described herein. In
addition, the rights of the holders of the Class
B-2 Certificates to receive interest
distributions with respect to the Class B-2
Certificates will be subordinated to the rights
of the holders of the B-1 Certificates to receive
interest distributions on the Class B-1
Certificates as described herein.
NATIONSBANC AUTO FUNDING
CORPORATION.............. NAFC has been formed for the limited purpose of
purchasing a portion of the Certificates issued
by the Trust, acting as the general partner of
the Trust for federal income tax purposes and
engaging in incidental activities. NAFC will
purchase 2% of each class of the Certificates
issued by the Trust. Any Certificates purchased
by NAFC have not been, and will not be,
registered with the Commission and may not be
offered pursuant to the Registration Statement.
THE TRUST PROPERTY......... The property of the Trust (the "Trust Property")
includes a pool of fixed rate simple interest
retail motor vehicle installment sales contracts
purchased by the Sellers from motor vehicle
dealers (the "Dealers") that provide for the
allocation of payments between principal and
interest according to the simple interest method
(collectively, the "Receivables"), all monies
received under the Receivables after the close of
business of the Servicer on June 30, 1996 (the
"Cut-Off Date") and will also include: (i) such
amounts as from time to time are on deposit in
one or more accounts maintained pursuant to the
Sale and Servicing Agreement to be dated as of
July , 1996 (as amended and supplemented from
time to time, the "Sale and Servicing
Agreement"), among the Trust, the Sellers and the
Servicer, as described herein, including the
Reserve Account; (ii) security interests in the
new and used automobiles, vans and light-duty
trucks financed thereby (collectively, the
"Financed Vehicles") and any accessions thereto;
(iii) the Sellers' rights (if any) to receive
proceeds from claims under certain insurance
policies covering the Financed Vehicles or the
obligors under the Receivables (each, an
"Obligor"), as the case may be; (iv) any property
that shall have secured a Receivable and shall
have been acquired by the Trust; (v) each
Seller's rights relating to the repurchase of
Receivables under agreements between each Seller
and the Dealers that sold the Financed Vehicles
to the Obligors and any assignments and other
documents related thereto (collectively, the
"Dealer Agreements") and under the documents and
instruments contained in the Receivable Files;
(vi) certain rebates of premiums and other
amounts relating to certain insurance policies
and other items financed under the Receivables;
S-5
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(vii) the rights of the Trust under the Sale and
Servicing Agreement; and (viii) any and all
proceeds of the foregoing.
THE RECEIVABLES............ On July , 1996 (the "Closing Date"), the Trust
will purchase Receivables (the "Receivables")
having an aggregate principal balance (the "Pool
Balance") of approximately $2,136,187,667.91 as
of the Cut-Off Date from the Sellers pursuant to
the Sale and Servicing Agreement. As of the
Cut-Off Date, the weighted average annual
percentage rate of the Receivables was
approximately 10.38%, the weighted average
remaining maturity of the Receivables was
approximately 49.0 months and the weighted
average original maturity of the Receivables was
approximately 59.7 months.
The Receivables arise from loans originated by
Dealers and purchased by the Sellers pursuant to
Dealer Agreements. The Receivables have been
selected from the Motor Vehicle Loans owned by
Sellers based on the criteria specified in the
Sale and Servicing Agreement and described herein
and in the Prospectus. No Receivable has a
scheduled maturity later than (the "Final
Scheduled Maturity Date").
The "Pool Balance" at any time will represent the
aggregate principal balance of the Receivables at
the end of the preceding Collection Period, after
giving effect to all payments received from
Obligors, Liquidation Proceeds, and Purchase
Amounts to be remitted by the Servicer or the
Sellers, as the case may be, all for such
Collection Period and all Realized Losses during
such Collection Period.
TERMS OF THE NOTES......... The principal terms of the Notes will be as
described below:
A. Distribution Dates...... Payments of interest and principal on the Notes
will be made on the 15th day of each month or, if
any such day is not a Business Day, on the next
succeeding Business Day (each, a "Distribution
Date"), commencing with the August 1996
Distribution Date. Payments will be made to
holders of record of the Notes (the
"Noteholders") as of the day immediately
preceding such Distribution Date or, if
Definitive Notes are issued, as of the day of the
preceding month (a "Record Date"). A "Business
Day" is a day other than a Saturday, a Sunday or
a day on which banking institutions or trust
companies in The City of New York are authorized
by law, regulation or executive order to be
closed.
B. Note Interest Rates..... The Class A-1 Notes will bear interest at the rate
of % per annum (the "Class A-1 Rate"), the
Class A-2 Notes will bear interest at the rate of
% per annum (the "Class A-2 Rate"), the
Class A-3 Notes will bear interest at the rate of
% per annum (the "Class A-3 Rate") and the
Class A-4 Notes will bear interest at the rate of
% per annum (the "Class A-4 Rate" and, together
with the Class A-1 Rate, the Class A-2 Rate and
the Class A-3 Rate, the "Note Interest Rates").
C. Interest................ On each Distribution Date, the Indenture Trustee
will distribute pro rata to Noteholders of each
class of Notes accrued interest at the applicable
Note Interest Rate on the outstanding Note
Balance generally to the extent of funds
available following repayment of Outstanding
Advances and payment of the Servicing Fee from
the Available Funds and the Reserve Account.
Interest on the outstanding principal amount of
the Notes of each class will accrue at the
applicable Note
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Interest Rate from and including the Closing Date
(in the case of the first Distribution Date) or
from and including 15th of the most recent month
in which interest has been paid to but excluding
the 15th of the current month (each an "Interest
Period"). Interest on the Notes will be
calculated on the basis of a 360-day year of
twelve 30-day months. See "Description of the
Notes -- Payments of Interest" herein.
D. Principal............... Principal of the Notes will be payable on each
Distribution Date in an amount equal to the
Noteholders' Principal Payment Amount for the
calendar month (the "Collection Period")
preceding such Distribution Date to the extent of
funds available therefor. The "Noteholders'
Principal Payment Amount" with respect to a
Collection Period will generally be the
Noteholders' Percentage of the Regular Principal
(such "Regular Principal" being the sum of (a)
the principal portion of all payments collected
and (b) Realized Losses).
On the fifth Business Day preceding each
Distribution Date (a "Determination Date") the
Indenture Trustee will determine the amount in
the Collection Account allocable to interest and
the amount allocable to principal on the basis
described under "Description of the Transfer and
Servicing
Agreements -- Distributions -- Allocation of
Collections on Receivables" in the Prospectus,
and payments to Securityholders on the following
Distribution Date will be based on such
allocation.
Payments of principal on the Notes will be made on
each Distribution Date in the amounts and subject
to the priorities described in "Description of
the Notes -- Payments of Principal" herein.
The outstanding principal amount of the Class A-1
Notes, to the extent not previously paid, will be
payable on (the "Class A-1 Final Scheduled
Distribution Date"), the outstanding principal
amount of the Class A-2 Notes, to the extent not
previously paid, will be payable on
(the "Class A-2 Final Scheduled Distribution
Date"), the outstanding principal amount of the
Class A-3 Notes, to the extent not previously
paid, will be payable on (the "Class
A-3 Final Scheduled Distribution Date") and the
outstanding principal amount of the Class A-4
Notes, to the extent not previously paid, will be
payable on (the "Class A-4 Final
Scheduled Distribution Date").
TERMS OF THE
CERTIFICATES............... The principal terms of the Certificates will be as
described below:
A. Distribution Dates...... Distributions with respect to the Certificates will
be made on each Distribution Date commencing with
the August 1996 Distribution Date. Distributions
will be made to holders of record of the
Certificates (the "Certificateholders," and,
together with the Noteholders, the
"Securityholders") as of the related Record Date
(which will be the day of the month in the
case of the Certificates).
B. Certificate Rate........ Interest will be distributed on the Class B-1
Certificates at the rate of % per annum (the
"Class B-1 Rate") and interest will be
distributed on the Class B-2 Certificates at the
rate of % per annum (the "Class B-2 Rate"
and, together with the Class B-1 Rate, the
"Certificate Rates").
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C. Interest................ On each Distribution Date, the Owner Trustee will
distribute pro rata to Certificateholders of each
Class of Certificates accrued interest at the
applicable Certificate Rates on the outstanding
Certificate Balance generally to the extent of
funds available following repayment of
Outstanding Advances, payment of the Servicing
Fee and payments in respect of the Notes from the
Available Funds and the Reserve Account;
provided, however, that upon the occurrence and
during the continuation of an Event of Default
which has resulted in an acceleration of the
Notes or following an Insolvency Event or a
dissolution with respect to NAFC, distributions
of any amounts on the Certificates will be
subordinated in priority of payment to payment in
full of principal of the Notes. Interest in
respect of a Distribution Date will accrue at the
applicable Certificate Rate from and including
the Closing Date (in the case of the first
Distribution Date) or from and including the 15th
of the most recent month in which interest has
been paid to but excluding the 15th of the
current month. Interest on the Certificates will
be calculated on the basis of a 360-day year
consisting of twelve 30-day months.
D. Principal............... On each Distribution Date commencing on the
Distribution Date on which the Notes are paid in
full, principal of the Certificates will be
payable in an amount generally equal to the
Certificateholders' Principal Distribution Amount
for the Collection Period preceding such
Distribution Date, to the extent of funds
available therefor following repayment of
Outstanding Advances and payment of the Servicing
Fee and payments of interest and principal in
respect of the Notes and the distribution of
interest in respect of the Certificates. The
Certificateholders' Principal Distribution Amount
with respect to a Collection Period will be based
on the Certificateholders' Percentage of the
Regular Principal, and will be calculated by the
Servicer in the manner described under
"Description of the Transfer and Servicing
Agreements -- Distributions" herein. No principal
will be distributed to holders of Class B-2
Certificates unless and until the principal
balance of the Class B-1 Certificates has been
reduced to zero. The outstanding principal
balance, if any, of the Class B-1 Certificates
will be payable in full on the ,
Distribution Date (the "Class B-1 Final
Scheduled Distribution Date") and the outstanding
principal balance, if any, of the Class B-2
Certificates will be payable in full on the
, Distribution Date (the
"Class B-2 Final Scheduled Distribution Date").
E. Optional Prepayment..... If the Servicer exercises its option to purchase
the Receivables, which can occur after the Pool
Balance declines to 5% or less of the Initial
Pool Balance, the Certificateholders will receive
an amount in respect of the Certificates equal to
the Certificate Balance together with accrued
interest at the applicable Certificate Rate, and
the Certificates will be retired. See
"Description of the Certificates -- Optional
Prepayment" herein.
RESERVE ACCOUNT............ An account (the "Reserve Account") will be created
with an initial deposit by the Sellers on the
Closing Date of cash or Permitted Investments
having a value at least equal to 2.5% of the Pool
Balance as of the Initial Cut-Off Date. The
amount initially deposited in the Reserve Account
by the Sellers is referred to as the "Reserve
Account
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Initial Deposit." The Reserve Account will be
maintained as an account in the name of the
Indenture Trustee for the benefit of
Securityholders.
Funds will be withdrawn from the Reserve Account up
to the Available Reserve Amount to the extent
that the Available Funds with respect to any
Collection Period remaining after reimbursement
of Outstanding Advances and after the Servicing
Fee is paid is less than the Noteholders' Payment
Amount and will be deposited in the Note Payment
Account for distribution to the Noteholders on
the related Distribution Date. In addition, funds
will be withdrawn from the Reserve Account up to
the Available Reserve Amount (as reduced by any
withdrawal pursuant to the preceding sentence) to
the extent that the Available Funds remaining
after reimbursement of Outstanding Advances and
after payment of the Servicing Fee and the
deposit of the Noteholders' Payment Amount in the
Note Payment Account is less than the
Certificateholders' Distribution Amount and will
be deposited in the Certificate Distribution
Account for distribution to the
Certificateholders. If funds applied in
accordance with the preceding sentence are
insufficient to distribute interest on the
Certificates, subject to certain limitations,
funds will be withdrawn from the Reserve Account
to distribute interest due on the Certificates to
the extent of the Certificate Interest Reserve
Amount.
On each Distribution Date, the Reserve Account will
be reinstated first to the Certificate Interest
Reserve Amount and then up to the Specified
Reserve Account Balance to the extent, if any, of
the Available Funds remaining after reimbursement
of Outstanding Advances, the payment of the
Servicing Fee, the deposit of the Noteholders'
Payment Amount into the Note Payment Account and
the deposit of the Certificateholders'
Distribution Amount into the Certificate
Distribution Account.
Amounts in the Reserve Account on any Distribution
Date (after giving effect to all distributions to
be made on such Distribution Date) in excess of
the Specified Reserve Account Balance for such
Distribution Date will be released to the holder
of the Contingent Payment Right (except to the
extent described under "Description of the
Transfer and Servicing Agreements -- Reserve
Account" herein). The "Specified Reserve Account
Balance" with respect to any Distribution Date
will be equal to the greater of (i) the sum of
(x) 4.00% of the Pool Balance as of the last day
of the prior Collection Period plus (so long as
the Notes are still outstanding) (y) an amount
equal to three months interest on the Certificate
Balances as determined by using the weighted
average coupon of the Certificates before giving
effect to reductions of the Certificate Balances
on such date (the "Specified Certificate Interest
Reserve Amount") and (ii) $26,702,346.
The Certificate Interest Reserve Amount on any
Distribution Date shall equal the lesser of (i)
Specified Certificate Interest Reserve Amount and
(ii) the amounts remaining on deposit in the
Reserve Account.
S-9
10
COLLECTION ACCOUNT......... Except under certain conditions described herein,
the Servicer will be required to remit
collections received with respect to the
Receivables not later than the second Business
Day after receipt to one or more accounts in the
name of the Indenture Trustee (the "Collection
Account"). Pursuant to the Sale and Servicing
Agreement, the Servicer will have the power,
revocable at the discretion of the Indenture
Trustee or at the discretion of the Owner Trustee
with the consent of the Indenture Trustee, to
instruct the Indenture Trustee to withdraw funds
on deposit in the Collection Account and to apply
such funds on each Distribution Date to the
following (in the priority indicated): (i) the
reimbursement of Outstanding Advances made with
respect to Receivables which became Defaulted
Receivables during the related Collection Period,
(ii) the Servicing Fee for the prior Collection
Period and any overdue Servicing Fees to the
Servicer, (iii) the Accrued Note Interest and the
Noteholders' Principal Payment Amount into the
Note Payment Account, and (iv) the Accrued
Certificate Interest and, commencing on the
Distribution Date on which the Notes are paid in
full, the Certificateholders' Principal
Distribution Amount into the Certificate
Distribution Account and (v) the remaining
balance, if any, to the Reserve Account;
provided, however, that on each Distribution Date
following the occurrence of an Event of Default
which has resulted in acceleration of the Notes
or following an Insolvency Event or a dissolution
with respect to NAFC, the principal of the Notes
must be paid in full prior to the distribution of
any amounts on the Certificates.
SERVICER FEE............... The Servicer will receive each month a fee for
servicing the Receivables equal to (a) the
product of one-twelfth of 1.00% (the "Servicing
Fee Rate") and the Pool Balance outstanding at
the beginning of the previous month, plus (b) any
late, prepayment, and other administrative fees
and expenses collected during such month, plus
(c) reinvestment proceeds on any payments
received in respect of the Receivables plus, (d)
Investment Earnings, if any, on the Collection
Account, the Note Payment Account and the
Certificate Distribution Account.
MATURITY AND PREPAYMENT
CONSIDERATIONS........... The Class A-2 Notes, the Class A-3 Notes, the Class
A-4 Notes and the Certificates will not receive
any principal payments until the Class A-1 Notes
have been paid in full, and the Class A-3 Notes,
the Class A-4 Notes and the Certificates will not
receive any principal payments until the Class
A-2 Notes have been paid in full and the Class
A-4 Notes and the Certificates will not receive
any principal payments until the Class A-3 Notes
have been paid in full. In addition, no principal
payments on the Certificates will be made until
the Distribution Date on which the Notes are paid
in full. In addition, no principal payments on
the Class B-2 Certificates will be made until the
Certificate Balance of the Class B-1 Certificates
have been reduced to zero. As the rate of payment
of principal of each class of Notes and
Certificates depends on the rate of payment
(including prepayments) of the principal balance
of the Receivables, final payment of any class of
Notes and the final distribution in respect of
any class of Certificates could occur
significantly earlier than the respective final
scheduled Distribution Dates. Reinvestment risk
associated with early
S-10
11
payment of the Notes and the Certificates will be
borne exclusively by the Noteholders and the
Certificateholders, respectively.
Amounts on deposit in the Reserve Account (except
for the Certificate Interest Reserve Amount) on
any Final Scheduled Distribution Date with
respect to each class of Notes and Certificates
shall be available for distribution of the unpaid
principal amount of the respective class of Notes
and the remaining Certificate Balance of the
respective class of Certificates.
It is expected that the final payment of each class
of Notes and the final distribution in respect of
each class of Certificates will occur on or prior
to the respective Final Scheduled Distribution
Dates. However, if sufficient funds are not
available to pay any class of Notes or the
Certificates in full on or prior to the
respective Final Scheduled Distribution Date,
final payment of such class of Notes and the
final distribution in respect of such class of
Certificates could occur later than such dates.
All of the Receivables are prepayable at any time.
Prepayments will shorten the weighted average
remaining term of the Receivables and the
weighted average life of the Securities. Such
prepayments, to the extent allocable to
principal, will be included in the Noteholders'
Principal Payment Amount or the
Certificateholders' Principal Distribution Amount
and will be payable to the Securityholders as set
forth in the priority of distributions herein.
See "Description of the Transfer and Servicing
Agreements -- Distributions" herein.
CLEARANCE AND SETTLEMENT... Securityholders may elect to hold their Notes
through any of DTC (in the United States) or
Cedel or Euroclear (in Europe). Transfers within
DTC, Cedel or Euroclear, as the case may be, will
be in accordance with the usual rules and
operation procedures of the relevant system.
Cross-market transfers between persons holding
directly or indirectly through DTC, on the one
hand, and counterparties holding directly or
indirectly through Cedel or Euroclear, on the
other, will be effected in DTC through the
relevant Depositaries of Cedel or Euroclear. See
"Book-Entry and Definitive Securities; Reports to
Securityholders -- Book-Entry Registration" in
the Prospectus and Annex 1 to this Prospectus
Supplement, "Global Clearance, Settlement and Tax
Documentation Procedures."
TAX STATUS................. In the opinion of Skadden, Arps, Slate, Meagher &
Flom ("Special Tax Counsel"), for federal income
tax purposes, the Notes will be characterized as
debt, and the Trust will not be characterized as
an association (or publicly traded partnership)
taxable as a corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat the
Notes as indebtedness, and each
Certificateholder, by the acceptance of a
Certificate, will agree to treat the Trust as a
partnership in which the Certificateholders are
partners for federal income tax purposes.
Alternative characterizations of the Trust and
the Certificates are possible, but would not
result in materially adverse tax consequences to
Certificateholders. Certificateholders may be
allocated income equal to the amount of interest
accruing on the Certificates at the Certificate
Rate even though the Trust may not have
sufficient cash to make current cash
distributions of such amount. See "Federal Income
S-11
12
Tax Consequences" herein and in the Prospectus
for additional information concerning the
application of federal income tax laws to the
Trust and the Securities.
ERISA CONSIDERATIONS....... Subject to the considerations discussed under
"ERISA Considerations" herein and in the
Prospectus, the Notes may, in general, be
purchased by or on behalf of employee benefit
plans subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). Any
employee benefit plan fiduciary considering a
purchase of Notes should, among other things,
consult with legal counsel regarding the
availability of a statutory or administrative
exemption from the prohibited transaction rules
of ERISA and the Internal Revenue Code of 1986,
as amended (the "Code").
The Certificates may not be acquired by an employee
benefit plan subject to the fiduciary
responsibility provision of ERISA or Section 4975
of the Code, or by an individual retirement
account. Any investor considering the purchase of
Certificates should be aware that such purchase
and subsequent holding could, under certain
circumstances, be deemed to involve an indirect
prohibited transaction if a plan with respect to
which the investor is a "party in interest" or
"disqualified person" purchases the Certificates
without the benefit of an exemption from the
prohibited transaction rules. See "ERISA
Considerations" herein and in the Prospectus.
LEGAL INVESTMENT........... The Class A-1 Notes will be eligible securities for
purchase by money market funds under paragraph
(a)(9) of Rule 2a-7 under the Investment Company
Act of 1940, as amended.
RATINGS OF THE NOTES....... It is a condition to the issuance of the Notes that
they be rated in the highest investment rating
category by at least two nationally recognized
statistical rating organizations. Any such rating
assigned to the Notes will address the likelihood
of the timely payment of interest on and the
ultimate payment of principal of the Notes
pursuant to the Sale and Servicing Agreement and
the Indenture. There can be no assurance that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
RATINGS OF THE
CERTIFICATES............... It is condition of the issuance of the Class B-1
Certificates that they be rated in the highest
rating category by at least two nationally
recognized statistical rating organizations and
it is a condition to the issuance of the Class
B-2 Certificates, that they be rated in one of
the three highest rating categories by at least
two nationally recognized statistical rating
organizations. Any such rating assigned to the
Certificates will address the likelihood of the
timely payment of interest and the ultimate
payment of principal of the Certificates pursuant
to the Sale and Servicing Agreement and the Trust
Agreement. There can be no assurance that a
rating will not be lowered or withdrawn by a
rating agency if circumstances so warrant.
RISK FACTORS............... Prospective investors should consider the factors
set forth under "Risk Factors" on pages S-
through S-.
S-12
13
RISK FACTORS
LIMITED LIQUIDITY
There is currently no secondary market for the Securities. Each Underwriter
currently intends to make a market in the Securities for which it is an
Underwriter, but it is under no obligation to do so. There can be no assurance
that a secondary market will develop. The lack of a secondary market for the
Securities may result in an investor being unable to liquidate its interest in
the Securities in a time period and manner satisfactory to the investor or at a
price comparable to that which would be available in a more liquid market.
LIMITED ASSETS
The Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and the
Reserve Account. Holders of the Notes and the Certificates must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account. Funds in the Reserve Account will be
available on each Distribution Date to cover shortfalls in distributions of
interest and principal on the Notes and the Certificates. However, amounts to be
deposited in the Reserve Account are limited in amount. If the Reserve Account
is exhausted, the Trust will depend solely on current distributions on the
Receivables to make payments on the Notes and the Certificates.
SUBORDINATION
Certificates. Distributions of interest and principal on the Certificates
will be subordinated in priority of payment to interest and principal due on the
Notes. Consequently, the Certificateholders will not receive any distributions
on a Distribution Date until the full amount of interest on and principal of the
Notes on such Distribution Date has been deposited in the Note Payment Account.
In addition, distributions of interest on the Class B-2 Certificates will be
subordinated in priority of payment to interest due on the Class B-1
Certificates. The Certificateholders will not receive any distributions of
principal until the Distribution Date on which the Notes are paid in full. In
addition, distributions of principal on the Class B-2 Certificates will be
subordinated in priority of payment to distributions of principal on the Class
B-1 Certificates. No principal will be distributed in respect of the Class B-2
Certificates unless and until the Certificate Balance of the Class B-1
Certificates has been reduced to zero. However, upon the occurrence and during
the continuation of an Event of Default which has resulted in an acceleration of
the Notes or following an Insolvency Event or a dissolution with respect to
NAFC, distributions of any amounts on the Certificates will be subordinated in
priority of payment to payment in full of principal of the Notes.
Notes. Distributions of principal on the Class A-2 Notes are subordinated
in priority of payment to principal due on the Class A-1 Notes. Distributions of
principal on the Class A-3 Notes are subordinated in priority of payment to
principal due on the Class A-1 Notes and the Class A-2 Notes. Distributions of
principal on the Class A-4 Notes are subordinated in priority of payment to the
payment of principal due on the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes.
Right of Noteholders. If an Event of Default occurs, the Indenture Trustee
or the holders of a majority of the aggregate principal amount of all the Notes
may declare the principal of the Notes to be immediately due and payable, and
the Indenture Trustee may institute or be required to institute proceedings to
collect amounts due or exercise its remedies as a secured party (including
foreclosure or sale of the Receivables). In the event of a sale of Receivables
by the Indenture Trustee following an Event of Default or following an
Insolvency Event or a dissolution with respect to NAFC, there is no assurance
that the proceeds of such sale will be equal to or greater than the aggregate
outstanding principal amount of the Notes and the Certificates plus accrued
interest. Because neither interest nor principal is distributed to
Certificateholders upon sale of the Receivables following an Event of Default
and acceleration of the Notes under the Indenture or following an Insolvency
Event or a dissolution with respect to NAFC until all the Notes have been paid
in full, the interests of Noteholders and the Certificateholders may conflict,
and the exercise by the Indenture Trustee of its right to sell the Receivables
or exercise other remedies under the Indenture and applicable law may cause the
Certificateholders to suffer a loss of all or part of their investment. See
"Description of the Notes -- The
S-13
14
Indenture -- Events of Default; Rights upon Event of Default" and "Description
of the Transfer and Servicing Agreements -- Insolvency Event or Dissolution" in
the Prospectus.
Effect of Event of Default. In general, the Sellers may, and in certain
circumstances the Certificateholders may, direct the Owner Trustee in the
administration of the Trust. However, because the Trust has pledged the Trust
Property to the Indenture Trustee to secure the payment of the Notes, including
in such pledge certain rights of the Trust under the Sale and Servicing
Agreement, the Indenture Trustee and not the Sellers or the Certificateholders
has the power to direct the Trust to take certain actions in connection with the
administration of the Trust Property until the Notes have been paid in full and
the lien of the Indenture has been released. In addition, the Sellers and
Certificateholders are not allowed to direct the Owner Trustee to take any
action which conflicts with the provisions of any of the Basic Documents. The
Indenture specifically prohibits the Owner Trustee from taking any action which
would impair the Indenture Trustee's security interest in the Trust and requires
the Owner Trustee to obtain the consent of the Indenture Trustee or the holders
of a majority of the aggregate principal amount of the Notes before modifying,
amending, supplementing, waiving or terminating any Basic Document or any
provision of any Basic Document. Therefore, until the Notes have been paid in
full, the ability to direct the Trust with respect to certain actions permitted
to be taken by it under the Basic Documents rests with the Indenture Trustee and
the Noteholders instead of the Sellers or the Certificateholders.
If an Event of Servicing Termination were to occur, the holders of a
majority of the outstanding principal amount of the Notes, or the Indenture
Trustee acting on behalf of the Noteholders, and not the Sellers or the
Certificateholders, would have the right to terminate the Servicer as the
servicer of the Receivables without consideration of the effect such termination
would have on Certificateholders. In addition, the holders of not less than a
majority of the outstanding principal amount of the Notes would have the right
to waive certain Events of Servicing Termination, without consideration of the
effect such waiver would have on Certificateholders. After all the Notes have
been paid in full and the lien of the Indenture has been released, upon the
occurrence of an Event of Servicing Termination, the holders of a majority of
the outstanding Certificate Balance, or the Owner Trustee acting on behalf of
the Certificateholders, may terminate the Servicer. See "Description of the
Transfer and Servicing Agreements -- Waiver of Past Events of Servicing
Termination" and "-- Rights Upon Event of Servicing Termination" in the
Prospectus.
MATURITY AND PREPAYMENT CONSIDERATIONS
The Class A-2 Notes, will not receive any principal payments until the
Class A-1 Notes have been paid in full, the Class A-3 Notes will not receive any
principal payments until the Class A-2 Notes have been paid in full, and the
Class A-4 Notes will not receive any principal payments until the Class A-3
Notes have been paid in full. In addition, no principal payments on the
Certificates will be made until the Distribution Date on which the Notes are
paid in full. Further, no principal will be distributed with respect to the
Class B-2 Certificates unless and until the Certificate Balance of the Class B-1
Certificates has been reduced to zero. As the rate of payment of principal of
class of Notes and Certificates depends on the rate of payment (including
prepayments) of the principal balance of the Receivables, final payment of any
class of Notes and the final distribution in respect of any class of
Certificates could occur significantly earlier than the respective Final
Scheduled Distribution Dates. It is expected that final payment of each class of
Notes and the final distribution in respect of each class of Certificates will
occur on or prior to the respective Final Scheduled Distribution Dates. However,
if sufficient funds are not available to pay any class of Notes or Certificates
in full or prior to the respective Final Scheduled Distribution Dates, final
payment of such class of Notes and the final distribution in respect of
Certificates could occur later than such dates. See "Maturity and Prepayment
Considerations" herein and in the Prospectus.
GEOGRAPHIC CONCENTRATION
Economic conditions in states where Obligors reside may affect the
delinquency, loan loss and repossession experience of the Trust with respect to
the Receivables. As of the Cut-Off Date, the Sellers' records indicate that the
mailing addresses of Obligors with respect to approximately 32%, 18%, 8%, 12%
and 12% by principal balance of the Receivables were in Texas, North Carolina,
Florida, Georgia and South
S-14
15
Carolina, respectively. As a result, economic conditions in such states may have
a disproportionate impact on the Trust. In particular, an economic downturn in
one or more of such states could adversely affect the performance of the Trust
(even if national economic conditions remain unchanged or improve) as Obligors
in such state or states experience the effects of such a downturn and face
greater difficulty in making payments on their Financed Vehicles. See "The
Receivables Pool."
RATINGS OF THE SECURITIES
It is a condition to the issuance of each class of the Notes and of the
Certificates that each class of Notes be rated in the highest rating category,
by at least two nationally recognized statistical rating organizations (the
"Rating Agencies") and that the Class B-1 Certificates be rated in the highest
rating category by the Rating Agencies and that the Class B-2 Certificates be
rated in one of the three highest rating categories by the Rating Agencies. A
rating is not a recommendation to purchase, hold or sell Securities, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. Any such ratings assigned to the Securities will address the
likelihood of the timely payment of interest on and the ultimate payment of
principal of the Securities pursuant to the Sale and Servicing Agreement, the
Indenture and the Trust Agreement. There can be no assurance that a rating will
remain for any given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances in the
future so warrant.
THE TRUST
GENERAL
The Issuer, NationsBank Auto Owner Trust 1996-A, is a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Receivables and the other assets of the Trust and proceeds
therefrom, (ii) issuing the Notes and the Certificates, (iii) making payments on
the Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith.
The Trust will initially be capitalized with the Notes and the
Certificates. Class B-1 Certificates with an original principal balance of
$ and Class B-2 Certificates with an original principal balance of
$ will be issued to NAFC, and the remaining Certificates will be sold
to third party investors that are expected to be unaffiliated with the Sellers,
the Servicer or their affiliates or the Trust. The proceeds from the issuance of
the Notes and the Certificates will be used by the Trust to purchase the
Receivables from the Sellers pursuant to the Sale and Servicing Agreement and to
fund the initial deposit of the Reserve Account.
If the protection provided to the investment of the Noteholders and
Certificateholders by the Reserve Account is insufficient, the Trust would have
to look principally to the Obligors on the Receivables and the proceeds from the
repossession and sale of Financed Vehicles which secure Defaulted Receivables.
In such event, certain factors, such as the Trust's not having perfected
security interests in the Financed Vehicles in all states, may affect the
Servicer's ability to repossess and sell the collateral securing the
Receivables, and thus may reduce the proceeds to be distributed to the
Noteholders and Certificateholders. See "Description of the Transfer and
Servicing Agreements -- Distributions" and "-- Reserve Account" herein and
"Certain Legal Aspects of the Receivables" in the Prospectus.
S-15
16
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Closing Date, as if the issuance and sale of the Notes and the Certificates had
taken place on such date:
Class A-1 Notes.................................................... $
Class A-2 Notes.................................................... $
Class A-3 Notes.................................................... $
Class A-4 Notes.................................................... $
Class B-1 Certificates............................................. $
Class B-2 Certificates............................................. $
-----------------
Total.................................................... $2,136,187,667.91
===============
THE OWNER TRUSTEE
Bankers Trust (Delaware) is the Owner Trustee under the Trust Agreement.
Bankers Trust (Delaware) is a Delaware , and its
principal offices are located at , Delaware. Each
of the Sellers and their affiliates may maintain normal commercial banking
relations with the Owner Trustee and its affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "Receivables Pool") will include the
Receivables purchased as of the Cut-Off Date. The Receivables were purchased by
the Sellers from Dealers in the ordinary course of business. The Receivables
were randomly selected from among the Motor Vehicle Loans owned by the Sellers.
The Sellers will warrant in the Sale and Servicing Agreement that all the
Receivables have the following individual characteristics, among others: (i) the
obligation of the related Obligor under each Receivable is secured by a security
interest in either a new or used automobile, van or light-duty truck; (ii) each
Receivable has a contractual interest rate ("Contract Rate") of at least 7.88%
and no more than 21.00%; (iii) each Receivable has a remaining maturity, as of
the Cut-Off Date, of not less than 12 months and not more than 72 months; (iv)
no Receivable was more than 30 days past due as of the Cut-Off Date; (v) each
Receivable is a Simple Interest Receivable (as defined below) that at
origination, provides for level monthly payments that fully amortize the amount
financed over the original term; (vi) as of the Cut-Off Date, each Receivable
has a remaining principal balance of no less than $2,000 and no more than
$50,000; (vii) each Receivable is not a Defaulted Receivable; and (viii) each
Receivable is not related to a motor vehicle that is the subject of forced-
placed insurance. "Forced-placed insurance" is insurance placed on a motor
vehicle by the lienholder to protect the motor vehicle as collateral for a loan
when there is evidence that the borrower has neglected to do so as required by
the applicable loan agreement. See " -- Certain Characteristics of the
Receivables" below. No selection procedures believed by the Sellers to be
adverse to the Noteholders or Certificateholders were used in selecting the
Receivables.
NationsBank, N.A., through DFSG and units in predecessor banks of
NationsBank, N.A., has been servicing indirect motor vehicle loan portfolios
since 1970. The indirect motor vehicle loan portfolio serviced either directly
by NationsBank, N.A. or through its affiliates was approximately $5.5 billion as
of [March 31, 1996]. DFSG also services other indirect and direct consumer loan
portfolios totalling over $25.3 billion (including the indirect motor vehicle
loan portfolio) as of [March 31, 1996.]
CERTAIN CHARACTERISTICS OF THE RECEIVABLES
As of the Cut-Off Date, the Receivables had, in the aggregate, the
following characteristics: (i) approximately 59.32% of the Pool Balance was
attributable to loans for purchases of new Financed Vehicles and approximately
40.68% of the Pool Balance was attributable to loans for purchases of used
Financed Vehicles; (ii) the weighted average Contract Rate of the Receivables
was 10.38%; (iii) there were 171,416 Receivables being conveyed by the Sellers
to the Trust; (iv) the average principal balance of the
S-16
17
Receivables, as of the Cut-Off Date, was $12,462.01; and (v) the weighted
average original term and weighted average remaining term of the Receivables
were 59.7 months and 49.0 months, respectively.
The Composition of the Receivables, Distribution of the Receivables by
New/Used Motor Vehicles, Distribution of the Receivables by Contract Rate,
Distribution of the Receivables by Remaining Term, Distribution of the
Receivables by the Cut-Off Date Principal Balance and Geographic Distribution of
the Receivables, each as of the Cut-Off Date, are set forth in the following
tables.
COMPOSITION OF THE RECEIVABLES
Weighted Average Contract Rate........................................ 10.38%
Range of Contract Rates............................................... 7.88% to 21.00%
Aggregate Principal Balance........................................... $2,136,187,667.91
Number of Receivables................................................. 171,416
Weighted Average Remaining Term....................................... 49.0 months
Range of Remaining Terms.............................................. 12 to 72 months
Weighted Average Original Term........................................ 59.7 months
Range of Original Terms............................................... 18 to 72 months
Average Principal Balance............................................. $12,462.01
Average Original Amount Financed...................................... $15,263.16
Range of Original Amounts Financed.................................... $2,193.69 to $50,000.00
DISTRIBUTION OF THE RECEIVABLES BY NEW/USED MOTOR VEHICLES
WEIGHTED
AGGREGATE ORIGINAL AVERAGE
NUMBER OF PRINCIPAL PRINCIPAL CONTRACT
RECEIVABLES BALANCE BALANCE RATE(%)
----------- ----------------- ----------------- --------
New Autos, Vans and Light-Duty
Trucks............................... 90,165 $1,267,278,820.56 $1,555,329,429.15 10.01
Used Autos, Vans and Light-Duty
Trucks............................... 81,251 868,908,847.35 1,061,019,969.44 10.91
----------- ----------------- -----------------
All Receivables........................ 171,416 $2,136,187,667.91 $2,616,349,398.59 10.38
======== =============== ===============
DISTRIBUTION OF THE RECEIVABLES BY CONTRACT RATE
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF TOTAL PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
7.88 to 7.99%................................ 5,054 2.95 $ 59,692,968.66 2.79
8.00 to 8.99%................................ 36,219 21.13 467,123,813.50 21.87
9.00 to 9.99%................................ 43,663 25.47 566,410,947.03 26.52
10.00 to 10.99%............................... 32,141 18.75 407,542,907.06 19.08
11.00 to 11.99%............................... 21,754 12.69 275,644,942.78 12.90
12.00 to 12.99%............................... 15,808 9.22 188,367,935.22 8.82
13.00 to 13.99%............................... 8,114 4.73 89,659,959.34 4.20
14.00 to 14.99%............................... 4,390 2.56 44,920,053.13 2.10
15.00 to 15.99%............................... 1,983 1.16 17,905,754.70 0.84
16.00 to 16.99%............................... 877 0.51 7,564,937.33 0.35
17.00 to 17.99%............................... 816 0.48 7,019,433.41 0.33
18.00 to 18.99%............................... 416 0.24 3,092,157.89 0.14
19.00 to 19.99%............................... 115 0.07 781,589.14 0.04
20.00 to 21.00%............................... 66 0.04 460,268.72 0.02
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
S-17
18
DISTRIBUTION OF THE RECEIVABLES BY REMAINING TERM
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ----------- ----------------- ---------
12 to 18 months............................... 12,257 7.15 $ 49,876,882.59 2.33
19 to 24 months............................... 8,086 4.72 46,284,563.74 2.17
25 to 30 months............................... 8,085 4.72 60,218,800.73 2.82
31 to 36 months............................... 13,005 7.59 119,419,081.25 5.59
37 to 42 months............................... 23,211 13.54 252,270,941.61 11.81
43 to 48 months............................... 29,744 17.35 377,298,468.16 17.66
49 to 54 months............................... 36,095 21.06 519,103,545.56 24.30
55 to 60 months............................... 27,503 16.04 442,000,005.30 20.69
61 to 66 months............................... 9,291 5.42 178,711,493.72 8.37
67 to 72 months............................... 4,139 2.41 91,003,885.25 4.26
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
DISTRIBUTION OF THE RECEIVABLES BY CUT-OFF DATE PRINCIPAL BALANCE
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
RECEIVABLES RECEIVABLES BALANCE BALANCE
----------- ---------- ----------------- ---------
$ 2,000 to $9,999.............................. 59,893 34.94 $ 403,169,732.12 18.87
$10,000 to $19,999............................. 94,343 55.04 1,324,411,853.81 62.00
$20,000 to $29,999............................. 16,114 9.40 373,163,244.32 17.47
$30,000 to $39,999............................. 1,021 0.59 33,530,896.94 1.57
$40,000 to $49,999............................. 45 0.03 1,911,940.72 0.09
----------- ---------- ----------------- ---------
Total................................ 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
% OF
AGGREGATE AGGREGATE
NUMBER OF % OF PRINCIPAL PRINCIPAL
STATE(1) RECEIVABLES RECEIVABLES BALANCE BALANCE
- ---------------------------------------------- ----------- ----------- ----------------- ---------
Florida....................................... 16,225 9.46 $ 167,354,180.25 7.83
Georgia....................................... 20,896 12.19 261,316,157.08 12.23
North Carolina................................ 30,513 17.80 376,248,903.94 17.61
South Carolina................................ 21,162 12.35 254,099,923.31 11.90
Texas......................................... 51,497 30.04 681,886,957.77 31.92
Other(2)...................................... 31,123 18.16 395,281,545.56 18.51
----------- ----------- ----------------- ---------
Total............................... 171,416 100.00 $2,136,187,667.91 100.00
======== ======== =============== =======
- ---------------
(1) Receivables are categorized by the Sellers' records of the mailing addresses
of the Obligors as of the Cut-Off Date.
(2) Each other state represents less than 5% of the total number of Receivables.
DELINQUENCY AND LOSS EXPERIENCE
The tables set forth below indicate the delinquency and credit
loss/repossession experience for each of the last four calendar years and for
the five month periods ending May 31, 1996 and 1995 of the Banks' portfolio of
Motor Vehicle Loans from which the Receivables have been selected (which
portfolio excludes certain Motor Vehicle Loans acquired by the Banks in
acquisitions). No assurance can be made, however,
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that the delinquency and loss experience for the Motor Vehicle Loans or the
Receivables in the future will be similar to the historical experience set forth
in the following tables.
DELINQUENCY EXPERIENCE (DOLLARS IN THOUSANDS)(1)
AS OF MAY 31, AS OF DECEMBER 31,
--------------------------------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993
------------------- ----------------------- ----------------------- ----------------------- ----------
NUMBER NUMBER NUMBER NUMBER NUMBER
OF OF OF OF OF
LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total Serviced
Portfolio at the
Period End......... 540,395 $5,298,328 533,105 $4,990,526 555,072 $5,436,206 517,604 $4,813,583 525,823
Delinquency(2)
30-59 Days......... 8,591 $ 87,984 6,830 $ 61,744 9,633 $ 96,130 6,614 $ 56,457 6,448
60-89 Days......... 1,253 13,222 958 8,694 1,865 18,605 986 8,182 805
90 Days or More.... 918 10,015 589 5,599 1,095 11,677 549 4,431 341
Total
Delinquencies...... 10,762 $ 111,221 8,377 $ 76,037 12,593 $ 126,412 8,149 $ 69,070 7,594
Total Delinquencies
as a Percentage of
the Total Serviced
Portfolio.......... 1.99 % 2.10% 1.57 % 1.52% 2.27 % 2.33% 1.57 % 1.43% 1.44%
1992
-----------------------
NUMBER
OF
AMOUNT LOANS AMOUNT
---------- ---------- ----------
<
Total Serviced
Portfolio at the
Period End......... $5,169,651 432,197 $4,012,995
Delinquency(2)
30-59 Days......... $ 51,198 6,352 $ 46,816
60-89 Days......... 5,927 1,089 7,387
90 Days or More.... 2,575 651 5,161
Total
Delinquencies...... $ 59,700 8,092 $ 59,364
Total Delinquencies
as a Percentage of
the Total Serviced
Portfolio.......... 1.15% 1.87 % 1.48%
- ---------------
(1) Delinquencies shown in dollars include principal amounts only.
(2) The period of delinquencies is based on the number of days payments are
contractually past due until the applicable Motor Vehicle Loan is
charged-off.
CREDIT LOSS/REPOSSESSION EXPERIENCE (DOLLARS IN THOUSANDS)
FIVE MONTHS ENDED YEAR ENDED
MAY 31, DECEMBER 31,
----------------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ----------
Period End
Outstandings(1)......... $5,298,328 $4,990,526 $5,436,206 $4,813,583 $5,169,651 $4,012,995
Average Amount Outstanding
During the Period(2).... $5,440,720 $4,896,810 $5,169,299 $5,023,452 $4,589,400 $3,275,300
Average Number of Loans
Outstanding During the
Period(3)............... 553,483 527,863 542,767 537,431 480,287 353,113
Gross Charge-offs(4)...... $ 36,940 $ 18,356 $ 55,383 $ 32,840 $ 27,165 $ 38,010
Recoveries on Losses(5)... $ 9,396 $ 5,931 $ 14,861 $ 10,103 $ 9,672 $ 9,765
Net Charge-offs........... $ 27,544 $ 12,425 $ 40,522 $ 22,737 $ 17,493 $ 28,245
Net Charge-offs as a
Percentage of the Period
End Outstandings(6)..... 1.25% 0.60% 0.75% 0.47% 0.34% 0.70%
Net Charge-offs as a
Percentage of the
Average Amount
Outstanding(6).......... 1.22% 0.61% 0.78% 0.45% 0.38% 0.86%
- ---------------
(1) Amount represents principal amounts only.
(2) Amount represents principal amounts only and reflects a daily weighted
average of such amounts during the periods shown.
(3) Amount based on the average outstanding for the period divided by the
average loan amount. The average loan amount was derived from the month end
outstanding balances divided by month end number of loans.
(4) Amount of charge-off is the remaining principal balance less the net
proceeds from sale of loan collateral.
(5) Recoveries include post-disposition monies and are net of any related
expenses.
(6) Figures for the five months ended May 31, 1996 and May 31, 1995 are
annualized.
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RECENT PORTFOLIO PERFORMANCE
The tables set forth below indicate the delinquency and net credit loss
experience for the period from May 1995 through May 1996 of the Banks' total
serviced portfolio of Motor Vehicle Loans (which portfolio includes certain
Motor Vehicle Loans acquired by the Banks in acquisitions (such loans having a
remaining aggregate principal balance of approximately $65 million as of May 31,
1996) and therefore represents a slightly larger portfolio than that from which
the Receivables Pool was selected).
DELINQUENCY EXPERIENCE
5/96 4/96 3/96 2/96 1/96 12/95 11/95 10/95 9/95 8/95 7/95 6/95 5/95
---- ---- ---- ---- ---- ----- ----- ----- ---- ---- ---- ---- ----
Total Delinquencies
as a Percentage
of Total Serviced
Portfolio at
Period End....... 2.10% 1.87% 1.80% 2.24% 2.48% 2.45 % 2.15 % 2.24 % 2.08% 1.92% 1.97% 1.61% 1.60%
NET CREDIT LOSS EXPERIENCE
Monthly Net
Charge-offs as a
Percentage of
Amount
Outstanding...... 1.06% 1.11% 1.14% 1.22% 1.30% 1.28 % 1.10 % 0.87 % 0.83% 0.68% 0.63% 0.60% 0.43%
As shown above, the performance of the total portfolio has improved
significantly over recent months and, DFSG believes, will continue to improve.
The increase in delinquencies and net credit losses is attributed by DFSG
management to a combination of factors which occurred from early 1994 to
mid-1995.
In early 1994, DFSG management made a conscious decision to maximize
profits on the overall portfolio by buying more aggressively within the prime
credit spectrum based on a risk-based tiered pricing program. At approximately
the same time, the competitive environment in the auto lending industry began to
change. In 1994 and early 1995, numerous new entrants in the auto lending
industry greatly increased competition. The heightened competitive environment
necessitated that indirect auto lenders purchase higher risk prime quality
credits in order to retain market share and profitability. This trend was widely
experienced by the entire auto lending industry, including banks, independent
auto finance companies, and captive finance subsidiaries of major automobile
manufacturers.
DFSG management believes that the combination of market conditions and its
concerted effort to purchase a wider array of credits was primarily responsible
for the increase in net credit loss and delinquencies throughout 1995. In
general, Motor Vehicle Loans originated during 1994 and early- to mid-1995 have
exhibited higher levels of net credit losses and delinquencies than other Motor
Vehicle Loans in the Banks' portfolio, especially in the higher risk segments.
DFSG identified this trend at the end of the first quarter of 1995 and
subsequently began reducing its purchases of lower credit quality prime
automobile loans.
In addition to the changes in its underwriting policy, DFSG focused on
collections as a key component in reducing delinquencies and net credit losses.
In particular, DFSG began increasing the number of full-time collectors it
utilized on the portfolio of Motor Vehicle Loans. From June 1995 to September
1995, over 120 new collectors were retained by DFSG. Management believes that
the increase in staffing coupled with various new collections initiatives has
been very instrumental in reducing delinquencies and net credit losses.
DFSG management believes that the return to more traditional credit
underwriting for the Banks' in mid-1995 and the enhanced collections efforts
instituted in June 1995 will result in continued improvement in the performance
of the portfolio of Motor Vehicle Loans.
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PAYMENTS ON THE RECEIVABLES
The entire Pool Balance is attributable to Receivables that provide for the
allocation of payments according to the "Simple Interest" method (each a "Simple
Interest Receivable"). See "The Receivables Pools -- General" in the Prospectus
for a description of the application of payments received on Simple Interest
Receivables.
The Receivables are prepayable at any time. Prepayments may also result
from liquidations due to default, the receipt of monthly installments earlier
than the scheduled due dates for such installments, the receipt of proceeds from
credit life, disability, theft or physical damage insurance, repurchases by the
Sellers as a result of certain uncured breaches of the warranties made by them
in the Sale and Servicing Agreement with respect to the Receivables, purchases
by the Servicer as a result of certain uncured breaches of the covenants made by
it in the Sale and Servicing Agreement with respect to the Receivables, or the
Servicer exercising its option to purchase all of the remaining Receivables. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, social and other factors, including Obligor refinancings resulting
from decreases in interest rates and the fact that the Obligor is generally not
permitted to sell or transfer the Financed Vehicle securing a Receivable without
the consent of the relevant Seller.
Neither DFSG, the Servicer, the Sellers nor any of their affiliates
maintains records adequate to provide quantitative data regarding prepayment
experience on the Sellers' portfolio of Motor Vehicle Loans. However, the
Sellers (i) believe that the actual rate of prepayments will result in a
substantially shorter weighted average life than the scheduled weighted average
life and (ii) estimate that the actual weighted average life of its portfolio of
Motor Vehicle Loans ranges between 60% and 70% of their scheduled weighted
average life. See "Maturity and Prepayment Considerations" herein and in the
Prospectus.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
Prepayments on automotive receivables can be measured relative to a
prepayment standard or model. The model used in this Prospectus, the Absolute
Prepayment Model ("ABS"), represents an assumed rate of prepayment each month
relative to the original number of receivables in a pool of receivables. ABS
further assumes that all the receivables are the same size and amortize at the
same rate and that each receivable in each month of its life will either be paid
as scheduled or be prepaid in full. For example, in a pool of receivables
originally containing 10,000 receivables, a 1% ABS rate means that 100
receivables prepay each month. ABS does not purport to be an historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of receivables, including the Receivables.
As the rate of payment of principal of each class of Notes and Certificates
will depend on the rate of payment (including prepayments) of the principal
balance of the Receivables, final payment of any class of Notes and the final
distribution in respect of each class of Certificates could occur significantly
earlier than the respective final scheduled Distribution Dates. Reinvestment
risk associated with early payment of the Notes and the Certificates will be
borne exclusively by the Noteholders and the Certificateholders, respectively.
The tables captioned "Percent of Initial Note Principal Amount at Various
ABS Percentages" and "Percent of Certificate Note Principal Amount of Various
ABS Percentages" (the "ABS Tables") have been prepared on the basis of the
characteristics of the Receivables. The ABS Tables assume that (i) the
Receivables prepay in full at the specified constant percentage of ABS monthly,
with no defaults, losses or repurchases, (ii) each scheduled monthly payment on
the Receivables is made on the last day of each month and each month has 30
days, (iii) payments on the Notes and distributions on the Certificates are made
on each Distribution Date (and each such date is assumed to be the 15th day of
each applicable month), (iv) the balance in the Reserve Account on each
Distribution Date is equal to the Specified Reserve Account Balance, and (v) the
Sellers exercise their option to purchase the Receivables on the first
Distribution Date on which it is permitted to do so, as described herein. The
pools have an assumed cut-off date of June 30, 1996. The ABS Tables indicate the
projected weighted average life of each class of Notes and Certificates and sets
forth the percent of the initial principal amount of each class of Notes and the
percent of the initial Certificate Balance of each Class of Certificates that is
projected to be outstanding after each of the Distribution Dates shown at
various constant ABS percentages.
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The ABS Tables also assume that the Receivables have been aggregated into
hypothetical pools with all of the Receivables within each such pool having the
following characteristics and that the level scheduled monthly payment for each
of the pools (which is based on its aggregate principal balance, Contract Rate,
original term to maturity and remaining term to maturity as of the Cut-Off Date)
will be such that each pool will be fully amortized by the end of its remaining
term to maturity.
ORIGINAL TERM REMAINING TERM
AGGREGATE CONTRACT TO MATURITY TO MATURITY
POOL PRINCIPAL BALANCE RATE (IN MONTHS) (IN MONTHS)
- -------------------------------------------- ----------------- -------- ------------- --------------
1........................................... $ %
2...........................................
3...........................................
4...........................................
5...........................................
6...........................................
7...........................................
8...........................................
9...........................................
The actual characteristics and performance of the Receivables will differ
from the assumptions used in constructing the ABS Tables. The assumptions used
are hypothetical and have been provided only to give a general sense of how the
principal cash flows might behave under varying prepayment scenarios. For
example, it is very unlikely that the Receivables will prepay at a constant
level of ABS until maturity or that all of the Receivables will prepay at the
same level of ABS. Moreover, the diverse terms of Receivables within each of the
hypothetical pools could produce slower or faster principal distributions than
indicated in the ABS Tables at the various constant percentages of ABS
specified, even if the original and remaining terms to maturity of the
Receivables are as assumed. Any difference between such assumptions and the
actual characteristics and performance of the Receivables, or actual prepayment
experience, will affect the percentages of initial balances outstanding over
time and the weighted average lives of each class of Notes and Certificates.
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PERCENT OF INITIAL NOTE PRINCIPAL AMOUNT
AT VARIOUS ABS PERCENTAGES
CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES CLASS A-4 NOTES
--------------------------- --------------------------- --------------------------- ---------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Closing........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
08/15/96..........
09/15/96..........
10/15/96..........
11/15/96..........
12/15/96..........
01/15/97..........
02/15/97..........
03/15/97..........
04/15/97..........
05/15/97..........
06/15/97..........
07/15/97..........
08/15/97..........
09/15/97..........
10/15/97..........
11/15/97..........
12/15/97..........
01/15/98..........
02/15/98..........
03/15/98..........
04/15/98..........
05/15/98..........
06/15/98..........
07/15/98..........
08/15/98..........
09/15/98..........
10/15/98..........
11/15/98..........
12/15/98..........
01/15/99..........
02/15/99..........
03/15/99..........
04/15/99..........
05/15/99..........
06/15/99..........
07/15/99..........
Weighted Average
Life
(years)(1).......
- ---------------
(1) The weighted average life of a Class A-1 Note, Class A-2 Note, Class A-3
Note or Class A-4 Note is determined by (i) multiplying the amount of each
principal payment on a Note by the number of years from the date of the
issuance of the Note to the related Distribution Date, (ii) adding the
results and (iii) dividing the sum by the related initial principal amount
of the Note.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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PERCENT OF INITIAL CERTIFICATE BALANCE AT VARIOUS ABS PERCENTAGES
CLASS B-1 CERTIFICATES CLASS B-2 CERTIFICATES
--------------------------- ---------------------------
DISTRIBUTION DATE 0.5% 1.0% 1.5% 2.0% 0.5% 1.0% 1.5% 2.0%
- ------------------------------------------------ ------ ------ ------ ------ ------ ------ ------ ------
Closing......................................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
08/15/96........................................
08/15/96........................................
09/15/96........................................
10/15/96........................................
11/15/96........................................
12/15/96........................................
01/15/97........................................
02/15/97........................................
03/15/97........................................
04/15/97........................................
05/15/97........................................
06/15/97........................................
07/15/97........................................
08/15/97........................................
09/15/97........................................
10/15/97........................................
11/15/97........................................
12/15/97........................................
01/15/98........................................
02/15/98........................................
03/15/98........................................
04/15/98........................................
05/15/98........................................
06/15/98........................................
07/15/98........................................
08/15/98........................................
09/15/98........................................
10/15/98........................................
11/15/98........................................
12/15/98........................................
01/15/99........................................
02/15/99........................................
03/15/99........................................
04/15/99........................................
05/15/99........................................
06/15/99........................................
08/15/99........................................
Weighted Average Life (years)(1)................
- ---------------
(1) The weighted average life of a Class B-1 or Class B-2 Certificate is
determined by (i) multiplying the amount of each distribution in respect of
the Certificate Balance of a Certificate by the number of years from the
date of the issuance of the Certificate to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the original
Certificate Balance of the Certificate.
THE ABS TABLES HAVE BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ABOVE
(INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF THE
RECEIVABLES WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND PERFORMANCE
THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
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POOL FACTORS
The "Note Pool Factor" for each class of Notes will be a seven-digit
decimal which the Servicer will compute prior to each distribution with respect
to such class of Notes indicating the remaining outstanding principal amount of
such class of Notes, as of the applicable Distribution Date (after giving effect
to payments to be made on such Distribution Date), as a fraction of the initial
outstanding principal amount of such class of Notes. The "Certificate Pool
Factor" for each Class of Certificates will be a seven-digit decimal which the
Servicer will compute prior to each distribution with respect to such class of
Certificates indicating the remaining Certificate Balance of such class of
Certificates, as of the applicable Distribution Date (after giving effect to
distributions to be made on such Distribution Date), as a fraction of the
initial Certificate Balance of such class of Certificates. Each Note Pool Factor
and each Certificate Pool Factor will initially be 1.0000000 and thereafter will
decline to reflect reductions in the outstanding principal amount of the
applicable class of Notes, or the reduction of the Certificate Balance of the
applicable Class of Certificates, as the case may be, as a result of scheduled
payments, prepayments and liquidations of the Receivables. A Noteholder's
portion of the aggregate outstanding principal amount of the related class of
Notes is the product of (i) the original denomination of such Noteholder's Note
and (ii) the applicable Note Pool Factor. A Certificateholder's portion of the
aggregate outstanding Certificate Balance for the related class of Certificates
is the product of (a) the original denomination of such Certificateholder's
Certificate and (b) the applicable Certificate Pool Factor.
MATURITY AND PREPAYMENT CONSIDERATIONS
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Maturity and Prepayment
Considerations" in the Prospectus. In addition, the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the Certificates will not receive any
principal payments until the Class A-1 Notes have been paid in full, the Class
A-3 Notes will not receive any principal payments until the Class A-2 Notes have
been paid in full and the Class A-4 Notes will not receive any principal
payments until the Class A-3 Notes have been paid in full. In addition, no
principal payments on the Certificates will be made until the Distribution Date
on which the Notes are paid in full. Finally, the Class B-2 Certificates will
not receive any principal payments until the Class B-1 Certificates have been
paid in full. See "Description of the Notes -- Payments of Principal" and
"Description of the Certificates -- Distributions of Principal Payments" herein.
As the rate of payment of principal of each class of Notes and Certificates
depends on the rate of payment (including prepayments) of the principal balance
of the Receivables, final payment of any class of Notes and the final
distribution in respect of any class of Certificates could occur significantly
earlier than the respective final scheduled Distribution Dates.
It is expected that final payment of each class of Notes and the final
distribution in respect of each class of Certificates will occur on or prior to
the respective final scheduled Distribution Dates. Failure to make final payment
of any class of Notes on or prior to the respective Final Scheduled Distribution
Dates would constitute an Event of Default under the Indenture. See "Description
of the Notes -- The Indenture -- Events of Default; Rights upon Event of
Default." In addition, the Sale and Servicing Agreement requires that any
remaining Certificate Balance of a class of Certificates be paid in full on the
respective Final Scheduled Distribution Date. However, no assurance can be given
that sufficient funds will be available to pay each class of Notes and
Certificates in full on or prior to the respective final scheduled Distribution
Dates. If sufficient funds are not available, final payment of any class of
Notes and the final distribution in respect of any class of Certificates could
occur later than such dates.
The rate of prepayments of the Receivables may be influenced by a variety
of economic, social and other factors, and under certain circumstances relating
to breaches of representations, warranties or covenants, the Sellers and/or the
Servicer will be obligated to repurchase Receivables from the Trust. See
"Maturity and Prepayment Considerations" in the Prospectus. A higher than
anticipated rate of prepayments will reduce the aggregate principal balance of
the Receivables more quickly than expected and thereby reduce anticipated
aggregate interest payments on the Securities. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Receivables will be borne
entirely by the Noteholders and the Certificateholders as
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set forth in the priority of distributions herein. Such reinvestment risks
include the risk that interest rates may be lower at the time such holders
received payments from the Trust than interest rates would otherwise have been
had such prepayments not been made or had such prepayments been made at a
different time.
Holders of Securities should consider, in the case of Securities purchased
at a discount, the risk that a slower than anticipated rate of principal
payments on the Receivables could result in an actual yield that is less than
the anticipated yield and, in the case of Securities purchased at a premium, the
risk that a faster than anticipated rate of principal payments on the
Receivables could result in an actual yield that is less than the anticipated
yield.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following summary describes certain terms of the Notes and the
Indenture. The summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture, which are hereby incorporated by reference. The following summary
supplements the description of the general terms and provisions of the Notes of
any given series and the related Indenture set forth under the headings
"Description of the Notes" and "Description of Fixed and Floating Rate Options"
in the Prospectus, to which description reference is hereby made.
PAYMENTS OF INTEREST
Each class of Notes will constitute Fixed Rate Securities, as such term is
defined under "Description of Fixed and Floating Rate Options -- Fixed Rate
Securities" in the Prospectus. Interest on the principal amounts of the classes
of the Notes will accrue at the respective per annum Note Interest Rates and
will be payable to the Noteholders monthly on each Distribution Date commencing
August , 1996. Interest will accrue from and including the Closing Date (in
the case of the first Distribution Date), or from the 15th day of the previous
month, to but excluding the 15th day of the current month (each an "Interest
Period"). Interest on the Notes will be calculated on the basis of a 360-day
year of twelve 30-day months. Interest accrued as of any Distribution Date but
not paid on such Distribution Date will be due on the next Distribution Date,
together with interest on such amount at the applicable Note Interest Rate plus
2.00% (to the extent lawful). Interest payments on the Notes will generally be
derived from the Available Funds remaining after reimbursement of outstanding
Servicer Advances made with respect to Receivables which became Defaulted
Receivables during the related Collection Period and the payment of the
Servicing Fee and from the Reserve Account. See "Description of the Transfer and
Servicing Agreements -- Distributions" and "-- Reserve Account" herein. Interest
payments to all classes of Noteholders will have the same priority. Under
certain circumstances, the amount available for interest payments could be less
than the amount of interest payable on the Notes on any Distribution Date, in
which case each class of Noteholders will receive their ratable share (based
upon the aggregate amount of interest due to such class of Noteholders) of the
aggregate amount available to be distributed in respect of interest on the
Notes.
PAYMENTS OF PRINCIPAL
Principal payments will be made monthly to the Noteholders on each
Distribution Date in an amount generally equal to the Noteholders' Percentage of
the amount (such amount, the "Regular Principal") equal to the sum of (a) the
principal portion of all payments collected, and (b) the principal balance of
each Receivable purchased by the Servicer, repurchased by the Sellers or
liquidated by the Servicer, each with respect to the preceding Collection
Period. Principal payments on the Notes generally will be derived from the
Available Funds and the amount, if any, in the Reserve Account up to the
Available Reserve Amount remaining after reimbursement of outstanding Servicer
Advances made with respect to Receivables which became Defaulted Receivables
during the related Collection Period and the payment of the Servicing Fee and
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the Accrued Note Interest. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve Account" herein.
On the fifth Business Day preceding each Distribution Date (a
"Determination Date"), the Indenture Trustee will determine the amount in the
Collection Account allocable to interest and the amount allocable to principal
on the basis described under "Description of the Transfer and Servicing
Agreements -- Distributions" in the Prospectus, and payments to Securityholders
on the following Distribution Date will be based on such allocation.
Principal payments on the Notes will be applied on each Distribution Date,
first, to the principal amount of the Class A-1 Notes until such principal
amount is reduced to zero, then second, to the principal amount of the Class A-2
Notes until such principal amount is reduced to zero, then third, to the
principal amount of the Class A-3 Notes until such principal amount is reduced
to zero and then fourth, to the principal amount of the Class A-4 Notes until
the principal amount is reduced to zero. The principal amount of the Class A-1
Notes, to the extent not previously paid, will be due on the Class A-1 Final
Scheduled Distribution Date, the principal amount of the Class A-2 Notes, to the
extent not previously paid, will be due on the Class A-2 Final Scheduled
Distribution Date, the principal amount of the Class A-3 Notes, to the extent
not previously paid, will be due on the Class A-3 Final Scheduled Distribution
Date and the principal amount of the Class A-4 Notes, to the extent not
previously paid, will be due on the Class A-4 Final Schedule Distribution Date.
The actual date on which the aggregate outstanding principal amount of any class
of Notes is paid may be earlier or later than the respective Final Scheduled
Distribution Dates set forth above based on a variety of factors, including
those described under "Maturity and Prepayment Considerations" herein and in the
Prospectus.
STATEMENTS TO NOTEHOLDERS AND NOTE OWNERS
Unless and until Definitive Notes are issued, unaudited monthly and annual
reports concerning the Receivables and each Trust, prepared by the Servicer and
delivered by the Indenture Trustee, on behalf of the Trust, will be sent to each
Noteholder pursuant to the Indenture. Such reports will not contain audited
financial statements with respect to the Trust. Note Owners may obtain the
monthly statements and annual tax statement and tax information provided to the
Noteholders and the Indenture Trustee by the Servicer free of charge (except for
copying and postage costs) by request in writing to the Indenture Trustee at
[ , Attention: .] See "Book-Entry and
Definitive Securities; Reports to Securityholders -- Reports to Securityholders"
in the Prospectus for a description of such statements.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement. A copy of the Trust Agreement will be filed with the Commission
following the issuance of the Securities. The following summary describes
certain terms of the Certificates and the Trust Agreement. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all the provisions of the Certificates and the Trust Agreement.
The following summary supplements the description of the general terms and
provisions of the Certificates of any given series and the related Trust
Agreement set forth under the headings "Description of the Certificates,"
"Description of Fixed and Floating Rate Options," "Book-Entry and Definitive
Securities; Reports to Securityholders" and "Description of the Transfer and
Servicing Agreements" in the Prospectus, to which description reference is
hereby made.
DISTRIBUTIONS OF INTEREST INCOME
On each Distribution Date, commencing August, 1996, the Certificateholders
of each class of Certificates will be entitled to distributions in an amount
equal to the amount of interest that would accrue on the Certificate Balance of
each class of Certificates at the applicable Certificate Rate. The Certificates
will constitute Fixed Rate Securities, as such term is defined under
"Description of Fixed and Floating Rate
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Options -- Fixed Rate Securities" in the Prospectus. Interest in respect of a
Distribution Date will accrue from and including the Closing Date (in the case
of the first Distribution Date) or from and including the 15th day of the
previous month but excluding the 15th day of the current month following
Distribution Date, and will be calculated on the basis of a 360-day year of
twelve 30-day months. Interest distributions due for any Distribution Date but
not distributed on such Distribution Date will be due on the next Distribution
Date increased by an amount equal to interest on such amount at the applicable
Certificate Rate (to the extent lawful). Interest distributions with respect to
the Certificates will generally be funded from the portion of the Available
Funds and the funds in the Reserve Account remaining after reimbursement of
Outstanding Advances on Receivables which became Defaulted Receivables during
the related Collection Period, the distribution of the Servicing Fee and the
Noteholders' Payment Amount and, in the case of the Class B-2 Certificates,
interest due on the Class B-1 Certificates. Following the occurrence of an Event
of Default resulting in an acceleration of the Notes or following an Insolvency
Event or a dissolution with respect to NAFC, the Noteholders will be entitled to
be paid in full before any distributions may be made on the Certificates. See
"Description of the Transfer and Servicing Agreements -- Distributions" and
"-- Reserve Account" herein.
DISTRIBUTIONS OF PRINCIPAL PAYMENTS
Certificateholders will be entitled to distributions on each Distribution
Date, commencing with the Distribution Date on which the Notes are paid in full,
in an amount generally equal to the Certificateholders' Percentage of the
Regular Principal. Distributions with respect to principal payments will
generally be funded from the portion of the Available Funds and funds in the
Reserve Account remaining after reimbursement of Outstanding Advances on
Receivables which became Defaulted Receivables during the related Collection
Period, the distribution of the Servicing Fee, the Noteholders' Payment Amount
and the Accrued Certificate Interest. See "Description of the Transfer and
Servicing Agreements -- Distributions" and "-- Reserve Account" herein. However,
following the occurrence of an Event of Default resulting in an acceleration of
the Notes or following an Insolvency Event or a dissolution with respect to
NAFC, the Noteholders will be entitled to be paid in full before any
distributions may be made on the Certificates.
OPTIONAL PREPAYMENT
If the Servicer exercises its option to purchase the Receivables when the
Pool Balance declines to 5% or less of the Initial Pool Balance,
Certificateholders of each class will receive an amount in respect of the
Certificates equal to the outstanding Certificate Balance together with accrued
interest at the applicable Certificate Rate, which distribution shall effect the
early retirement of the Certificates. See "Description of the Transfer and
Servicing Agreements -- Termination" in the Prospectus. No prepayment premium
will be payable to Certificateholders in connection with any such prepayment.
STATEMENTS TO CERTIFICATEHOLDERS
Unaudited monthly and annual reports concerning the Receivables and the
Trust, prepared by the Servicer and delivered by the Indenture Trustee, on
behalf of the Trust, will be sent to each Certificateholder pursuant to the
Trust Agreement. Such reports will not contain audited financial statements with
respect to the Trust.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Sale and Servicing
Agreement, the Administration Agreement and the Trust Agreement (collectively,
the "Transfer and Servicing Agreements"). Forms of the Transfer and Servicing
Agreements have been filed as exhibits to the Registration Statement. A copy of
the Transfer and Servicing Agreements will be filed with the Commission
following the issuance of the Securities. The summary does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
the provisions of the Transfer and Servicing Agreements. The following summary
supplements the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the headings
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"Description of the Transfer and Servicing Agreements" in the Prospectus, to
which description reference is hereby made.
ACCOUNTS
In addition to the Accounts referred to under "Description of the Transfer
and Servicing Agreements -- Accounts" in the Prospectus, the Servicer will also
establish and will maintain with the Indenture Trustee the Reserve Account, in
the name of the Indenture Trustee on behalf of the Noteholders and the
Certificateholders.
SERVICING COMPENSATION AND EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee for the Servicer
will be 1.00% per annum of the Pool Balance as of the first day of the related
Collection Period. The Servicing Fee (together with any portion of the Servicing
Fee that remains unpaid from prior Distribution Dates) will be paid on each
Distribution Date from Available Funds after the reimbursement of Outstanding
Advances on Receivables which became Defaulted Receivables during the related
Collection Period. The Servicer is also entitled to receive any late,
prepayment, and other administrative fees and expenses collected during the
Collection Period plus any interest earned during the Collection Period on
deposits made with respect to the Receivables plus Investment Earnings, if any,
on the Collection Account, the Note Payment Account, and the Certificate
Distribution Account. See "Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Expenses" in the Prospectus.
ADVANCES
Servicer Advances. As of the last day of each Collection Period, the
Servicer will, subject to the limitations described in the following sentence,
make a payment (an "Advance") with respect to each Receivable (other than a
Defaulted Receivable) in an amount equal to the excess, if any, of (x) the
amount of interest due on such Receivable at its applicable Contract Rate, over
(y) the interest actually received by the Servicer with respect to such
Receivable (whether from the Obligor or payments of the Purchase Amount) during
or with respect to such Collection Period. The Servicer may elect not to make an
Advance of due and unpaid interest with respect to a Receivable to the extent
that the Servicer, in its sole discretion, determines that such Advance is not
recoverable from subsequent payments on such Receivable or from funds in the
Reserve Account.
To the extent that the amount set forth in clause (y) above with respect to
a Receivable is greater than the amount set forth in clause (x) above with
respect thereto, such amount shall be distributed to the Servicer on the related
Distribution Date. Any such payment will only be from accrued interest due from
the Obligor under such Receivable.
The Servicer will deposit Advances, if any, into the Collection Account on
the applicable Deposit Date.
DISTRIBUTIONS
Deposits to Collection Account. On or before each Determination Date, the
Servicer will provide the Trustee with a certificate (the "Servicer's
Certificate") containing certain information with respect to the preceding
Collection Period, including the amount of aggregate collections on the
Receivables during such Collection Period, the aggregate amount of Receivables
which became Defaulted Receivables during such Collection Period, the aggregate
Purchase Amounts of Receivables to be repurchased by the Sellers or to be
purchased by the Servicer on the related Deposit Date and the aggregate amount
to be withdrawn from the Reserve Account.
On or before each Deposit Date (a) the Servicer will cause all Collections
and Liquidation Proceeds and Recoveries to be deposited into the Collection
Account and will deposit into the Collection Account all Purchase Amounts of
Receivables to be purchased by the Servicer on such Deposit Date, (b) the
Sellers will deposit into the Collection Account all Purchase Amounts of
Receivables to be repurchased by the Sellers on
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such Deposit Date, (c) the Servicer will deposit all Advances for the related
Distribution Date into the Collection Account.
"Available Funds" means, with respect to a Distribution Date, the sum of
the Available Interest and the Available Principal.
"Available Interest" means, with respect to any Distribution Date, the
excess of (a) the sum of (i) Interest Collections for such Distribution Date and
(ii) all Advances made by the Servicer with respect to such Distribution Date
over (b) amounts received in respect of interest on Simple Interest Receivables
during the preceding Collection Period in excess of the amount of interest that
would have been due during the Collection Period on Simple Interest Receivables
at their respective Contract Rates (assuming that a payment is received on each
Simple Interest Receivable on the due date thereof) (which amounts will be
applied to reimburse Advances previously made but not reimbursed (each, an
"Outstanding Advance") to be reimbursed on or with respect to such Distribution
Date).
"Available Principal" means, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to principal in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) to the extent attributable to principal, the Purchase
Amount received with respect to each Receivable repurchased by the Sellers or
purchased by the Servicer under an obligation which arose during the related
Collection Period; and (iii) all Liquidation Proceeds, to the extent allocable
to principal, received during such Collection Period. "Available Principal" on
any Distribution Date shall exclude all payments and proceeds of any Receivables
the Purchase Amount of which has been distributed on a prior Distribution Date.
"Collections" mean, with respect to any Distribution Date, all collections
on the Receivables.
"Defaulted Receivable" means, with respect to any Collection Period, a
Receivable (other than a Purchased Receivable) which the Servicer, on behalf of
the Trust, has determined to charge off during such Collection Period in
accordance with its customary servicing practices.
"Interest Collections" mean, with respect to any Distribution Date, the sum
of the following amounts with respect to the preceding Collection Period: (i)
that portion of all Collections on the Receivables allocable to interest in
accordance with the terms of the Receivables and the Servicer's customary
servicing procedures; (ii) all Liquidation Proceeds, to the extent allocable to
interest, received during such Collection Period; (iii) all Recoveries and (iv)
to the extent attributable to accrued interest, the Purchase Amount with respect
to each Receivable repurchased by the Sellers or purchased by the Servicer under
an obligation which arose during such Collection Period. "Interest Collections"
for any Distribution Date shall exclude all payments and proceeds of any
Receivables the Purchase Amount of which has been distributed on a prior
Distribution Date.
"Liquidation Proceeds" mean, with respect to any Distribution Date and a
Receivable that has become a Defaulted Receivable during a related Collection
Period, (i) insurance proceeds received during such Collection Period by the
Servicer, with respect to insurance policies relating to the Financed Vehicle or
the Obligor, (ii) amounts received by the Servicer during such Collection Period
from a Dealer in connection with such Defaulted Receivable pursuant to the
exercise of rights under a Dealer Agreement, and (iii) the monies collected by
the Servicer (from whatever source, including, but not limited to proceeds of a
sale of a Financed Vehicle or deficiency balance recovered after the charge off
of the related Receivable) during such Collection Period on such Defaulted
Receivable net of any fees, costs and expenses incurred by the Servicer in
connection therewith and any payments required by law to be remitted to the
Obligor. Liquidation Proceeds shall be applied first to accrued and unpaid
interest on the Receivable and then to the principal balance thereof.
"Purchased Receivable" means, at any time, a Receivable as to which payment
of the Purchase Amount has previously been made by the Sellers or the Servicer
pursuant to the Sale and Servicing Agreement.
"Recoveries" mean, with respect to any Collection Period, all monies
received by the Servicer with respect to any Defaulted Receivable during any
Collection Period following the Collection Period in which such Receivable
became a Defaulted Receivable, net of any fees, costs and expenses incurred by
the Servicer
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in connection with the collection of such Receivable and any payments required
by law to be remitted to the Obligor.
Monthly Withdrawals from Collection Account. On each Distribution Date,
the Servicer will allocate amounts on deposit in the Collection Account as
described under "Description of the Transfer and Servicing
Agreements -- Distributions -- Allocation of Collections on Receivables" in the
Prospectus and will instruct the Indenture Trustee to make the following
deposits and distributions, to the extent of the amount then on deposit in the
Collection Account, in the following order of priority:
(i) to the Servicer, the Outstanding Advances on Receivables which
became Defaulted Receivables during the related Collection Period;
(ii) to the Servicer, the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(iii) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) and (ii), the Accrued Note Interest;
(iv) to the Note Payment Account, from the Available Funds remaining
after the application of clauses (i) through (iii), the Noteholders'
Principal Payment Amount;
(v) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (iv), the Accrued
Certificate Interest;
(vi) to the Certificate Distribution Account, from the Available Funds
remaining after the application of clauses (i) through (v), the
Certificateholders' Principal Distribution Amount, if any; and
(vii) to the Reserve Account, the Available Funds remaining after the
application of clauses (i) through (vi).
Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default which has resulted in an acceleration of the
Notes or following an Insolvency Event with respect to NAFC, the Available Funds
remaining after the application of clauses (i), (ii) and (iii) above will be
deposited in the Note Payment Account to the extent necessary to reduce the
principal amount of all the Notes to zero, and the Certificateholders will not
receive any distributions until the principal amount and accrued interest on the
Notes has been paid in full.
On each Determination Date (other than the first Determination Date), the
Servicer will provide the Indenture Trustee with certain information with
respect to the Collection Period related to the prior Distribution Date,
including the amount of aggregate collections on the Receivables, the aggregate
amount of Receivables which were written off, the aggregate Advances to be made
by the Servicer and the aggregate Purchase Amount of Receivables to be
repurchased by the Sellers or to be purchased by the Servicer.
For purposes hereof, the following terms shall have the following meanings:
"Accrued Note Interest" means, with respect to any Distribution Date, the
sum of the Noteholders' Monthly Accrued Interest for such Distribution Date and
the Noteholders' Interest Carryover Shortfall for such Distribution Date.
"Noteholders' Interest Carryover Shortfall" means, with respect to any
Distribution Date, the excess of the Noteholders' Monthly Accrued Interest for
the preceding Distribution Date and any outstanding Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over the amount in
respect of interest that is actually deposited in the Note Payment Account on
such preceding Distribution Date, plus interest on the amount of interest due
but not paid to Noteholders on the preceding Distribution Date, to the extent
permitted by law, at the respective Note Interest Rate borne by each class of
the Notes for the related Interest Period plus 2.00% per annum.
"Noteholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, interest accrued for the related Interest Period on each
class of Notes at the respective Note Interest Rate for such class on the
outstanding principal amount of the Notes of such class on the immediately
preceding Distribution Date after
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giving effect to all payments of principal to the Noteholders of such class on
or prior to such Distribution Date (or, in the case of the first Distribution
Date, on the Closing Date).
"Noteholders' Monthly Principal" means, with respect to any Distribution
Date, the Noteholders' Percentage of the Regular Principal.
"Noteholders' Payment Amount" means, with respect to any Distribution Date,
the sum of the Noteholders' Principal Payment Amount and the Accrued Note
Interest.
"Noteholders' Percentage" means (i) 100% for each Distribution Date to and
including the Distribution Date on which the principal amount of the Notes is
reduced to zero, and (ii) zero for each Distribution Date thereafter.
"Noteholders' Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Noteholders' Monthly Principal and any
outstanding Noteholders' Principal Carryover Shortfall from the preceding
Distribution Date over the amount in respect of principal that is actually
deposited in the Note Payment Account.
"Noteholders' Principal Payment Amount" means, with respect to any
Distribution Date, the sum of the Noteholders' Monthly Principal for such
Distribution Date and the Noteholders' Principal Carryover Shortfall as of the
close of the preceding Distribution Date; provided, however, that the
Noteholders' Principal Payment Amount shall not exceed the outstanding principal
amount of the Notes; and provided, further, that (i) the Noteholders' Principal
Payment Amount on the Class A-1 Final Scheduled Distribution Date shall not be
less than the amount that is necessary (after giving effect to other amounts to
be deposited in the Note Payment Account on such Distribution Date and allocable
to principal) to reduce the outstanding principal amount of the Class A-1 Notes
to zero; (ii) the Noteholders' Principal Payment Amount on the Class A-2 Final
Scheduled Distribution Date shall not be less than the amount that is necessary
(after giving effect to other amounts to be deposited in the Note Payment
Account on such Distribution Date and allocable to principal) to reduce the
outstanding principal amount of the Class A-2 Notes to zero; (iii) on the Class
A-3 Final Scheduled Distribution Date the Noteholders' Principal Payment Amount
shall not be less than the amount that is necessary (after giving effect to
other amounts to be deposited in the Note Payment Account on such Distribution
Date and allocable to principal) to reduce the outstanding principal amount of
the Class A-3 Notes to zero; and (iv) on the Class A-4 Final Scheduled
Distribution Date the Noteholders' Principal Payment Amount shall not be less
than the amount that is necessary (after giving effect to other amounts to be
deposited in the Note Payment Account on such Distribution Date and allocable to
principal) to reduce the outstanding principal amount of the Class A-4 Notes to
zero.
"Accrued Certificate Interest" means, with respect to any Distribution
Date, the sum of the Certificateholders' Monthly Accrued Interest for such
Distribution Date and the Certificateholders' Interest Carryover Shortfall for
such Distribution Date.
"Certificate Balance" shall mean, with respect to the Class B-1
Certificates, initially, $ and, thereafter, equals the initial
Certificate Balance of such Class of Certificates, reduced by all amounts
allocable to principal previously distributed to Certificateholders of such
Class and, with respect to the Class B-2 Certificates, initially, $
and, thereafter, equals the initial Certificate Balance of such Class of
Certificates, reduced by all amounts allocable to principal previously
distributed to Certificateholders of such Class.
"Certificateholders' Distribution Amount" means, with respect to any
Distribution Date, the sum of the Certificateholders' Principal Distribution
Amount and the Accrued Certificate Interest.
"Certificateholders' Interest Carryover Shortfall" means, with respect to
any Distribution Date, the excess of the Certificateholders' Monthly Accrued
Interest for the preceding Distribution Date and any outstanding
Certificateholders' Interest Carryover Shortfall on such preceding Distribution
Date, over the amount in respect of interest that is actually deposited in the
Certificate Distribution Account on such preceding Distribution Date, plus
interest on such excess, to the extent permitted by law, at the respective
Certificate Rates for the related Interest Period.
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"Certificateholders' Monthly Accrued Interest" means, with respect to any
Distribution Date, 30 days of interest (or, in the case of the first
Distribution Date, interest accrued from and including the Closing Date to but
excluding such Distribution Date) at the respective Certificate Rate for each
class of Certificates on the applicable Certificate Balance on the immediately
preceding Distribution Date, after giving effect to all payments allocable to
the reduction of the applicable Certificate Balance made on or prior to such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
"Certificateholders' Monthly Principal" means, with respect to any
Distribution Date, the Certificateholders' Percentage of the Regular Principal.
"Certificateholders' Percentage" means (i) for each Distribution Date to
and including the Distribution Date on which the principal amount of all classes
of the Notes is reduced to zero, zero, and (ii) for each Distribution Date
thereafter to and including the Distribution Date on which the Certificate
Balance is reduced to zero, 100%.
"Certificateholders' Principal Carryover Shortfall" means, as of the close
of any Distribution Date, the excess of the Certificateholders' Monthly
Principal and any outstanding Certificateholders' Principal Carryover Shortfall
from the preceding Distribution Date, over the amount in respect of principal
that is actually deposited in the Certificate Distribution Account.
"Certificateholders' Principal Distribution Amount" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Principal for
such Distribution Date and the Certificateholders' Principal Carryover
Shortfall as of the close of the preceding Distribution Date; provided, however,
that (i) the principal required to be distributed to Certificateholders on the
Class B-1 Final Scheduled Distribution Date shall not be less than the amount
necessary (after giving effect to other amounts to be deposited in the
Certificate Distribution Account on such Distribution Date and allocable to
principal) to reduce the Class B-1 Certificate Balance to zero and remaining
after any required distribution in respect of the Notes and (ii) the principal
required to be distributed to Certificateholders on the Class B-2 Final
Scheduled Distribution Date shall include the lesser of (a) any principal due
and remaining unpaid on each Simple Interest Receivable, in each case, in the
Trust as of the Class B-2 Final Scheduled Distribution Date or (b) the portion
of the amount required to be advanced under clause (a) above that is necessary
(after giving effect to the other amounts to be deposited in the Certificate
Distribution Account on such Distribution Date and allocable to principal) to
reduce the Class B-2 Certificate Balance to zero.
On each Distribution Date, all amounts on deposit in the Note Payment
Account (other than any Investment Earnings) will be paid in the following order
of priority:
(i) to the Noteholders, accrued and unpaid interest on the outstanding
principal amount of the applicable class of Notes at the applicable Note
Interest Rate;
(ii) to the Class A-1 Noteholders in reduction of principal until the
principal amount of the Class A-1 Notes has been reduced to zero;
(iii) to the Class A-2 Noteholders in reduction of principal until the
principal amount of the Class A-2 Notes has been reduced to zero;
(iv) to the Class A-3 Noteholders in reduction of principal until the
principal amount of the Class A-3 Notes has been reduced to zero; and
(v) to the Class A-4 Noteholders in reduction of principal until the
principal amount of the Class A-4 Notes has been reduced to zero.
On each Distribution Date, all amounts on deposit in the Certificate
Distribution Account (other than Investment Earnings thereon) will be
distributed in the following order of priority:
(i) to the Class B-1 Certificateholders, accrued and unpaid interest
on the outstanding principal amount of the Class B-1 Certificates at the
Class B-1 Certificate Rate;
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(ii) to the Class B-2 Certificateholders, accrued and unpaid interest
on the outstanding principal amount of the Class B-2 Certificates at the
Class B-2 Certificate Rate;
(iii) to the Class B-1 Certificateholders in reduction of the
principal balance of the Class B-1 Certificates until the principal balance
thereof has been reduced to zero; and
(iv) to the Class B-2 Certificateholders in reduction of the principal
balance of the Class B-2 Certificates until the principal balance thereof
has been reduced to zero.
RESERVE ACCOUNT
The rights of the Certificateholders to receive distributions with respect
to the Receivables generally will be subordinated to the rights of the
Noteholders in the event of defaults and delinquencies on the Receivables as
provided in the Sale and Servicing Agreement. The protection afforded to the
Noteholders through subordination will be effected both by the preferential
right of the Noteholders to receive current distributions with respect to the
Receivables and by the establishment of the Reserve Account. The Reserve Account
will be created with a deposit initially by the Sellers on the Closing Date in
the amount of $53,404,692 (such deposit, the "Reserve Account Initial Deposit").
Subject to reduction as hereafter described, the "Specified Reserve Account
Balance" with respect to any Distribution Date means the greater of (i) the sum
of (x) 4.0% of the Pool Balance as of the last day of the prior Collection
Period plus (so long as the Notes are still outstanding) plus (y) an amount
equal to three months interest on the Certificate Balances as determined by
using the weighted average coupon of the Certificates before giving effect to
reductions of the Certificate Balances on such date (the "Specified Certificate
Interest Reserve Amount") and (ii) $26,702,346.
If the amount on deposit in the Reserve Account on any Distribution Date
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date) is greater than the Specified Reserve Account Balance for
such Distribution Date, except as described below and subject to certain
limitations, the Servicer will instruct the Indenture Trustee to distribute such
excess to the holder of the right to receive such amount (the "Contingent
Payment Right"). Upon any distribution to the holder of the Contingent Payment
Right of amounts from the Reserve Account, neither the Noteholders nor the
Certificateholders will have any rights in, or claims to, such amounts.
Amounts held from time to time in the Reserve Account will be held for the
benefit of Noteholders and Certificateholders. On each Distribution Date, funds
will be withdrawn from the Reserve Account up to the Available Reserve Amount to
the extent that the Available Funds (after reimbursement of Outstanding Advances
on Receivables which became Defaulted Receivables during the related Collection
Period and the payment of the Servicing Fee) with respect to any Collection
Period is less than the Noteholders' Payment Amount and will be deposited in the
Note Payment Account. In addition, funds will be withdrawn from the Reserve
Account up to the Available Reserve Amount (as reduced by any withdrawal
pursuant to the preceding sentence) to the extent that the Available Funds
remaining after reimbursement of Outstanding Advances on Receivables which
became Defaulted Receivables during the related Collection Period and the
payment of the Servicing Fee and the deposit of the Noteholders' Payment Amount
in the Note Payment Account is less than the Certificateholders' Distribution
Amount and will be deposited in the Certificate Distribution Account. If funds
applied in accordance with the preceding sentence are insufficient to distribute
interest due on the Certificates, subject to certain limitations, funds will be
withdrawn from the Reserve Account and applied to distribute interest due on the
Certificates to the extent of the Certificate Interest Reserve Amount. On each
Distribution Date, the Reserve Account will be reinstated first up to the
Specified Certificate Interest Reserve Amount and second up to the Specified
Reserve Account Balance to the extent, if any, of the Available Funds remaining
after reimbursement of Outstanding Advances on Receivables which became
Defaulted Receivables during the related Collection Period and payment of the
Servicing Fee, the deposit of the Noteholders' Payment Amount into the Note
Payment Account and the deposit of the Certificateholders' Distribution Amount
into the Certificate Distribution Account.
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"Available Reserve Amount" means, with respect to any Distribution Date,
the amount of funds on deposit in the Reserve Account on such Distribution Date
less the Certificate Interest Reserve Amount with respect to such Distribution
Date, in each case, before giving effect to any reduction thereto on such
Distribution Date.
"Certificate Interest Reserve Amount" means on any Distribution Date, an
amount equal to the lesser of (i) three months interest on the Certificates
Balance using the weighted average coupon of the Certificates of the
Certificates Balance (before giving effect to reductions thereof on such date)
and (ii) the remaining amounts on deposit.
If on any Distribution Date the entire Noteholders' Payment Amount for such
Distribution Date (after giving effect to any amounts withdrawn from the Reserve
Account) is not deposited in the Note Payment Account, the Certificateholders
generally will not receive any distributions.
After the payment in full, or the provision for such payment, of (i) all
accrued and unpaid interest on the Securities and (ii) the outstanding principal
amount of the Securities, any funds remaining on deposit in the Reserve Account,
subject to certain limitations, will be paid to the holder of the Contingent
Payment Right.
The Reserve Account is intended to enhance the likelihood of receipt by the
Noteholders and the Certificateholders of the full amount of principal and
interest due them and to decrease the likelihood that the Noteholders and the
Certificateholders will experience losses. In addition, the subordination of the
Certificates to the Notes is intended to enhance further the likelihood of
receipt by Noteholders of the full amount of principal and interest due them and
to decrease the likelihood that the Noteholders will experience losses. However,
in certain circumstances, the Reserve Account could be depleted. If the amount
required to be withdrawn from the Reserve Account to cover shortfalls in
collections on the Receivables exceeds the amount of available cash in the
Reserve Account, Noteholders or Certificateholders could incur losses or a
shortfall in the amounts distributed to the Noteholders or the
Certificateholders could result, which could, in turn, increase the average life
of the Notes or the Certificates.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of material anticipated federal income
tax consequences of the purchase, ownership and disposition of the Notes and the
Certificates. The summary does not purport to deal with federal income tax
consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies ("RIC's") or dealers in securities. Moreover, there are no
cases or Internal Revenue Service ("IRS") rulings on similar transactions
involving both debt instruments and equity interests issued by a trust with
terms similar to those of the Notes and the Certificates. As a result, the IRS
may disagree with all or a part of the discussion below. Prospective investors
are urged to consult their own tax advisors in determining the federal, state,
local, foreign and any other tax consequences to them of the purchase, ownership
and disposition of the Notes and the Certificates.
The following summary is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury regulations
promulgated thereunder and judicial or ruling authority, all of which are
subject to change, which change may be retroactive. The Trust will be provided
with an opinion of Special Tax Counsel regarding certain federal income tax
matters discussed below. An opinion of Special Tax Counsel, however, is not
binding on the IRS or the courts. No ruling on any of the issues discussed below
will be sought from the IRS.
SCOPE OF THE TAX OPINIONS; TAX CHARACTERIZATION OF THE TRUST
In the opinion of Special Tax Counsel, upon issuance of the Notes and
Certificates the Trust will not be classified as an association (or publicly
traded partnership) taxable as a corporation for federal income tax purposes.
Any such opinion will be filed either as an exhibit to the registration
statement of which this Prospectus forms a part or will be filed as an exhibit
to a Form 8-K filed in connection with the establishment of the related Trust
and issuance of Securities. This opinion is based on the assumption that the
terms of the
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Trust Agreement and related documents will be complied with, and on counsel's
conclusions that (1) the Trust does not have certain characteristics necessary
for a business trust to be classified as an association taxable as a corporation
and (2) either the nature of the income of the Trust will exempt it from the
provisions of the Code requiring certain publicly traded partnerships to be
taxed as corporations or the Trust will otherwise qualify for an exemption from
the rules governing publicly traded partnerships. Further, with respect to the
Notes, Special Tax Counsel is of the opinion that the Notes will be classified
as debt for federal income tax purposes.
In addition, Special Tax Counsel has prepared or reviewed the statements
under the heading "Summary -- Tax Status" relating to federal income tax matters
and under the heading "Federal Income Tax Consequences" herein and "Federal
Income Tax Consequences" in the Prospectus and is of the opinion that such
statements are correct in all material respects. Such statements are intended as
an explanatory discussion of the possible effects of the classification of the
Trust as a partnership for federal income tax purposes on investors generally
and of related tax matters affecting investors generally, but do not purport to
furnish information in the level of detail or with the attention to the
investor's specific tax circumstances that would be provided by an investor's
own tax adviser. Accordingly, each investor is advised to consult its own tax
advisers with regard to the tax consequences to it of investing in the
certificates.
If the Trust were taxable as a corporation for federal income tax purposes,
the Trust would be subject to corporate income tax on its taxable income. The
Trust's taxable income would include all of its income on the Receivables,
possibly reduced by its interest expense on the Notes. Any such corporate income
tax could materially reduce the amount of cash available to make payments on the
Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Noteholders will be deemed to
have agreed by their purchase of the Notes, to treat the Notes as debt for
federal income tax purposes. The discussion below assumes that this
characterization of the Notes is correct.
Original Issue Discount. A Note will be treated as issued with Original
Issue Discount ("OID") if the excess of the Note's "stated redemption price at
maturity" over the issue price equals or exceeds a de minimis amount equal to
1/4 of 1 percent of the Note's stated redemption price at maturity multiplied
by the number of complete years (based on the anticipated weighted average life
of a Note) to its maturity.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Note and its issue price. A holder of a Note
must include such OID in gross income as ordinary interest income as it accrues
under a method taking into account an economic accrual of the discount. In
general, OID must be included in income in advance of the receipt of the cash
representing that income. The amount of OID on a Note will be considered to be
zero if it is less than a de minimis amount determined as described above.
However, the amount of any de minimis OID must be included in income as
principal payments are received on a Note, in the proportion that each such
payment bears to the original principal amount of the Note. The issue price of a
Note will generally be the initial offering price at which a substantial amount
of the Notes are sold. The Trust intends to treat the issue price as including,
in addition, the amount paid by the Noteholder for accrued interest that relates
to a period prior to the Closing Date of such Note. Under applicable Treasury
regulations governing the accrual of OID (the "OID Regulations"), the stated
redemption price at maturity is the sum of all payments on the Note other than
any "qualified stated interest" payments. Qualified stated interest is defined
as any one of a series of payments equal to the product of the outstanding
principal balance of the Note and a single fixed rate, or certain variable rates
of interest that is unconditionally payable at least annually.
The Holder of a Note issued with OID must include in gross income, for all
days during its taxable year on which it holds such Note, the sum of the "daily
portions" of such OID. Such daily portions are computed by allocating to each
day during a taxable year a pro rata portion of the OID that accrued during the
relevant
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accrual period. In the case of an obligation the principal on which is subject
to prepayment as a result of prepayments on the underlying collateral, (a
"Prepayable Obligation"), such as the Notes, OID is computed by taking into
account the anticipated rate of prepayments assumed in pricing the debt
instrument (the "Prepayment Assumption"). The Prepayment Assumption that will be
used in determining the rate of accrual of original issue discount, premium and
market discount, if any, is % ABS. The amount of OID that will accrue during
an accrual period (generally the period between interest payments or compounding
dates) is the excess (if any) of the sum of (a) the present value of all
payments remaining to be made on the Note as of the close of the accrual period
and (b) the payments during the accrual period of amounts included in the stated
redemption price of the Note, over the "adjusted issue price" of the Note at the
beginning of the accrual period. An "accrual period" is the period over which
OID accrues, and may be of any length, provided that each accrual period is no
longer than one year and each scheduled payment of interest or principal occurs
on either the last day or the first day of an accrual period. The Issuer intends
to report OID on the basis of an accrual period that corresponds to the interval
between payment dates. The adjusted issue price of a Note is the sum of its
issue price plus prior accruals of OID, reduced by the total payments made with
respect to such Note in all prior periods, other than qualified stated interest
payments. The present value of the remaining payments is determined on the basis
of three factors: (i) the original yield to maturity of the Note (determined on
the basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a Noteholder to take into account prepayments on the
Receivables at a rate that exceeds the Prepayment Assumption, and to decrease
(but not below zero for any period) the portions of OID required to be included
in income by a Noteholder to take into account prepayments with respect to the
Receivables at a rate that is slower than the Prepayment Assumption. Although
OID will be reported to Noteholders based on the Prepayment Assumption, no
representation is made to Noteholders that Receivables will be prepaid at that
rate or at any other rate.
A holder of a Note that acquires the Note for an amount that exceeds its
stated redemption price will not include any OID in gross income. A subsequent
holder of a Note which acquires the Notes for an amount that is less than its
stated redemption price will be required to include OID in gross income, but
such a holder who purchases such Note for an amount that exceeds its adjusted
issue price will be entitled (as will an initial holder who pays more than a
Note's issue price) to reduce the amount of OID included in income in each
period by the amount of OID multiplied by a fraction, the numerator of which is
the excess of (w) the purchaser's adjusted basis in the Note immediately after
purchase thereof over (x) the adjusted issue price of the Note, and the
denominator of which is the excess of (y) all amounts remaining to be paid on
the Note after the purchase date, other than qualified stated interest, over (z)
the adjusted issue price of the Note.
Total Accrual Election. As an alternative to separately accruing stated
interest, OID, de minimis OID, market discount, de minimis market discount,
unstated interest, premium, and acquisition premium, a holder of a Note may
elect to include all income that accrues on the Note using the constant yield
method. If a Noteholder makes this election, income on a Note will be calculated
as though (i) the issue price of the Note were equal to the Noteholder's
adjusted basis in the Note immediately after its acquisition by the Noteholder;
(ii) the Note were issued on the Noteholder's acquisition date; and (iii) none
of the interest payments on the Note were "qualified stated interest." A
Noteholder may make such an election for a Note that has premium or market
discount, respectively, only if the Noteholder makes, or has previously made, an
election to amortize bond premium or to include market discount in income
currently. See "-- Market Discount" and "-- Amortizable Bond Premium."
Market Discount. The Notes, whether or not issued with original issue
discount, will be subject to the "market discount rules" of section 1276 of the
Code. In general, these rules provide that if the Note Owner purchases a Note at
a market discount (that is, a discount from its stated redemption price at
maturity or, if the Notes were issued with OID, its original issue price plus
any accrued original issue discount that exceeds a de minimis amount specified
in the Code) and thereafter (a) recognizes gain upon a disposition, or
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(b) receives payments of principal, the lesser of (i) such gain or principal
payment or (ii) the accrued market discount will be taxed as ordinary interest
income. Generally, the accrued market discount will be the total market discount
on the Note multiplied by a fraction, the numerator of which is the number of
days the Note Owner held the Note and the denominator of which is the number of
days from the date the Note Owner acquired the Note until its maturity date. The
Note Owner may elect, however, to determine accrued market discount under the
constant-yield method.
Limitations imposed by the Code which are intended to match deductions with
the taxation of income may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Note Owner may elect to include market
discount in gross income as it accrues and, if the Note Owner makes such an
election, is exempt from this rule. Any such election will apply to all debt
instruments acquired by the taxpayer on or after the first day of the first
taxable year to which such election applies. The adjusted basis of a Note
subject to such election will be increased to reflect market discount included
in gross income, thereby reducing any gain or increasing any loss on a sale or
taxable disposition.
Amortizable Bond Premium. In general, if a Note Owner purchases a Note at
a premium (that is, an amount in excess of the amount payable upon the maturity
thereof), such Note Owner will be considered to have purchased such Note with
"amortizable bond premium" equal to the amount of such excess. Such Note Owner
may elect to amortize such bond premium as an offset to interest income and not
as a separate deduction item as it accrues under a constant-yield method over
the remaining term of the Note. Such Note Owner's tax basis in the Note will be
reduced by the amount of the amortized bond premium. Any such election shall
apply to all debt instruments (other than instruments the interest on which is
excludible from gross income) held by the Note Owner at the beginning of the
first taxable year for which the election applies or thereafter acquired and is
irrevocable without the consent of the IRS. Bond premium on a Note held by a
Note Owner who does not elect to amortize the premium will decrease the gain or
increase the loss otherwise recognized on the disposition of the Note.
Short-Term Obligations. Under the Code, special rules apply to Notes that
have a maturity of one year or less from their date of original issuance
("Short-Term Notes"). Such Notes are treated as issued with "acquisition
discount" which is calculated and included in income under principles similar to
those governing OID except that "acquisition discount" is equal to the excess of
all payments of principal and interest on the Short-Term Notes over their issue
price. In general, an individual or other cash basis holder of a short-term
obligation is not required to accrue acquisition discount for federal income tax
purposes unless it elects to do so. Accrual basis Noteholders and certain other
Noteholders, including banks, regulated investment companies, dealers in
securities and cash basis Noteholders who so elect, are required to accrue
acquisition discount on Short-Term Notes on either a straight-line basis or
under a constant yield method (based on daily compounding), at the election of
the Noteholder. In the case of a Noteholder not required and not electing to
include acquisition discount in income currently, any gain realized on the sale
or retirement of the Short-Term Notes will be ordinary income to the extent of
the acquisition discount accrued on a straight-line basis (unless an election is
made to accrue the acquisition discount under the constant yield method) through
the date of sale or retirement. Noteholders who are not required and do not
elect to accrue acquisition discount on Short-Term Notes will be required to
defer deductions for interest on borrowings allocable to short term obligations
in an amount not exceeding the deferred income until the deferred income is
realized.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder generally will equal the
holder's cost for the Note, increased by any market discount, acquisition
discount, OID and gain previously included by such Noteholder in income with
respect to the Note and decreased by any bond premium previously amortized and
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss if the Note was held as
a capital asset, except for gain representing accrued interest, accrued market
discount or OID that has not previously accrued, in each case to the extent not
previously included in income. Capital losses incurred on sale or disposition of
a Note generally may be used only to offset capital gains.
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Non-U.S. Note Owners. In general, a non-U.S. Note Owner will not be
subject to U.S. federal income tax on interest (including OID) on a beneficial
interest in a Note unless (i) the non-U.S. Note Owner actually or constructively
owns 10 percent or more of the total combined voting power of all classes of
stock of the Sellers (or affiliate of the Seller) entitled to vote (or of a
profits or capital interest of the Trust), (ii) the non-U.S. Note Owner is a
controlled foreign corporation that is related to the Sellers (or the Trust)
through stock ownership, (iii) the non-U.S. Note Owner is a bank receiving
interest described in Code Section 881(c)(3)(A), (iv) such interest is
contingent interest described in Code Section 871(h)(4), or (v) the non-U.S.
Note Owner bears certain relationships to any Certificate Owner. To qualify for
the exemption from taxation, the Note Owner must comply with applicable
certification requirements.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income tax and withholding tax, provided that (i) such gain is
not effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct taxpayer identification number and a statement that the holder
is not subject to backup withholding. Should a nonexempt Noteholder fail to
provide the required certification, the Trust will be required to withhold 31
percent of the amount otherwise payable to the holder, and remit the withheld
amount to the IRS as a credit against the holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Special Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might be
treated as equity interests in the Trust. If so treated, the Trust might be
taxable as a corporation with the adverse consequences described above (and the
taxable corporation would not be able to reduce its taxable income by deductions
for interest expense on Notes recharacterized as equity). Alternatively, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to certain tax-exempt entities (including pension funds) would
be "unrelated business taxable income," income to foreign holders generally
would be subject to U.S. federal tax and U.S. federal tax return filing and
withholding requirements, and individual holders might be subject to certain
limitations on their ability to deduct their share of Trust expenses.
TAX CONSEQUENCES TO HOLDERS OF OFFERED CERTIFICATES
Treatment of the Trust as a Partnership. The Sellers and the Servicer will
agree, and the Certificateholders of the Trust will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of federal and
state income tax, franchise tax and any other tax measured in whole or in part
by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders of the Trust
(including, potentially, the Sellers and NB-SPC), and the Notes being debt of
the partnership. However, the proper characterization of the arrangement
involving the Trust, the Certificates evidencing interests in the Trust, the
Notes, the Sellers and the Servicer is not clear because there is no authority
on transactions closely comparable to those contemplated herein.
A variety of alternative characterizations of the Certificates are
possible. For example, because the Certificates of beneficial interest in the
Trust generally will have certain features characteristic of debt, the
Certificates issued by the Trust might be considered debt of NAFC or the Trust.
Any such characterization would not result in materially adverse tax
consequences to Certificateholders as compared to the consequences from
treatment of the Certificates as equity in a partnership, described below. The
following discussion assumes that the Certificates represent equity interests in
a partnership.
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The following discussion assumes that all payments on the Certificates are
denominated in U.S. dollars, the Certificates are not Indexed Securities or
Strip Certificates, and that a Series of Securities includes a single class of
Certificates.
Partnership Taxation. Assuming that the Trust is classified as a
partnership, the Trust will not be subject to federal income tax, but each
Certificateholder will be required to take into account separately such holder's
allocated share of income, gains, losses, deductions and credits of the Trust.
The Trust's income will consist primarily of interest accrued on the Receivables
(including appropriate adjustments for market discount (as discussed below), and
any OID and bond premium), investment income from investments of collections
held between Distribution Dates, any gain upon, or with respect to, collection
or disposition of the Receivables and any income earned on any notional
principal contracts. The Trust's deductions will consist primarily of interest
accruing on the Notes, servicing and other fees and losses or deductions upon,
or with respect to, collection or the disposition of the Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury regulations and the partnership agreement. In the Trust
Agreement, the Certificateholders of the Trust will agree that the yield on a
Certificate is intended to qualify as a "guaranteed payment" and not as a
distributive share of partnership income. A guaranteed payment would be treated
by a Certificateholder as ordinary income, but may well not be treated as
interest income. The Trust Agreement will provide that, to the extent that such
treatment is not respected, the Certificateholders will be allocated ordinary
gross income of the Trust for each interest period equal to the sum of (i) the
amount of interest that accrues on the Certificates for such interest period
based on the Certificate Rate; (ii) an amount equivalent to interest that
accrues during such interest period on amounts previously due on the
Certificates but not yet distributed; and (iii) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price. All remaining taxable
income of the Trust generally will be allocated to the [the Sellers] [NAFC],
[[as "] [the] [general partner]["] of the Trust].
Except as set forth below, losses and deductions generally will not be
allocated to the Certificateholders of the Trust except to the extent the
Certificateholders of the Trust are reasonably expected to bear the economic
burden of such losses or deductions. Further, losses and deductions will not be
allocated to Certificateholders of a particular class of Certificates except to
the extent the Certificateholders of such class of Certificates are expected to
bear the economic burden of such losses or deductions. Any such losses could be
characterized as capital losses deductible by the Certificateholder only against
capital gain income, while any such deductions would be subject to the
limitations set forth below. Accordingly, a Certificateholder's taxable income
from the Trust could exceed the cash it is entitled to receive from the Trust.
Although the allocation of gross income to Certificateholders provided
above as an alternative to the characterization of the yield on the Certificates
as guaranteed payments is intended to comply with applicable Treasury
regulations and other authorities, no assurance can be given that the IRS would
not instead require that Certificateholders be allocated a distributive share of
partnership net income or loss. Moreover, if losses or deductions were allocated
to Certificateholders, such losses or deductions would, to the extent that funds
were available therefor, later be reimbursed through allocations of ordinary
income.
It is believed that allocating partnership income on the foregoing basis
should comport with the partners' economic interests in the partnership,
although no assurance can be given that the IRS would not require a greater
amount of income to be allocated to Certificateholders of the Trust. Moreover,
under this alternative method of allocation, Certificateholders may be allocated
income equal to the amount of interest accruing on the Certificates based on the
Certificate Rate even though the Trust might not have sufficient cash to make
current cash distributions of such amount or Certificateholders may have no
right to cash equal to such amount. Thus, cash basis Certificateholders will in
effect be required to report income from the Certificates on the accrual basis
and Certificateholders may become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. In addition, because
tax allocation and tax reporting will be done on a uniform basis for all
Certificateholders of the Trust but Certificateholders of the Trust may be
purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable income
that is greater or less than the amount reported to them by the Trust.
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Certificateholders will be required to report items of income, loss and
deduction allocated to them by the Trust in the Certificateholder's taxable year
in which or with which the taxable year of the Trust to which such allocations
relate ends. The Code prescribes certain rules for determining the taxable year
of the Trust. It is likely that, under these rules, the taxable year of the
Trust will be the calendar year. However, in the event that all of the
Certificateholders possessing a 5 percent or greater interest in the equity or
the profits of the Trust share a taxable year that is other than the calendar
year, the Trust would be required to use that year as its taxable year.
All of the taxable income allocated to a Certificateholder that is a
pension, profit sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) will constitute "unrelated business
taxable income" generally taxable to such a holder under the Code. The
characterization under the Trust Agreement of yield on the Certificates as a
guaranteed payment could adversely affect taxpayers, such as RICs and real
estate investment trusts ("REITs"), that expect to earn "interest" income.
Limitations on Losses. Under the "passive activity" rules of the Code, any
loss allocated to a Certificateholder who is a natural person, estate, trust,
closely held "C" corporation or personal service corporation would be a passive
activity loss while, for purposes of those rules, income allocated to such a
Certificateholder would be "portfolio income."
In addition a taxpayer that is an individual, trust or estate may generally
deduct miscellaneous itemized deductions (which do not include interest expense)
only to the extent they exceed two percent of the individual's adjusted gross
income. Those limitations would apply to an individual Certificateholder's share
of expenses of the Trust (including fees paid to the Servicer) and might result
in such holder having net taxable income that exceeds the amount of cash
actually distributed to such holder over the life of the Trust.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Receivables [were not]
[were] issued with OID or imputed interest, and, therefore, the Trust should not
have OID or imputed interest income. However, the purchase price paid by the
Trust for the Receivables may be greater or less than the remaining principal
balance of the Receivables at the time of purchase. If so, the Receivables will
have been acquired at a premium or discount, as the case may be. (As indicated
above, the Trust will make this calculation on an aggregate basis, but might be
required to recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. Under Section 708 of the Code, the Trust will be
deemed to terminate for federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Distributions to Certificateholders. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will, however, recognize gain to the extent any money
distributed exceeds the Certificateholder's adjusted basis in the Certificates
(as described below under "Disposition of Certificates") immediately before
distribution, and a Certificateholder will recognize loss upon termination of
the Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes money to the Certificateholder and the amount distributed
is less than the Certificateholder's
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adjusted basis in the Certificates. Any such gain or loss would be long-term
capital gain or loss if the holding period of the Certificates were more than
one year, assuming that the Certificates are held as capital assets.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income (includible in
income) and decreased by any distributions received with respect to such
Certificate. In addition, both the tax basis in the Certificates and the amount
realized on a sale of a Certificate would include the holder's share of the
Notes and other liabilities of the Trust. A holder acquiring Certificates at
different prices may be required to maintain a single aggregate adjusted tax
basis in such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the Certificates
sold (rather than maintaining a separate tax basis in each Certificate for
purposes of computing gain or loss on a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share of
unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special federal
income tax reporting requirements. The Trust does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust will elect to include
market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed miscellaneous itemized
deductions described above) over the life of the Certificates that exceeds the
aggregate cash distributions with respect thereto, such excess will generally
give rise to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items for a
particular calendar month will be apportioned among the Certificateholders in
proportion to the principal amount of Certificates owned by them as of the close
of the last day of such month. As a result, a holder purchasing Certificates may
be allocated tax items (which will affect its tax liability and tax basis)
attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
Treasury regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
of the Trust might be reallocated among the Certificateholders. The Sellers are
authorized to revise the Trust's method of allocation between transferors and
transferees to conform to a method permitted by future Treasury regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
Administrative Matters. The Owner Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and federal income tax purposes on an accrual basis and the
fiscal year of the Trust will be the calendar year. The Trustee will file a
partnership information return (Form 1065) with the IRS for each taxable year of
the Trust and will report each Certificateholder's allocable share of items of
Trust income and expense to holders and the IRS on Schedule K-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, holders must file federal income tax returns that are
consistent with the information return filed by the Trust or be subject to
penalties unless the holder notifies the IRS of all such inconsistencies.
S-42
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Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and federal taxpayer identification number of the nominee and (ii) as to each
beneficial owner (x) the name, address and federal taxpayer identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or any
wholly owned agency or instrumentality of either of the foregoing, and (z)
certain information on Certificates that were held, bought or sold on behalf of
such person throughout the year. In addition, brokers and financial institutions
that hold Certificates through a nominee are required to furnish directly to the
Trust information as to themselves and their ownership of Certificates. A
clearing agency registered under Section 17A of the Exchange Act is not required
to furnish any such information statement to the Trust. The information referred
to above for any calendar year must be furnished to the Trust on or before the
following January 31. Nominees, brokers and financial institutions that fail to
provide the Trust with the information described above may be subject to
penalties.
The Code provides for administrative examination of a partnership as if the
partnership were a separate taxpayer. Under these audit procedures, the tax
treatment of items of Trust income, gain, loss, deduction and credit would be
determined at the Trust level in a unified proceeding, rather than in separate
proceedings with each Certificateholder. Generally, the statute of limitations
for Trust items does not expire before three years after the date on which the
partnership information return is filed. The General Partner will be designated
the "tax matters partner" for the Trust and, as such, is designated to receive
notice on behalf of, and to provide notice to those Certificateholders not
receiving notice from, the IRS, and to represent the Certificateholders in any
dispute with the IRS. Any adverse determination following an audit of the return
of the Trust by the appropriate taxing authorities could result in an adjustment
of the returns of the Certificateholders, and while the Certificateholders may
participate in any adjudicative process that is undergone at the Trust level in
arriving at such a determination, such Certificateholders will be precluded from
separately litigating a proposed adjustment to the items of the Trust. As the
tax matters partner, the General Partner may enter into a binding settlement on
behalf of all Certificateholders with a less than a 1 percent interest in the
Partnership (except for any group of such Certificateholders with an aggregate
interest of 5 percent or more in Trust profits that elects to form a notice
group or Certificateholders who otherwise notify the IRS that the General
Partner is not authorized to settle on their behalf). In the absence of a
proceeding at the Trust level, a Certificateholder under certain circumstances
may pursue a claim for credit or refund on his own behalf by filing a request
for administrative adjustment of a Trust item. Each Certificateholder is advised
to consult its own tax advisor with respect to the impact of these procedures on
its particular case.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will not be subject to a "backup" withholding
tax of 31% unless, in general, the Certificateholder fails to comply with
certain identification procedure and is not an exempt recipient under applicable
provisions of the Code.
TAX CONSEQUENCES TO NON-U.S. CERTIFICATEHOLDERS
The Certificates may not be purchased by persons other than U.S. persons
and non-U.S. persons who will satisfy the Sellers and the Trustee of the Trust
that such non-U.S. person will be taxed with respect to its ownership of
Certificates as if it were a U.S. person. However, in the case of such a
non-U.S. person, the Trust will withhold U.S. income tax at the highest marginal
rate.
THE FEDERAL TAX DISCUSSIONS SET FORTH ABOVE ARE INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES AND CERTIFICATES, INCLUDING THE TAX
CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE
EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-43
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ERISA CONSIDERATIONS
THE NOTES
The Notes may, in general, be purchased by or on behalf of (i) "employee
benefit plans" (as defined in Section 3(3) of ERISA), (ii) "plans" described in
Section 4975(e)(1) of the Code, including individual retirement accounts and
Keogh Plans, or (iii) entities whose underlying assets include plan assets by
reason of a plan's investment in such entity (each, a "Plan"). However, the
acquisition and holding of Notes by or on behalf of a Plan could be considered
to give rise to a prohibited transaction under ERISA and the Code if the Trust,
the Owner Trustee, the Indenture Trustee, any holder of the Certificates or any
of their respective affiliates, is or becomes a "party in interest" or a
"disqualified person" (as defined in ERISA and the Code, respectively) with
respect to such Plan. In such case, certain exemptions from the prohibited
transaction rules could be applicable to such acquisition and holding by a Plan
depending on the type and circumstances of the Plan fiduciary making the
decision to acquire a Note. For additional information regarding treatment of
the Notes under ERISA, see "ERISA Considerations" in the Prospectus.
THE CERTIFICATES
The Certificates may not be acquired by a Plan or a person investing "plan
assets" of a Plan (including without limitation, for this purpose, any insurance
company general account, but excluding any entity registered under the
Investment Company Act of 1940, as amended) (each, a "Plan Investor"). In
addition, investors other than Plan Investors should be aware that a prohibited
transaction under ERISA and the Code could be deemed to occur if any holder of
the Certificates or any of their respective affiliates is or becomes a party in
interest or a disqualified person with respect to any Plan that acquires and
holds the Notes without such Plan being covered by one or more exemptions from
the prohibited transaction rules. For additional information regarding treatment
of the Certificates under ERISA, see "ERISA Considerations" in the Prospectus.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Note Underwriting Agreement"), the Sellers have agreed to cause the Trust
to sell to each of the Note Underwriters named below (collectively, the "Note
Underwriters"), and each of the Note Underwriters has severally agreed to
purchase, the initial principal amount of Notes set forth opposite its name
below:
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
NOTE UNDERWRITERS NOTES NOTES NOTES NOTES
----------------------------------- --------- --------- --------- ---------
NationsBanc Capital Markets,
Inc........................... $ $ $ $
--- --- --- ---
Total.................... $ $ $ $
=========== =========== =========== ===========
The Sellers have been advised by the Note Underwriters that they propose
initially to offer the Notes to the public at the prices set forth herein, and
to certain dealers at such prices less the initial concession not in excess of
% per Class A-1 Note, % per Class A-2 Note, % per Class A-3 Note and
% per Class A-4 Note. The Note Underwriters may allow, and such dealers may
reallow, a concession not in excess of % per Class A-1 Note, % per
Class A-2 Note % per Class A-3 Note to certain other dealers. After the
initial public offering of the Notes, the public offering price and such
concessions may be changed.
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Certificate Underwriting Agreement"), the Sellers have agreed to cause the
Trust to sell to each of the Certificate Underwriters named below (the
"Certificate Underwriters" and, together with the Note Underwriters, the
"Underwriters"), and each of the Certificate Underwriters has severally agreed
to purchase, the initial Certificate Balance of each offered class of
Certificates set forth opposite its name below:
CERTIFICATE CERTIFICATE
BALANCE OF BALANCE OF
CLASS B-1 CLASS B-2
CERTIFICATE UNDERWRITERS CERTIFICATES CERTIFICATES
-------------------------------------------------------- ------------ ------------
NationsBanc Capital Markets, Inc...................... $ $
------------ ------------
Total......................................... $ $
============ ============
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The Sellers have been advised by the Certificate Underwriters that they
propose initially to offer the Class B-1 and Class B-2 Certificates to the
public at the price set forth herein, and to certain dealers at such price less
the initial concession not in excess of % per Class B-1 Certificate and %
per Class B-2 Certificate. The Certificate Underwriters may allow, and such
dealers may reallow, a concession not in excess of % per Class B-1
Certificate and % per Class B-2 Certificates to certain other dealers. After
the initial public offering of the Certificates, the public offering price and
such concessions may be changed.
NationsBanc Capital Markets, Inc. ("NCMI") is a separate subsidiary of
NationsBank Corporation. NCMI is a registered broker-dealer and not a bank. Any
obligations of NCMI are the sole responsibility of NCMI and do not create any
obligation or guarantee on the part of any affiliate of NCMI.
LEGAL OPINIONS
In addition to the legal opinions described in the Prospectus, certain
legal matters relating to the Notes and the Certificates will be passed upon for
the Underwriters and certain federal income tax and other matters will be passed
upon for the Trust by Skadden, Arps, Slate, Meagher & Flom.
S-46
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered NationsBank
Auto Owner Trust 1996-A % Class A-1 Asset Backed Notes, % Class A-2
Asset Backed Notes, % Class A-3 Asset Backed Notes and % Class A-4
Asset Backed Notes (collectively, the "Global Securities") will be available
only in book-entry form. Investors in the Global Securities may hold such Global
Securities through any of The Depository Trust Company ("DTC"), Cedel Bank,
societe anonyme ("Cedel") or the Euroclear System ("Euroclear"). The Global
Securities will be tradeable as home market instruments in both the European and
U.S. domestic markets. Initial settlement and all secondary trades will settle
in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Global Securities will be effected on a
delivery-against-payment basis through the respective Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
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Trading between DTC seller and Cedel or Euroclear purchaser. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
will instruct the respective Depositary, as the case may be, to receive the
Global Securities against payment. Payment will include interest accrued on the
Global Securities from and including the last coupon payment date to and
excluding the settlement date. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
Trading between Cedel or Euroclear seller and DTC purchaser. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over that one-day period. If settlement is not completed on the
intended value date (i.e., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would
I-2
49
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel or Euroclear
accounts) in accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete exemption
from the withholding tax by filing a signed Form W-8 (Certificate of
Foreign Status). If the information shown on Form W-8 changes, a new Form
W-8 must be filed within 30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons that are beneficial owners of
Global Securities residing in a country that has a tax treaty with the
United States can obtain an exemption or reduced tax rate (depending on the
treaty terms) by filing Form 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding
tax will be imposed at that rate unless the filer alternatively files Form
W-8. Form 1001 may be filed by the beneficial owner of Global Securities or
his agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's
Request for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The beneficial owner of
a Global Security or in the case of a Form 1001 or a Form 4224 filer, his
agent, files by submitting the appropriate form to the person through whom
it holds (the clearing agency, in the case of persons holding directly on
the books of the clearing agency). Form W-8 and Form 1001 are effective for
three calendar years and Form 4224 is effective for one calendar year.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" beginning on page
[ ] of the Prospectus.
PAGE
----
ABS................................................................................... S-
ABS Table............................................................................. S-
Accrued Certificate Interest.......................................................... S-
Accrued Note Interest................................................................. S-
Available Funds....................................................................... S-
Available Interest.................................................................... S-
Available Principal................................................................... S-
Available Reserve Amount.............................................................. S-
Bank, Banks........................................................................... S-
Business Day.......................................................................... S-
Cede.................................................................................. S-
CEDEL................................................................................. S-
Certificate Balance................................................................... S-
Certificate Interest Reserve Amount................................................... S-
Certificate Pool Factor............................................................... S-
Certificate Prepayment Amount......................................................... S-
Certificate Rate...................................................................... S-
Certificate Underwriters.............................................................. S-
Certificate Underwriting Agreement.................................................... S-
Certificateholders.................................................................... S-
Certificateholders' Distribution Amount............................................... S-
Certificateholders' Interest Carryover Shortfall...................................... S-
Certificateholders' Monthly Accrued Interest.......................................... S-
Certificateholders' Monthly Principal................................................. S-
Certificateholders' Percentage........................................................ S-
Certificateholders' Principal Carryover Shortfall..................................... S-
Certificateholders' Principal Distribution Amount..................................... S-
Certificates.......................................................................... S-
Class A-1 Final Scheduled Distribution Date........................................... S-
Class A-1 Notes....................................................................... S-
Class A-1 Rate........................................................................ S-
Class A-2 Final Scheduled Distribution Date........................................... S-
Class A-2 Notes....................................................................... S-
Class A-2 Rate........................................................................ S-
Class A-3 Final Scheduled Distribution Date........................................... S-
Class A-3 Notes....................................................................... S-
Class A-3 Rate........................................................................ S-
Class A-4 Final Schedule Distribution Date............................................ S-
Class A-4 Notes....................................................................... S-
Class A-4 Rate........................................................................ S-
Class B-1 Certificates................................................................ S-
Class B-1 Rate........................................................................ S-
Class B-1 Final Scheduled Distribution Date........................................... S-
Class B-2 Certificates................................................................ S-
Class B-2 Rate........................................................................ S-
i
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PAGE
----
Class B-2 Final Scheduled Distribution Date........................................... S-
Closing Date.......................................................................... S-
Code.................................................................................. S-
Collection Account.................................................................... S-
Collection Period..................................................................... S-
Collections........................................................................... S-
Commission............................................................................ S-
Contingent Payment Right.............................................................. S-
Contract Rate......................................................................... S-
Cut-Off Date.......................................................................... S-
Date.................................................................................. S-
Dealer Agreements..................................................................... S-
Dealers............................................................................... S-
Defaulted Receivable.................................................................. S-
Determination Date.................................................................... S-
Disposition of Certificates........................................................... S-
Distribution Date..................................................................... S-
Distribution Date..................................................................... S-
DTC................................................................................... S-
ERISA................................................................................. S-
Euroclear............................................................................. S-
Exchange Act.......................................................................... S-
Final Scheduled Distribution Date..................................................... S-
Final Scheduled Maturity Date......................................................... S-
Financed Vehicles..................................................................... S-
Forced-Placed Insurance............................................................... S-
Global Securities..................................................................... S-
Indenture............................................................................. S-
Indenture Trustee..................................................................... S-
Interest Collections.................................................................. S-
Interest Period....................................................................... S-
IRS................................................................................... S-
Issuer................................................................................ S-
Liquidation Proceeds.................................................................. S-
[Mandatory Redemption]................................................................ S-
Mandatory Repurchase.................................................................. S-
NAFC.................................................................................. S-
NationsBank South..................................................................... S-
NationsBank Texas..................................................................... S-
Note Interest Rates................................................................... S-
Note Pool Factor...................................................................... S-
Note Prepayment Amount................................................................ S-
Note Prepayment Premium............................................................... S-
Note Underwriters..................................................................... S-
Note Underwriting Agreement........................................................... S-
Noteholders........................................................................... S-
Noteholders' Accelerated Principal.................................................... S-
Noteholders' Interest Carryover Shortfall............................................. S-
Noteholders' Monthly Accrued Interest................................................. S-
Noteholders' Monthly Principal........................................................ S-
Noteholders' Payment Amount........................................................... S-
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PAGE
----
Noteholders' Percentage............................................................... S-
Noteholders' Principal Carryover Shortfall............................................ S-
Noteholders' Principal Payment Amount................................................. S-
Notes................................................................................. S-
Obligor............................................................................... S-
OID................................................................................... S-
OID Regulations....................................................................... S-
Owner Trustee......................................................................... S-
Plan.................................................................................. S-
Plan Investor......................................................................... S-
Pool Balance.......................................................................... S-
Prepayable Obligation................................................................. S-
Prepayment Assumption................................................................. S-
Prospectus............................................................................ S-
Purchase Receivable................................................................... S-
Rating Agencies....................................................................... S-
Receivables........................................................................... S-
Receivables Pool...................................................................... S-
Record Date........................................................................... S-
Recoveries............................................................................ S-
Redemption Price...................................................................... S-
Regular Principal..................................................................... S-
Reserve Account....................................................................... S-
Reserve Account Initial Deposit....................................................... S-
Sale and Servicing Agreement.......................................................... S-
Securities............................................................................ S-
Securities Act........................................................................ S-
Securityholders....................................................................... S-
Seller, Sellers....................................................................... S-
Servicer.............................................................................. S-
Servicer's Certificate................................................................ S-
Servicing Fee Rate.................................................................... S-
Short-Term Notes...................................................................... S-
Simple Interest Receivable............................................................ S-
Special Tax Counsel................................................................... S-
Specified Reserve Account Balance..................................................... S-
Transfer and Servicing Agreements..................................................... S-
Trust................................................................................. S-
Trust Agreement....................................................................... S-
Trust Property........................................................................ S-
U.S. Person........................................................................... S-
Underwriters.......................................................................... S-
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- ------------------------------------------------------------
- ------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES
OFFERED HEREBY, NOR AN OFFER OF THE SECURITIES IN ANY STATE OR JURISDICTION IN
WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUPPLEMENT
Reports to Securityholders...................... S-
Summary......................................... S-
Risk Factors.................................... S-
The Trust....................................... S-
The Receivables Pool............................ S-
Pool Factors.................................... S-
Maturity and Prepayment Considerations.......... S-
Description of the Notes........................ S-
Description of the Certificates................. S-
Description of the Transfer and Servicing
Agreements.................................... S-
Federal Income Tax Consequences................. S-
ERISA Considerations............................ S-
Underwriting.................................... S-
Legal Opinions.................................. S-
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures...................... I-
Index of Terms..................................
PROSPECTUS
Reports to Securityholders......................
Available Information...........................
Incorporation of Certain Documents by
Reference.....................................
Summary.........................................
Risk Factors....................................
The Trusts......................................
The Receivables Pools...........................
Maturity and Prepayment Considerations..........
Pool Factors and Trading Information............
Use of Proceeds.................................
The Banks, NationsBank Corporation and NAFC.....
The Servicer....................................
Description of the Notes........................
Description of the Certificates.................
Description of Fixed and Floating Rate
Options.......................................
Book-Entry and Definitive Securities; Reports to
Securityholders...............................
Description of the Transfer and Servicing
Agreements....................................
Certain Legal Aspects of the Receivables........
Federal Income Tax Consequences.................
ERISA Considerations............................
Plan of Distribution............................
Legal Opinions..................................
Index of Terms..................................
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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$
NATIONSBANK
AUTO OWNER TRUST 1996-A
$ % CLASS A-1
MONEY MARKET
ASSET BACKED NOTES
$ % CLASS A-2
ASSET BACKED NOTES
$ % CLASS A-3
ASSET BACKED NOTES
$ % CLASS A-4
ASSET BACKED NOTES
$ % CLASS B-1
ASSET BACKED CERTIFICATES
$ % CLASS B-2
ASSET BACKED CERTIFICATES
NATIONSBANK, N.A.
NATIONSBANK, N.A. (SOUTH)
NATIONSBANK OF TEXAS, N.A.
SELLERS
---------------------
NATIONSBANK, N.A.
SERVICER
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PROSPECTUS
SUPPLEMENT
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NATIONSBANC CAPITAL MARKETS, INC.
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