As filed with the Securities and Exchange Commission on October 9, 2002
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
AmeriCredit Corp.
(Exact name of registrant as specified in its charter)
Texas 75-2291093
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
AmeriCredit Financial Services, Inc.
Delaware 75-2439888
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Americredit Corporation of California
California 33-0011256
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
ACF Investment Corp.
Delaware 75-2442194
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
AmeriCredit Management Company
Delaware 75-2788787
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
AmeriCredit Consumer Discount Company
Pennsylvania 75-2883750
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
AmeriCredit Service Center Ltd.
Ontario, Canada 866047046
(State or Other Jurisdiction (Canadian
of Incorporation or Organization) Business Number)
AmeriCredit Flight Operations, LLC
Texas 75-2931810
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
AmeriCredit NS I Co.
Nova Scotia, Canada 859921132
(State or Other Jurisdiction (Canadian
of Incorporation or Organization) Business Number)
AmeriCredit NS II Co.
Nova Scotia, Canada 859921330
(State or Other Jurisdiction (Canadian
of Incorporation or Organization) Business Number)
AmeriCredit Financial Services of Canada Ltd.
Ontario, Canada 866121080
(State or Other Jurisdiction (Canadian Business
of Incorporation or Organization) Number)
6199
(Primary Standard Industrial
Classification Code Number)
801 Cherry Street, Suite 3900
Fort Worth, Texas 76102
(817) 302-7000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------------
Daniel E. Berce
Chief Financial Officer
AmeriCredit Corp.
801 Cherry Street, Suite 3900
Fort Worth, Texas 76102
(817) 302-7000
(Name, address, including zip code, and telephone number,
including area code, of Agent for service)
Copies to:
L. Steven Leshin
Jenkens & Gilchrist,
a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------------
CALCULATION OF REGISTRATION FEE
=================================================================================================================
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to offering price per aggregate Registration
Securities to be registered be registered unit (1) offering price (1) fee
- -----------------------------------------------------------------------------------------------------------------
9 1/4% Senior Notes due 2009 $175,000,000 100% $175,000,000 $16,100
- -----------------------------------------------------------------------------------------------------------------
AmeriCredit Financial Services, Inc.
Americredit Corporation of
California
ACF Investment Corp.
AmeriCredit Management
Company
AmeriCredit Consumer
Discount Company
AmeriCredit Service Center Ltd.
AmeriCredit Flight Operations, LLC
AmeriCredit NS I Co.
AmeriCredit NS II Co.
AmeriCredit Financial Services of
Canada Ltd.
Guarantees (2)
$175,000,000 100% $175,000,000 (3)
=================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Each of these subsidiaries of AmeriCredit Corp. has guaranteed the Notes
being registered pursuant hereto.
(3) Pursuant to Rule 457(n), no separate fee is payable with respect to
guarantees of the Notes being registered.
The Co-Registrants, hereby amend this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Co-Registrants shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER 9, 2002
AMERICREDIT CORP.
OFFER TO EXCHANGE ALL
OUTSTANDING 9 1/4% SENIOR NOTES DUE 2009
($175,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
REGISTERED 9 1/4% SENIOR NOTES DUE 2009
We are offering to exchange all of our outstanding 9 1/4% Senior Notes due
2009 ("Old Notes") for our registered 9 1/4% Senior Notes due 2009 ("New
Notes"). The Old Notes and New Notes are collectively referred to as the
"Notes." The Old Notes were issued on June 19, 2002. The terms of the New Notes
are identical to the terms of the Old Notes except that the New Notes are
registered under the Securities Act of 1933, as amended, and therefore are
freely transferable.
Please consider the following:
- You should carefully review the risk factors beginning on page 12 of
this prospectus.
- Our offer to exchange Old Notes for New Notes will be open until 5:00
p.m., New York City time, on _________, 2002, unless we extend the
offer.
- You should also carefully review the procedures for tendering the Old
Notes beginning on page 28 of this prospectus.
- If you fail to tender your Old Notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
- No public market currently exists for the Notes. We do not intend to
list the New Notes on any securities exchange and, therefore, no
active public market is anticipated.
Information about the Notes:
- The Notes will mature on May 1, 2009.
- We will pay interest on the Notes semi-annually on May 1 and November
1 of each year, beginning November 1, 2002 at the rate of 9 1/4% per
annum.
- We may redeem the Notes on or after May 1, 2006 at certain rates set
forth on page 74 of this prospectus.
- We also have the option until May 1, 2005, to redeem up to 35% of the
original aggregate principal amount of the Notes with the net proceeds
of certain equity offerings.
- The Notes are unsecured obligations and are subordinated to our
existing and future senior debt.
- The Notes are fully and unconditionally guaranteed on an unsecured
senior subordinated basis by certain of our subsidiaries.
- If we undergo a change of control or sell certain of our assets, we
may be required to offer to purchase Notes from you.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 9, 2002
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION ............................................... ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ................................... ii
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS ......................... iii
PROSPECTUS SUMMARY ................................................................ 1
HISTORICAL CONSOLIDATED FINANCIAL DATA ............................................ 10
RISK FACTORS ...................................................................... 12
USE OF PROCEEDS ................................................................... 24
THE EXCHANGE OFFER ................................................................ 25
CAPITALIZATION .................................................................... 33
SELECTED CONSOLIDATED FINANCIAL DATA .............................................. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ..................................................................... 36
BUSINESS .......................................................................... 56
MANAGEMENT ........................................................................ 63
PRINCIPAL SHAREHOLDERS ............................................................ 70
DESCRIPTION OF THE NEW NOTES ...................................................... 72
DESCRIPTION OF OTHER DEBT ......................................................... 101
REGISTRATION RIGHTS ............................................................... 106
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ........................... 108
PLAN OF DISTRIBUTION .............................................................. 108
LEGAL MATTERS ..................................................................... 109
EXPERTS ........................................................................... 109
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ........................................ F-1
(i)
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Our
Commission filings are available to the public over the Internet at the
Commission's website at http://www.sec.gov. You may also read and copy any
document we file at the Commission's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the
Commission's public reference room in Washington, D.C. by calling the Commission
at 1-800-SEC-0330. We also file such information with the New York Stock
Exchange, Inc., and such information may also be read and copied at the public
reference room of the New York Stock Exchange at 20 Broad Street, New York, New
York 10005.
We have filed with the Commission a registration statement on Form S-4
under the Securities Act with respect to our offering of New Notes. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information in the registration statement on Form S-4. You
will find additional information about us and the New Notes in the registration
statement on Form S-4. All statements made in this prospectus concerning the
provisions of legal documents are not necessarily complete and you should read
the documents which are filed as exhibits to the registration statement or
otherwise filed by us with the Commission.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE MATTERS WE DISCUSS IN THIS PROSPECTUS OTHER THAN THOSE
CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE. IF YOU
ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS NOT
DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. OUR AFFAIRS MAY HAVE
CHANGED SINCE THE DATE OF THIS PROSPECTUS. WE CANNOT ASSURE YOU THAT THE
INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY
REFERENCE IS CORRECT AFTER THIS DATE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We "incorporate by reference" into this prospectus the information we file
with the Commission, which means that we can disclose important information to
you by referring you to those documents. The information incorporated by
reference is an important part of this prospectus and information that we file
subsequently with the Commission will automatically update and supersede this
prospectus. We have filed the following documents and incorporate them into and
as a part of this prospectus:
(1) our Annual Report on Form 10-K for the fiscal year ended June 30,
2002;
(2) our reports on Form 8-K, filed September 17, 2002 and September 30,
2002;
(3) the description of the common stock contained in our Form 8-A, dated
October 4, 1989, including any amendment or report filed to update
this description; and
(4) the description of our preferred stock contained in our Form 8-A12B,
dated August 29, 1997, including any amendment or report filed to
update this description.
Each document that we file pursuant to Section 13(a), 13(c), 14 and 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after
the date of this prospectus and prior to the termination of this exchange offer
will be deemed to be incorporated by reference in this prospectus and to be a
part of this prospectus from the date of filing of such document. Any statement
contained in a document incorporated or deemed to be incorporated by reference
in this prospectus shall be deemed to be modified or superseded for purposes of
this prospectus to the extent that a statement contained in this prospectus or
in any other subsequently filed document
(ii)
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus.
You should not assume that the information in this prospectus is accurate
as of any date other than the date of this prospectus or the respective dates of
those documents we incorporate herein by reference, regardless of the time of
delivery of this prospectus. You should rely on the information incorporated by
reference or provided in this prospectus. We have not authorized anyone else to
provide you with different information.
We will provide without charge to each person to whom a copy of this
prospectus is delivered, on request, a copy of any or all of the foregoing
documents incorporated in this prospectus by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Written or telephone requests for such copies should be
directed to AmeriCredit Corp., 801 Cherry Street, Suite 3900, Fort Worth, Texas
76102, Attention: Daniel E. Berce, telephone: 817-302-7000.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference contain certain
forward-looking statements about our financial condition, results of operations
and business. These statements may be made expressly in this document, or may be
"incorporated by reference" to other documents we have filed with the
Commission. You can find many of these statements by looking for words such as
"will," "believes," "expects," "anticipates," "estimates," "intends,"
"projects," "likely," "future" or similar expressions used in this prospectus or
documents incorporated in this prospectus, although not all forward-looking
statements contain such identifying words.
These forward-looking statements are subject to numerous assumptions, risks
and uncertainties. Factors which may cause our actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by us in those statements include, among
others, the risk factors contained in the section entitled "Risk Factors" and in
our Annual Report on Form 10-K for the year ended June 30, 2002 and the
following:
- our continued reliance on our warehouse facilities, securitization
program and credit enhancement arrangements;
- our ability to make payments of principal and interest on, or
refinance, our substantial indebtedness;
- our exposure to the risk of increases in defaults and prepayments of
contracts purchased and held by us prior to their securitization and
the subsequent performance of receivables held in securitization
trusts;
- changes in the delinquency, default and loss rates on the receivables
included in each securitization trust;
- failure to implement our business strategy;
- the high degree of risk associated with non-prime borrowers;
- general economic conditions, including wholesale auction values,
interest rates and labor market conditions;
- our ability to successfully compete in our industry; and
- our ability to maintain the material licenses and permits required for
our operations.
(iii)
Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. You are cautioned not to place undue reliance on
such statements, which speak only as of the date of this prospectus or, in the
case of documents incorporated by reference, as of the date of such document.
We do not undertake any responsibility to release publicly any revisions to
these forward-looking statements to take into account events or circumstances
that occur after the date of this prospectus. Additionally, we do not undertake
any responsibility to update you on the occurrence of any unanticipated events
which may cause actual results to differ from those expressed or implied by the
forward-looking statements.
(iv)
PROSPECTUS SUMMARY
IN THIS PROSPECTUS, THE WORDS "AMERICREDIT" AND "COMPANY" REFER TO
AMERICREDIT CORP., THE ISSUER OF THE OLD NOTES AND THE NEW NOTES, AND ITS
SUBSIDIARIES. THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT THE COMPANY
AND THIS EXCHANGE OFFER. IT DOES NOT CONTAIN ALL THE INFORMATION THAT IS
IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, WE
ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS WE HAVE REFERRED
YOU TO.
The Exchange Offer
We completed on June 19, 2002, the private offering of $175.0 million
of 9 1/4% Senior Notes due 2009. We entered into a registration rights agreement
with the initial purchasers in the private offering of such Old Notes in which
we agreed, among other things, to file a registration statement with the
Commission within 90 days of June 19, 2002, to use our best efforts to cause the
registration statement to be declared effective by the Commission within 150
days of June 19, 2002 and to use our best efforts to complete this exchange
offer within 30 business days of when the registration statement is declared
effective by the Commission. You are entitled to exchange in this exchange offer
Old Notes that you hold for registered New Notes with substantially identical
terms. If we fail to timely file the registration statement, the registration
statement is not timely declared effective or we fail to timely complete this
exchange offer, then the interest rates on such Old Notes will increase by up to
0.50%. You should read the discussion under the headings "-Summary of the Terms
of the New Notes," "Description of the New Notes" and "Registration Rights" for
further information regarding the New Notes.
We believe that the New Notes to be issued in this exchange offer may
be resold by you without compliance with the registration and prospectus
delivery provisions of the Securities Act, subject to certain conditions. You
should read the discussion under the headings "-Summary of the Terms of the
Exchange Offer" and "The Exchange Offer" for further information regarding this
exchange offer and resale of the New Notes.
The Company
Our Business
We are a consumer finance company specializing in purchasing, retaining
and subsequently securitizing and servicing retail automobile installment sales
contracts originated by franchised and select independent dealers in connection
with the sale of used and new automobiles. We also, to a lesser extent, make
loans directly to consumers for the purchase of automobiles. Our automobile loan
programs are designed to serve borrowers with limited credit histories, modest
incomes or those who have experienced prior credit difficulties, otherwise known
as non-prime borrowers. With the use of proprietary credit scoring models, we
underwrite contracts on a decentralized basis through a branch office network.
These credit scoring models, combined with experienced underwriting personnel,
enable us to implement a risk-based pricing approach to structuring and
underwriting individual contracts. Our centralized risk management department
monitors these underwriting strategies and portfolio performance to balance
credit quality and profitability objectives. We service our loan portfolio at
centralized facilities located in Arlington, Texas, Tempe, Arizona, Charlotte,
North Carolina, Jacksonville, Florida and Peterborough, Ontario using automated
loan servicing and collection systems.
We had 251 branch offices as of June 30, 2002. We have been able to
increase our aggregate volume of automobile installment sales contracts
purchased to $8.9 billion in fiscal 2002 from $18.3 million in fiscal 1993. For
fiscal 2002, the average principal amount financed was $16,428 and the weighted
average annual percentage rate of contracts we originated was 17.7%.
We generate earnings and cash flow primarily through the purchase or
origination, retention, subsequent securitization and servicing of automobile
receivables. To fund the acquisition of receivables prior to securitization we
use warehouse facilities. We earn finance charge income and pay warehouse
interest expense while receivables are held on our balance sheet prior to
securitization. In each securitization, we sell automobile receivables to a
trust that, in turn, sells asset-backed securities to investors. Both our
warehouse facilities and our securitizations require us to create and maintain
credit enhancement in the form of cash or overcollateralization. Historically,
except for two securitization transactions in fiscal 1995, we have recognized a
gain on the sale of the receivables to our securitization trusts, while
retaining the right to receive excess cash flow distributions from the trusts
resulting from the difference between the interest received from the consumer
obligors on the receivables and the interest on the
-1-
asset-backed securities paid to investors, net of losses and expenses. Prior to
the time when we begin to receive excess cash flow distributions from our
securitization trusts, all excess cash flow is utilized to fund credit
enhancement requirements to protect investors in the asset-backed securities
from losses. Once predetermined credit enhancement requirements are reached and
maintained, excess cash flow is distributed to us. In addition to excess cash
flow, we earn servicing fees of 2.25% per annum of the outstanding principal
balance of domestic receivables securitized. Since our first securitization
transaction in December 1994, we have securitized approximately $26.0 billion of
automobile receivables in private and public offerings of asset-backed
securities.
In September 2002, we announced our intention to change the structure of
our future securitization transactions such that auto receivables securitized in
the future will remain on our balance sheet and net earnings on our receivables
will be recognized over the life of the receivables as finance charge and fee
income, less related funding costs and a provision for loan losses. This
structure, combined with our strategy to increase our initial credit enhancement
deposits, will allow our reported earnings to be more closely aligned with cash
flow distributions from securitization trusts than our previous structure.
Our Current Strategy
Our business model requires us to access significant capital from external
resources to fund our liquidity needs. We have historically relied upon
securitization transactions, warehouse facilities and external debt and equity
financings to fund our origination of auto receivables. As our operations have
grown significantly, the requirements to fund our business have also grown
significantly, increasing our reliance on external sources of capital.
Through our follow-on offering of common stock described below, we have
sought to meet our near-term capital needs and to increase our equity capital to
a level more appropriately aligned with the needs of our business. Concurrently,
we are continuing to moderate our future growth to a rate we believe can be
sustained through our internal generation of cash flow with less reliance on
external debt and equity financing. We believe that completion of our follow-on
offering of common stock and continued moderation in our growth rate will
provide us with the capital resources to carry out our business strategy and
more flexibility to respond to further changes in the economy and to potential
volatility in the external debt and equity capital markets.
Recent Developments
Completion of Offering of Common Stock. On September 26, 2002, we
announced the completion of a follow-on offering of 67,000,000 shares of our
common stock at a price of $7.50 per share. We have also granted the underwriter
of the follow-on offering an option to purchase up to an additional 10,000,000
shares to cover over-allotments, if any. The net proceeds of the follow-on
offering was approximately $470.4 million (approximately $541.2 million if the
underwriter's over-allotment option is exercised in full). We intend to use the
proceeds received by us in the follow-on offering to increase significantly our
initial credit enhancement deposits in our future securitization transactions
and for other working capital needs and general corporate purposes.
Agreement with Bond Insurer. Agreements with the insurer of our
securitization transactions covered by a financial guaranty insurance policy
provide for an increase in credit enhancement requirements when specified
delinquency rates and other portfolio performance measures are exceeded.
Exceeding these measures can place significant stress on our liquidity, since
the agreements provide that excess cash flows we would otherwise receive may be
retained by the insurer as further credit enhancement until the targeted
measures are no longer exceeded.
On September 14, 2002, in response to our concern that certain of our
securitization trusts would likely exceed these measures due to the
deteriorating economy and seasonality, we entered into an agreement with our
insurer to raise the required delinquency levels through and including the March
2003 distribution date, when we expect to see a seasonal improvement in the
delinquency levels. This new agreement reduces the likelihood of an increase in
credit enhancement requirements due to increased delinquency levels in all our
insured securitization transactions. In consideration for this agreement, we
agreed to issue to the insurer five-year warrants to purchase 1,287,691 shares
of our common stock, which will be exercisable at 120% of the price of the
shares sold in our follow-on offering of common stock, and to pay the insurer
additional premiums.
Our new strategies call for diversification of the insurers which we rely
on to issue financial guaranty insurance in our future securitization
transactions.
Accounting for Future Securitizations. Historically, except for two
securitization transactions in fiscal 1995, we have structured our
securitization transactions to meet the criteria for sales of auto receivables
under U.S. generally accepted accounting principles. Thus, for all
securitizations completed to date, except for the transactions in fiscal 1995,
we recorded a gain on sale of receivables when we sold the auto receivables to a
securitization trust.
-2-
The gain-on-sale that we recorded was based on the net present value of expected
excess cash flows from the securitized receivables.
We have made a decision to alter the structure of our future
securitization transactions to no longer meet the criteria for sales of auto
receivables. Accordingly, following a securitization, the receivables and the
related securitization indebtedness will remain on our balance sheet. We will
recognize finance charge and fee income on the receivables and interest expense
on the securities issued in the securitization and will record a provision for
loan losses over the life of the securitization. This structure, combined with
our strategy to increase our initial credit enhancement deposits, will allow our
reported earnings to be more closely aligned with cash flow distributions from
securitization trusts than our previous structure. Additionally, this structure
will decrease our reliance on origination growth in order to achieve earnings
growth and will make us more comparable to other companies that do not use gain
on sale structures, while at the same time providing greater visibility of
future finance charge income and net margins related to our managed auto loan
portfolio.
This change will significantly impact our future results of operations
compared to our historical results. Therefore, our historical results and
management's discussion of such results may not be indicative of our future
results.
Increased Deposits for Securitizations. Historically, we have initially
made credit enhancement deposits of cash in an amount equal to between 2.0% and
3.0% of the amount of the receivables being sold in our securitization
transactions. The securitization trust retains the excess cash flows to build
credit enhancement to predetermined levels before we begin to receive excess
cash flows from the trust. In the past, we have typically begun to receive
excess cash flow after the credit enhancement has built to 12.0%, which
typically occurs when the transaction has seasoned between 15 and 18 months.
We intend to use a portion of the net proceeds from the follow-on offering
of our common stock to increase significantly our initial deposits, in the form
of cash or over-collateralization, in our future securitization transactions. We
believe that increased initial deposits will permit us to receive excess cash
flows from our securitization trusts in as soon as the first month after the
transactions are closed, depending upon the level of the initial deposit.
Moderation of Growth. To implement a moderation of our growth rate, we
have raised cut-off scores in our credit scoring models, employed new credit
scoring models and changed the terms of our loan programs. For the three months
ended June 30, 2002, we moderated our growth in originations to 25%. We have
further moderated our growth in originations during the fiscal quarter ended
September 30, 2002 and we are continuing to moderate our future growth to a rate
we believe can be sustained through our internal generation of cash flow with
less reliance on external debt and equity financings.
Continued Securitizing of Auto Receivables. On August 21, 2002, we
completed a $1.3 billion auto receivables backed securitization. On August 20,
2002, we announced a new $290 million credit enhancement facility. We will use
the facility to offer credit enhancement for future senior subordinated
securitization transactions and supplement our reinsurance commitments for
credit enhancement in securitization transactions. On September 12, 2002, we
completed a $600 million auto receivables backed securitization.
Our Business Model
We have developed a business model and a technology platform that we
believe allow us to compete effectively in the non-prime automobile finance
business throughout the United States and Canada. The key aspects of our model
are:
. Decentralized Marketing Platform. We derive our automobile contract
purchase volume through a decentralized branch office network. As of
June 30, 2002, we had 251 branch offices located in 42 states and five
Canadian provinces. We believe that the personal relationships our
branch managers and other branch office personnel establish with the
dealership personnel are an important factor in creating and
maintaining productive relationships with our dealership customer
base. A local presence enables us to more fully service dealers and be
more responsive to dealer concerns and local market conditions.
-3-
. Use of Proprietary Credit Scoring Models for Risk-based Pricing. We
have developed and implemented a credit scoring system across our
branch office network to support the branch level credit approval
process. Our proprietary credit scoring models are designed to enable
us to tailor each loan's pricing and structure to a statistical
assessment of the underlying credit risk. The credit scoring system
was developed with the assistance of Fair, Isaac and Co., Inc. from
our consumer demographic and portfolio databases. The credit
scorecards we use to differentiate credit applicants and to rank order
credit risk are proprietary to us.
. Sophisticated Risk Management Techniques. Our centralized risk
management department is responsible for monitoring the origination
process, supporting management's supervision of each branch office,
tracking collateral values of our receivables portfolio and monitoring
portfolio returns. The risk management department uses proprietary
databases to identify concentrations of risks, to price for the risk
associated with selected market segments and to endeavor to enhance
the credit quality and profitability of the contracts purchased.
Though originations and approvals are made on a decentralized,
branch-level basis, all credit decisions are guided by our overall
credit scoring strategies, credit and underwriting policies and
procedures and daily monitoring process.
. High Investment in Technology to Support Operating Efficiency and
Growth. The use of sophisticated technology in both loan origination
and servicing has enabled us to become a low-cost provider in the
non-prime automobile finance market. Our annualized ratio of operating
expenses to average managed receivables was 3.4% for fiscal year 2002
compared to 6.2% for fiscal year 1997. Because of our investment in
technology, we have been able to increase our contract purchase volume
allowing us to become more cost efficient than we were in the past by
taking advantage of economies of scale.
-4-
Summary of the Terms of the Exchange Offer
Securities to be Exchanged ............ On June 19, 2002, we issued $175.0
million aggregate principal amount of
Old Notes to the initial purchasers
(the "Original Offering") in a
transaction exempt from the
registration requirements of the
Securities Act of 1933, as amended
(the "Securities Act"). The terms of
the New Notes and the Old Notes are
substantially identical in all
material respects, except that the New
Notes will be freely transferable by
the holders except as otherwise
provided in this prospectus. See
"Description of the New Notes."
The Exchange Offer .................... $1,000 principal amount of New Notes
in exchange for each $1,000 principal
amount of Old Notes. As of the date
hereof, Old Notes representing $175.0
million aggregate principal amount are
outstanding.
Based on interpretations by the staff
of the Commission, as set forth in
no-action letters issued to certain
third parties unrelated to us, we
believe that New Notes issued pursuant
to the exchange offer in exchange for
Old Notes may be offered for resale,
resold or otherwise transferred by
holders thereof (other than any holder
which is an "affiliate" of the Company
or certain subsidiaries of the Company
(the "Guarantors") within the meaning
of Rule 405 under the Securities Act,
or a broker-dealer who purchased Old
Notes directly from us to resell
pursuant to Rule 144A or any other
available exemption under the
Securities Act), without compliance
with the registration and prospectus
delivery requirements of the
Securities Act, provided that such New
Notes are acquired in the ordinary
course of such holders' business and
such holders have no arrangement with
any person to engage in a distribution
of New Notes.
However, the Commission has not
considered the exchange offer in the
context of a no-action letter and we
cannot be sure that the staff of the
Commission would make a similar
determination with respect to the
exchange offer as in such other
circumstances. Furthermore, each
holder, other than a broker-dealer,
must acknowledge that it is not
engaged in, and does not intend to
engage or participate in, a
distribution of New Notes. Each
broker-dealer that receives New Notes
for his own account pursuant to the
exchange offer must acknowledge that
it will comply with the prospectus
delivery requirements of the
Securities Act in connection with any
resale of such New Notes.
Broker-dealers who acquired Old Notes
directly from us and not as a result
of market-making activities or other
trading activities may not rely on the
staff's interpretations discussed
above or participate in the exchange
offer and must comply with the
prospectus delivery requirements of
the Securities Act in order to resell
the Old Notes.
Registration Rights Agreement ......... We sold the Old Notes on June 19,
2002, in a private placement in
reliance on Section 4(2) of the
Securities Act. The Old Notes were
immediately resold by the initial
purchasers in reliance on Rule 144A
under the Securities Act. In
connection with the sale, we, together
with the Guarantors, entered into a
Registration Rights Agreement with the
initial purchasers (the "Registration
Rights Agreement") requiring us to
make the exchange offer. The
Registration Rights Agreement further
provides that we
-5-
must (1) file a registration with the
Commission within 90 days of June 19,
2002, (2) use our best efforts to
cause the registration statement with
respect to the exchange offer to be
declared effective within 150 days of
June 19, 2002, and (3) consummate the
exchange offer on or before the 30th
business day following the date that
the registration statement is declared
effective by the Commission. See "The
Exchange Offer--Purpose and Effect."
Expiration Date ....................... The exchange offer will expire at 5:00
p.m., New York City time, __________,
2002 or a later date and time if we
extend it (the "Expiration Date").
Withdrawal ............................ The tender of the Old Notes pursuant
to the exchange offer may be withdrawn
at any time prior to the Expiration
Date. Any Old Notes not accepted for
exchange for any reason will be
returned without expense as soon as
practicable after the expiration or
termination of the exchange offer.
Interest on the New Notes and
the Old Notes ....................... Interest on the New Notes will accrue
from June 19, 2002 or from the date of
the last payment of interest on the
Old Notes, whichever is later. No
additional interest will be paid on
Old Notes tendered and accepted for
exchange.
Conditions to the Exchange Offer ...... The exchange offer is subject to
certain customary conditions, certain
of which may be waived by us. See "The
Exchange Offer--Conditions of the
Exchange Offer."
Procedures for Tendering Old
Notes ............................... Each holder of the Old Notes wishing
to accept the exchange offer must
complete, sign and date the letter of
transmittal, or a copy thereof, in
accordance with the instructions
contained herein and therein, and mail
or otherwise deliver the letter of
transmittal, or the copy, together
with the Old Notes and any other
required documentation, to the
exchange agent at the address set
forth herein. Persons holding the Old
Notes through the Depository Trust
Company ("DTC") and wishing to accept
the exchange offer must do so pursuant
to DTC's Automated Tender Offer
Program, by which each tendering
participant will agree to be bound by
the letter of transmittal. By
executing or agreeing to be bound by
the letter of transmittal, each holder
will represent to us that, among other
things, (1) the New Notes acquired
pursuant to the exchange offer are
being obtained in the ordinary course
of business of the person receiving
such New Notes, (2) the holder is not
engaging in and does not intend to
engage in a distribution of such New
Notes, (3) the holder does not have an
arrangement or understanding with any
person to participate in the
distribution of such New Notes, and
(4) the holder is not an "affiliate,"
as defined under Rule 405 promulgated
under the Securities Act, of the
Company or the Guarantors.
We will accept for exchange any and
all Old Notes which are properly
tendered (and not withdrawn) in the
exchange offer prior to the Expiration
Date. The New Notes will be delivered
promptly following the Expiration
Date. See "The Exchange Offer-Terms of
the Exchange Offer."
-6-
Exchange Agent ........................ Bank One, NA is serving as Exchange
Agent (the "Exchange Agent") in
connection with the exchange offer.
Federal Income Tax
Considerations ...................... We believe the exchange of Old Notes
for New Notes pursuant to the exchange
offer will not constitute a sale or an
exchange for federal income tax
purposes. See "Certain United States
Federal Income Tax Considerations."
Effect of Not Tendering ............... Old Notes that are not tendered or
that are tendered but not accepted
will, following the completion of the
exchange offer, continue to be subject
to the existing restrictions upon
transfer. We will have no further
obligation to provide for the
registration under the Securities Act
of such Old Notes.
Summary of the Terms of the New Notes
Issuer ................................ AmeriCredit Corp.
Securities Offered .................... $175.0 million in aggregate principal
amount of 9 1/4% senior notes due
2009.
Maturity .............................. May 1, 2009.
Interest Rate ......................... 9 1/4% per year.
Interest Payment Dates ................ May 1 and November 1, beginning on
November 1, 2002. The first payment
will be made on November 1, 2002 or
May 1, 2003, if this exchange offer is
completed subsequent to November 1,
2002.
Guarantees ............................ Each Guarantor is our subsidiary.
However, not all of our subsidiaries
are guarantors of the New Notes. If we
cannot make payments on the New Notes
when they are due, the Guarantors must
make them instead.
If we create or acquire a new
subsidiary, it will guarantee the New
Notes unless we designate the
subsidiary as an "unrestricted
subsidiary" under the indenture or the
subsidiary qualifies as a
Securitization Trust.
Ranking ............................... The New Notes and the guarantees will
rank:
. equally with all of our and the
Guarantors existing and future
unsecured senior debt;
. ahead of any of our and the
Guarantors future debt that
expressly provides for
subordination to the New Notes or
the guarantees;
. subordinated to any of our and the
Guarantors secured indebtedness to
the extent of the value of the
security for that indebtedness; and
. subordinated to all indebtedness
and other liabilities (including
trade payables) of our
non-guarantor subsidiaries.
As of June 30, 2002, the Notes and the
guarantees rank effectively junior to:
-7-
. $1.8 billion of senior secured
indebtedness under our and our
non-guarantor special purpose
finance vehicles' warehouse credit
facilities; and
. $2.0 million under our Canadian
warehouse credit facility. See
"Description of Other Debt."
Optional Redemption ................... We cannot redeem the New Notes until
May 1, 2006. Thereafter we may redeem
some or all of the New Notes at the
redemption prices listed in the
"Description of the New Notes" section
under the heading "Optional
Redemption," plus accrued interest.
Optional Redemption after Public
Equity Offerings .................... At any time (which may be more than
once) before May 1, 2005, we can
choose to buy back up to 35% of the
outstanding Notes (including New
Notes) with money that we raise in
certain equity offerings, as long as:
. we pay 109.250% of the face amount
of the Notes, plus accrued
interest;
. we buy the Notes back within 45
days of completing such equity
offering; and
. at least 65% of the aggregate
principal amount of Notes issued
remains outstanding afterwards.
Change of Control Offer ............... If a change in control of the Company
occurs, we may be required to give
holders of the New Notes the
opportunity to sell us their New Notes
at 101% of their face amount, plus
accrued interest.
We might not be able to pay you the
required price for New Notes you
present to us at the time of a change
of control, because:
. we might not have enough funds at
that time; or
. the terms of our senior debt may
prevent us from paying.
Asset Sale Proceeds ................... If we engage in asset sales, we
generally may apply the net proceeds
either to repay our senior debt, make
an investment, make a capital
expenditure or acquire receivables or
other tangible assets with respect to
a permitted business. We must make an
offer to purchase a principal amount
of our Old Notes, with any excess net
cash proceeds that are not applied as
described in the preceding sentence.
The purchase price of the Old Notes
will be 100% of their principal
amount, plus accrued interest and
liquidated damages, if any, to the
date of purchase.
Certain Indenture Provisions .......... The indenture governing the New Notes
contains covenants limiting our (and
most or all of our subsidiaries')
ability to:
-8-
. sell all or substantially all of
our assets or merge or consolidate
with or into other companies;
. borrow money;
. incur liens;
. pay dividends or make other
distributions;
. make other restricted payments and
investments; and
. enter into transactions with
certain affiliates.
Further, following the first date upon
which, but only for so long as, the
Notes are rated investment grade,
certain of the covenants listed above
will no longer be applicable to the
Notes.
These covenants are subject to a
number of important limitations and
exceptions.
Risk Factors .......................... See "Risk Factors" beginning on page
12 for a description of certain of the
risks you should consider.
--------------------
Our principal executive offices are located at 801 Cherry Street, Suite
3900, Fort Worth, Texas 76102 and our telephone number is (817) 302-7000. Our
website is located at www.americredit.com. Information contained on our website
is not a part of this prospectus.
-9-
HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents certain selected historical consolidated
financial data. The historical consolidated financial information under the
captions "Statement of Income Data" and "Cash Flow Data" for each of the years
in the five-year period ended June 30, 2002 and under the caption "Balance Sheet
Data" for each of the years in the two-year period ended June 30, 2002 have been
derived from our consolidated financial statements. The consolidated financial
statements as of June 30, 2002 and June 30, 2001 and for each of the years in
the three-year period ended June 30, 2002, and the report of independent
accountants thereon, are included elsewhere herein. The selected historical
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Description of Other Debt" and our Consolidated Financial Statements (including
related notes thereto) included elsewhere in this prospectus.
Fiscal Years Ended June 30,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
(dollars in thousands)
Statement of Income Data:
Revenue:
Finance charge income .................... $ 339,430 $ 225,210 $ 124,150 $ 75,288 $ 55,837
Gain on sale of receivables .............. 448,544 301,768 209,070 169,892 103,194
Servicing fee income ..................... 389,371 281,239 170,251 85,966 47,910
Other income ............................. 12,887 10,007 6,209 4,310 2,395
---------- ---------- ---------- ---------- ----------
Total revenue ......................... 1,190,232 818,224 509,680 335,456 209,336
Costs and expenses ....................... 625,220 455,864 319,388 213,766 129,174
---------- ---------- ---------- ---------- ----------
Income before taxes ...................... 565,012 362,360 190,292 121,690 80,162
Provision for taxes ...................... 217,529 139,508 75,791 46,850 30,861
---------- ---------- ---------- ---------- ----------
Net income............................. $ 347,483 $ 222,852 $ 114,501 $ 74,840 $ 49,301
========== ========== ========== ========== ==========
Cash Flow Data:
Cash revenue:
Finance charge income.................... $ 339,430 $ 225,210 $ 124,150 $ 75,288 $ 55,837
Cash servicing fee(1).................... 227,491 187,790 126,168 73,441 37,043
Other cash revenue(2).................... 38,678 67,784 29,103 16,445 9,184
Securitization distributions............. 243,596 214,629 125,104 44,531 43,807
---------- ---------- ---------- ---------- ----------
Total cash revenue..................... 849,195 695,413 404,525 209,705 145,871
Cash expenses:
Operating expenses(3).................... 385,759 288,713 203,862 152,700 89,986
Interest expense, excluding senior
notes (4).............................. 101,082 80,086 33,537 18,490 13,620
---------- ---------- ---------- ---------- ----------
Total cash expenses.................... 486,841 368,799 237,399 171,190 103,606
---------- ---------- ---------- ---------- ----------
Cash EBIT......................... $ 362,354 $ 326,614 $ 167,126 $ 38,515 $ 42,265
========== ========== ========== ========== ==========
Credit enhancement deposits................. $ 185,995 $ 123,008 $ 120,000 $ 82,750 $ 56,725
Other Data:
Auto loan originations...................... $8,929,352 $6,378,652 $4,427,945 $2,879,796 $1,737,813
Auto loans securitized...................... $8,608,909 $5,300,004 $3,999,999 $2,770,000 $1,637,499
Number of branches.......................... 251 232 196 176 129
Managed Data:
Net margin(5)............................... $1,539,115 $ 997,501 $ 643,658 $ 400,090 $ 220,405
Net charge-offs............................. 573,818 301,691 214,276 147,344 88,002
Operating expenses.......................... 424,131 308,453 223,219 165,345 94,484
Managed auto receivables.................... 14,762,461 10,203,746 6,649,981 4,105,468 2,302,516
Average managed auto receivables ........... 12,464,346 8,291,636 5,334,580 3,129,463 1,649,416
Average principal amount per managed
auto receivable (in dollars)........... 13,129 12,384 11,706 11,209 10,782
Managed auto receivables greater than 60
days delinquent........................ 485,018 250,091 150,624 73,512 59,175
Delinquencies as a percentage of managed
auto receivables....................... 3.3% 2.5% 2.3% 1.8% 2.6%
Net charge-offs as a percentage of average
managed auto receivables............... 4.6% 3.6% 4.0% 4.7% 5.3%
-10-
Fiscal Years Ended June 30,
---------------------------------------------------
2002 2001 2000 1999 1998
--------- -------- -------- ------ -------
(dollars in thousands)
Ratios:
Ratio of earnings of fixed charges(6) ........... 4.9x 4.0x 3.6x 3.9x 4.0x
Percentage of total indebtedness to total
capitalization ............................... 61.0% 64.6% 58.0% 55.9% 54.7%
Return on average common equity ................. 27.5% 26.0% 21.6%(7) 22.0% 20.1%
Operating expenses as a percentage of
average managed auto receivables ............. 3.4% 3.7% 4.1% 5.0% 5.4%
Percentage of senior unsecured debt to total
equity ....................................... 29.2% 35.4% 54.5% 93.8% 60.8%
June 30,
2002
----------------------------
As June 30,
Actual Adjusted(8) 2001
------ -------- -----------
(dollars in thousands)
Balance Sheet Data:
Cash and cash equivalents ................................... $ 119,445 $ 589,795 $ 77,053
Credit enhancement assets (9) ............................... 1,549,132 1,549,132 1,151,275
Receivables held for sale, net .............................. 2,198,391 2,198,391 1,921,465
Total assets ................................................ 4,224,931 4,695,281 3,384,907
Warehouse credit facilities ................................. 1,751,974 1,751,974 1,502,879
Credit enhancement facility ................................. -- -- 3,319
Senior notes ................................................ 418,074 418,074 375,000
Other notes payable ......................................... 66,811 66,811 23,077
Total debt .................................................. 2,236,859 2,236,859 1,937,275
Shareholders' equity ........................................ 1,432,316 1,902,666 1,060,196
Credit Statistics:
Senior notes/Cash EBIT ...................................... 1.2x 1.2x 1.1x
Cash EBIT/Senior notes interest expense ..................... 10.4x 10.4x 9.1x
- ---------------------------
(1) Cash servicing fee consists of servicing fee income less accretion of
present value discount.
(2) Other cash revenue consists of other income and cash gain on sale, loss on
retirement and discount on issuance of senior notes.
(3) Represents operating expenses, less depreciation and amortization.
(4) Represents interest expense, excluding interest expense on senior notes.
(5) Net Margin is the difference between (a) finance charge, fee and other
income earned on our receivables and (b) the cost to fund the receivables.
Net margin is a calculation that assumes that securitized receivables have
not been sold or are still on our consolidated balance sheet. Net margin is
not a measurement of financial performance under generally accepted
accounting principles and should not be considered as an alternative to any
other measures of performance derived in accordance with generally accepted
accounting principles.
(6) Represents the ratio of the sum of income before taxes plus fixed charges
for the period to fixed charges. Fixed charges, for the purpose of this
computation, represents interest and a portion of rentals representative of
an implicit interest factor for such rentals.
(7) Excludes charge for the closing of our mortgage business in fiscal 2002.
(8) The as adjusted balance sheet data have been calculated giving effect to
the follow-on offering of our common stock and the application of the net
proceeds therefrom as if it had occurred on June 30, 2002.
(9) Credit enhancement assets consist of restricted cash, investments in trust
receivables and interest-only receivables from trusts. See Note 3 of Notes
to Consolidated Financial Statements.
-11-
RISK FACTORS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT
INCLUDING, IN PARTICULAR, THE STATEMENTS ABOUT THE COMPANY'S PLANS, STRATEGIES,
AND PROSPECTS UNDER THE HEADINGS "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," AND "BUSINESS."
ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN OR
SUGGESTED BY SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN GIVE NO
ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE
COMPANY OR PERSONS ACTING ON OUR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE FOLLOWING CAUTIONARY STATEMENTS.
Risks Relating to the Exchange Offer
If you do not properly tender your Old Notes, you will continue to hold
unregistered Old Notes and your ability to transfer Old Notes will be adversely
affected.
We will only issue New Notes in exchange for Old Notes that are timely
received by the Exchange Agent together with all required documents, including a
properly completed and signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the Old Notes and you should
carefully follow the instructions on how to tender your Old Notes. Neither we
nor the Exchange Agent are required to tell you of any defects or irregularities
with respect to your tender of the Old Notes. If you do not tender your Old
Notes properly, then, after we consummate the exchange offer, you may continue
to hold Old Notes that are subject to the existing transfer restrictions. In
addition, if you tender your Old Notes for the purpose of participating in a
distribution of the New Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale of the New Notes. If you are a broker-dealer that
receives New Notes for your own account in exchange for Old Notes that you
acquired as a result of market-making activities or any other trading
activities, you will be required to acknowledge that you will deliver a
prospectus in connection with any resale of such New Notes. After the exchange
offer is consummated, if you continue to hold any Old Notes, you may have
difficulty selling them because there will be less Old Notes outstanding. In
addition, if a large amount of Old Notes are not tendered or are tendered
improperly, the limited amount of New Notes that would be issued and outstanding
after we consummate the exchange offer could lower the market price of such New
Notes.
Risks Relating to the Notes
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our obligations under the Notes.
We currently have, and will continue to have, a substantial amount of
outstanding indebtedness. On June 30, 2002, we had total indebtedness of
$2,236.9 million (of which $175.0 million would have consisted of the Notes).
Our ability to make payments of principal or interest on, or to refinance, our
indebtedness will depend on:
. our future operating performance; and
. our ability to enter into additional securitizations and debt
and equity financings, which, to a certain extent, is subject
to economic, financial, competitive and other factors beyond
our control.
If we are unable to generate sufficient cash flow in the future to
service our debt, we may be required to refinance all or a portion of our
existing debt or to obtain additional financing. There can be no assurance that
any refinancings will be possible or that any additional financing could be
obtained on terms acceptable to us. The
-12-
inability to obtain additional financing could have a material adverse effect on
our financial position, liquidity and results of operations.
Our substantial indebtedness creates risks to the holders of the Notes,
including:
. we may be unable to satisfy our obligations under the Notes
and our outstanding senior notes;
. we may be more vulnerable to adverse general economic and
industry conditions;
. we may find it more difficult to fund future working capital,
capital expenditures, acquisitions, general corporate purposes
or other purposes; and
. we may have to dedicate a substantial portion of our cash
resources to the payments on our outstanding indebtedness,
thereby reducing the funds available for operations and future
business opportunities.
Despite current indebtedness levels, we and our subsidiaries may still be able
to incur substantially more debt, and this could further exacerbate the risks
described above.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit us
or our subsidiaries from doing so. If new debt is added to our and our
subsidiaries' current debt levels, the related risks that we and they now face
could intensify. See "Capitalization," "Selected Consolidated Financial Data"
and "Description of the New Notes--Repurchase at the Option of Holders--Change
of Control" and "Description of Other Debt."
To service our debt, we will require a significant amount of cash. Our ability
to generate cash depends on many factors.
Our ability to make payments on and to refinance our indebtedness and
to fund our operations and planned capital expenditures depends on our ability
to generate cash in the future. This, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
We require substantial amounts of cash to fund our contract purchase
and securitization activities. Although we have historically recognized a gain
on the sale of receivables upon the closing of a securitization, we typically
receive the cash representing that gain over the actual life of the receivables
securitized. We also incur significant transaction costs in connection with a
securitization. Furthermore, we may be required to make substantial estimated
federal income tax payments before we receive distributions of excess cash flow
from securitization trusts. Accordingly, our strategy of securitizing
substantially all of our newly purchased receivables and increasing the number
of contracts purchased will require substantial amounts of cash.
We expect to continue to require substantial amounts of cash even as we
implement strategies to moderate our growth. Our primary cash requirements
include the funding of:
. contract purchases pending their securitization and sale;
. credit enhancement requirements in connection with the
securitization and sale of the receivables;
. interest and principal payments under our warehouse credit
facilities, our senior notes and other indebtedness;
. fees and expenses incurred in connection with the servicing of
securitized receivables;
. capital expenditures for technology and facilities;
. ongoing operating expenses; and
-13-
. income tax payments.
Our primary sources of liquidity in the future are expected to be:
. excess cash flow received from securitization trusts;
. sales of automobile receivables through securitizations;
. borrowings under our warehouse credit facilities;
. cash flow from operating activities, excluding purchases and sales
of receivables; and
. further issuances of debt or equity securities, depending on
capital market conditions.
We believe that we will continue to require the execution of
securitization transactions and the renewal of our existing warehouse
facilities, in order to fund our future liquidity needs. There can be no
assurance that funding will be available to us through these sources or, if
available, that it will be on terms acceptable to us. If these sources of
funding are unavailable to us on a regular basis, we will be required to
significantly decrease loan origination activities and implement significant
expense reductions, all of which may have a material adverse affect on our
ability to achieve our business and financial objectives.
Our warehouse credit facilities and indentures restrict our operations.
Our existing indentures restrict our ability to, among other things:
. sell or transfer assets;
. incur additional debt;
. repay other debt;
. pay dividends;
. make certain investments or acquisitions;
. repurchase or redeem capital stock;
. engage in mergers or consolidations; and
. engage in certain transactions with subsidiaries and affiliates.
Our warehouse credit facilities and our indentures also require us to
comply with certain financial ratios, covenants and asset quality maintenance
requirements. These restrictions may interfere with our ability to obtain
financing or to engage in other necessary or desirable business activities.
If we cannot comply with the requirements in our warehouse credit
facilities and/or our indentures, then the lenders may require us to repay
immediately all of the outstanding debt under them. If our debt payments were
accelerated, our assets might not be sufficient to fully repay our debt. These
lenders may require us to use all of our available cash to repay our debt,
foreclose upon their collateral or prevent us from making payments to other
creditors on certain portions of our outstanding debt.
We may not be able to obtain a waiver of these provisions or refinance
our debt, if needed. In such a case, our financial condition, liquidity and
results of operations would suffer.
-14-
Because of our holding company structure and the security interests our
subsidiaries have granted in their assets, the repayment of the Notes will be
effectively subordinated to substantially all of our other debt.
We derive substantially all of our revenues from our subsidiaries and
from our interests in securitization trusts. The Old Notes are, and the New
Notes will be, unsecured obligations of AmeriCredit Corp. The Old Notes are, and
the New Notes will be, effectively junior in right of payment to all of our
secured indebtedness, including any existing and future credit enhancement
agreements. Holders of any secured indebtedness of ours or our subsidiaries or
the securitization trusts will have claims that are prior to the claims of the
holders of any debt securities issued by us with respect to the assets securing
most of our other indebtedness. Notably, we and most of our subsidiaries,
including the subsidiaries which are guarantors of the Notes, are parties to the
warehouse credit facilities which are secured by liens on all of the receivables
financed under them and certain of ours and our subsidiaries' other assets. Any
debt securities issued by us, including the Notes, will be effectively
subordinated to that secured indebtedness. As of June 30, 2002, the aggregate
amount of secured indebtedness of ours and our subsidiaries was approximately
$1.8 billion and approximately $210.0 million would have been available for
additional borrowing under our warehouse credit facilities.
If we defaulted under our obligations under the warehouse credit
facilities, the lenders could proceed against the collateral granted to them to
secure that indebtedness. If any senior indebtedness were to be accelerated, we
cannot assure you that our assets would be sufficient to repay in full that
indebtedness and our other indebtedness, including any debt securities issued by
us. In addition, upon any distribution of assets pursuant to any liquidation,
insolvency, dissolution, reorganization or similar proceeding, the holders of
secured indebtedness will be entitled to receive payment in full from the
proceeds of the collateral securing our secured indebtedness before the holders
of the Notes will be entitled to receive any payment with respect thereto. As a
result, the holders of the Notes may recover proportionally less than holders of
secured indebtedness.
Our company is a holding company. Our only source of cash is from distributions
from our subsidiaries.
We are a holding company with no operations of our own. We conduct all
of our business through our subsidiaries. Our only significant asset is the
outstanding capital stock of our subsidiaries. We are wholly dependent on the
cash flow of our subsidiaries and dividends and distributions to us from our
subsidiaries in order to service our current indebtedness, including payment of
principal, premium, if any, and interest on any indebtedness of our company and
any of our future obligations. Our non-guarantor subsidiaries and special
purpose finance vehicles are separate and distinct legal entities and will have
no obligation, contingent or otherwise, to pay any amounts due pursuant to any
of our indebtedness or to make any funds available therefor. The ability of our
subsidiaries to pay any dividends and distributions will be subject to, among
other things, the terms of any debt instruments of our subsidiaries then in
effect and applicable law. We cannot assure you that our subsidiaries will
generate cash flow sufficient to pay dividends or distributions to us in order
to pay interest or other payments on existing indebtedness or the Notes.
Our rights, and the rights of our creditors, to participate in the
distribution of assets of any of our subsidiaries upon that subsidiary's
liquidation or reorganization will be subject to the prior claims of that
subsidiary's creditors, except to the extent that we are recognized as a
creditor of that subsidiary in which case our claims would still be subject to
the claims of any secured creditor of that subsidiary. As of June 30, 2002, the
aggregate amount of debt and other obligations of our subsidiaries (including
long-term debt, guarantees of our debt, current liabilities and other
liabilities) was approximately $2.1 billion, of which approximately $1.8 billion
was debt in connection with our warehouse credit facilities.
Your right to receive payments on the Notes could be adversely affected if any
of our non-guarantor subsidiaries and other special purpose finance vehicles
declares bankruptcy, liquidates or reorganizes.
Some but not all of our subsidiaries guarantee the Notes. In a
bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment of their claims from the assets of those
subsidiaries before any assets are made available for distribution to us.
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In addition, a substantial portion of our business is conducted through
certain wholly-owned subsidiaries which are limited purpose entities and are
subject to substantial contractual restrictions. The non-guarantor special
purpose finance vehicles will not be guarantors with respect to any debt
securities issued by us, including the Notes. All financings by us under our
three domestic warehouse credit facilities are secured by a first priority lien
on the receivables and related assets held by our non-guarantor special purpose
finance vehicles. The auto receivables owned by the non-guarantor special
purpose finance vehicles will not be available to satisfy claims by our
creditors, including any claims made under the Notes. Because the non-guarantor
special purpose finance vehicles are not guarantors of the Notes, any debt
securities issued by us will be structurally subordinated to all indebtedness
and other obligations of the non-guarantor special purpose finance vehicles.
AFS Funding Corp. is also subject to certain contingent claims by
Financial Security Assurance relating to the financial guaranty insurance
policies issued by Financial Security Assurance in connection with our
securitizations. We have agreed to reimburse Financial Security Assurance, on a
limited recourse basis, for amounts paid by Financial Security Assurance under
these financial guaranty insurance policies. In order to secure those
reimbursement obligations, we have granted to Financial Security Assurance a
lien on the capital stock and some assets of AFS Funding Corp. Financial
Security Assurance will have claims that are prior to the claims of the holders
of debt securities issued by us, including the Notes, with respect to these
assets and the debt securities issued by us, including the Notes, will be
effectively subordinated to all of these reimbursement rights. Substantially all
of AFS Funding Corp.'s other assets are credit enhancement assets consisting of
subordinated interests in our securitizations that are effectively subordinated
to the asset-backed securities issued in our securitizations. As of June 30,
2002, credit enhancement assets were approximately $1.5 billion. We can give you
no assurance that our operations, independent of AFS Funding Corp., will
generate sufficient cash flow to support payment of interest or principal on any
debt securities issued by us, including the Notes, or that dividend
distributions will be available from AFS Funding Corp. to fund these payments.
Federal and state statutes allow courts, under specific circumstances, to void
the Notes and the guarantees and require noteholders to return payments received
from us or the guarantors.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, the Notes and the guarantees could be voided, or
claims in respect of the Notes or the guarantees could be subordinated to all
other debts of ours or any Guarantor if, among other things, we or the
Guarantor, at the time the indebtedness evidenced by the Notes or its guarantee
was incurred:
. received less than reasonably equivalent value or fair
consideration for the incurrence of the indebtedness; or
. were insolvent or rendered insolvent by reason of the incurrence
of the indebtedness; or
. were engaged in a business or transaction for which our or the
Guarantor's remaining assets constituted unreasonably small
capital; or
. intended to incur, or believed that we would incur, debts beyond
our ability to pay those debts as they mature.
In addition, any payment by us or a Guarantor pursuant to the Notes or
a guarantee could be voided and required to be returned to us or that Guarantor,
or to a fund for the benefit of our creditors or the creditors of the Guarantor.
The measures of insolvency for purposes of these fraudulent transfer
laws will vary depending upon the law applied in any proceeding to determine
whether a fraudulent transfer has occurred. Generally, however, we or a
Guarantor would be considered insolvent if:
. the sum of our debts, including contingent liabilities, were
greater than the fair saleable value of all of our assets;
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. the present fair saleable value of our assets were less than the
amount that would be required to pay our probable liability on our
existing debts, including contingent liabilities, as they become
absolute and mature; or
. we could not pay our debts as they become due.
Based upon information currently available to us, we believe that the
Old Notes and the guarantees were, and that the New Notes and the guarantees
are, being incurred for proper purposes and in good faith and that we and each
of the Guarantors:
. are solvent and will continue to be solvent after giving effect to
the issuance of the Notes and the guarantees, as the case may be;
. will have enough capital for carrying on our business and the
business of each of the Guarantors after the issuance of the Notes
and the guarantees, as the case may be; and
. will be able to pay our debts.
We may not be able to repurchase our senior notes or repay debt under our
warehouse credit facilities in the event of a change of control.
Upon the occurrence of certain change of control events, holders of the
Notes may require AmeriCredit Corp. to offer to repurchase all of their Notes.
AmeriCredit Corp. may not have sufficient funds at the time of the change of
control to make the required repurchases or restrictions in our warehouse credit
facilities may not allow the repurchases. Additionally, a change of control (as
defined in our indentures) is an event of default under our warehouse credit
facilities, which would permit the lenders to accelerate the debt, which also
would cause an event of default under the indentures.
The source of funds for any repurchase required as a result of any
change of control will be our available cash or cash generated from other
sources, including borrowing, sales of assets, sales of equity or funds provided
by a new controlling entity. We cannot assure you, however, that sufficient
funds will be available at the time of any change of control to make any
required repurchases of our senior notes and to repay debt under our warehouse
credit facilities. Furthermore, the use of available cash to fund the potential
consequences of a change of control may impair our ability to obtain additional
financing in the future. Any future credit agreements or other agreements
relating to indebtedness to which we may become a party may contain similar
restrictions and provisions.
No prior market for the New Notes exists, therefore you cannot be sure that an
active trading market will develop for the New Notes.
The New Notes are a new issue of securities with no establishing
trading market and will not be listed on any securities exchange. The liquidity
of the trading market in the New Notes, and the market price quoted for the New
Notes, may be adversely affected by changes in the overall market for high yield
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a result, you cannot be
sure that an active trading market will develop for the New Notes.
Risks Relating to Our Business
Our ability to continue to purchase contracts and to fund our business is
dependent on a number of financing sources.
Dependence on Warehouse Financing. We depend on warehouse facilities with
financial institutions to finance our purchase of contracts pending
securitization. We have three domestic warehouse credit facilities with various
financial institutions providing for available borrowings of up to a total of
approximately $3,295.0 million, subject to defined borrowing bases. We have a
$250 million commercial paper facility, which matures in September 2003, a $500
million commercial paper facility which matures in November 2003, and a $2,545
million commercial
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paper facility of which $380 million matures in March 2003 and the remaining
$2,165 million matures in March 2005.
To fund Canadian auto receivables, we have a $150 million Cdn. revolving
credit agreement that matures in August 2003. We also have a $100 million Cdn.
warehouse credit facility that matures in May 2003.
We also have three medium term note facilities with administrative agents
on behalf of institutionally managed medium term note conduits that in the
aggregate provide $1,750 million of receivables financing. We have a $500
million facility that matures in December 2003, a $750 million facility which
matures in June 2004 and a $500 million facility which matures in February 2005.
We cannot guarantee that any of these financing resources will continue to
be available beyond the current maturity dates at reasonable terms or at all.
The availability of these financing sources depends on factors outside of our
control, including regulatory capital treatment for unfunded bank lines of
credit and the availability of bank liquidity in general. If we are unable to
extend or replace these facilities and arrange new warehouse credit facilities
or medium term note facilities, we will have to curtail contract purchasing and
originating activities, which would have a material adverse effect on our
financial position and results of operations.
Our warehouse credit and medium term note facilities contain restrictions
and covenants that require us to maintain specified financial ratios and satisfy
specified financial tests, including maintenance of asset quality and portfolio
performance tests. Failure to meet any of these covenants, financial ratios or
financial tests could result in an event of default under these agreements. If
an event of default occurs under these agreements, the lenders could elect to
declare all amounts outstanding under these agreements to be immediately due and
payable, enforce their interests against collateral pledged under these
agreements and restrict our ability to obtain additional borrowings under these
agreements. Our ability to meet those financial ratios and tests can be affected
by events beyond our control, and we cannot guarantee that we will meet those
financial ratios and tests.
Dependence on Securitization Program. Since December 1994, we have relied
upon our ability to aggregate and sell receivables in the asset-backed
securities market to generate cash proceeds for repayment of warehouse
facilities and to purchase additional contracts from automobile dealers.
Accordingly, adverse changes in our asset-backed securities program or in the
asset-backed securities market for automobile receivables generally could
materially adversely affect our ability to purchase and resell loans on a timely
basis and upon terms reasonably favorable to us. Any adverse change or delay
would have a material adverse effect on our liquidity and our financial
position.
Dependence on Credit Enhancement. To date, all but three of our
securitizations in the United States have utilized credit enhancement in the
form of financial guaranty insurance policies issued by Financial Security
Assurance Inc., or FSA, in order to achieve AAA/Aaa ratings. These ratings may
reduce the costs of securitizations relative to alternative forms of financing
available to us and enhance the marketability of these transactions to investors
in asset-backed securities. FSA is not required to insure our securitizations,
and there can be no assurance that they will continue to do so or that our
future securitizations will be similarly rated. FSA's willingness to insure our
future securitizations is subject to many factors beyond our control, including
concentrations of risk with FSA, FSA's own rating considerations, FSA's ability
to cede this risk to reinsurers and the performance of our portfolio for which
FSA has provided insurance. Likewise, we are not required to utilize financial
guaranty insurance policies issued by FSA or any other form of credit
enhancement in connection with our securitizations. We utilize reinsurance and
other credit enhancement alternatives to reduce the initial cash deposit related
to our securitizations. Alternatively, in lieu of relying on a financial
guaranty insurance policy, we have sold subordinate asset-backed securities in
order to provide credit enhancement for the senior asset-backed securities and
reduce the initial credit enhancement deposit required for the securitization
program. A downgrading of FSA's credit rating, FSA's withdrawal of credit
enhancement, an increase in required credit enhancement levels or the lack of
availability of alternative credit enhancements, such as reinsurance or senior
subordinated structures, for our securitization program could result in higher
interest costs for our future securitizations and larger initial cash deposit
requirements. The absence of a financial guaranty insurance policy may also
impair the marketability of our securitizations. These events could have a
material adverse effect on our financial position, liquidity and results of
operations.
Liquidity and Capital Needs. Our ability to fund our operations and planned
capital expenditures depends on our ability to generate cash in the future. This
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
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We require substantial amounts of cash to fund our contract purchase and
securitization activities. Although we have historically recognized a gain on
the sale of receivables upon the closing of a securitization, we typically
receive the cash representing that gain over the actual life of the receivables
securitized. We also incur significant transaction costs in connection with a
securitization. Furthermore, we may be required to make substantial estimated
federal income tax payments before we receive distributions of excess cash flow
from securitization trusts. Accordingly, our strategy of securitizing
substantially all of our newly purchased receivables requires substantial
amounts of cash.
We expect to continue to require substantial amounts of cash even as we
implement strategies to moderate our growth. Our primary cash requirements
include the funding of: (1) contract purchases pending their securitization; (2)
credit enhancement requirements in connection with the securitization of the
receivables; (3) interest and principal payments under warehouse facilities, our
senior notes and other indebtedness; (4) fees and expenses incurred in
connection with the securitization and servicing of receivables; (5) capital
expenditures for technology and facilities; (6) ongoing operating expenses; and
(7) income tax payments.
For our primary sources of liquidity, we depend upon operating items, such
as finance charges on loans held prior to securitization, servicing fees and
distributions from securitization trusts, borrowings under our warehouse credit
facilities, sales of automobile receivables through securitizations and
issuances of debt or equity securities.
On September 12, 2002, Moody's Investors Service announced its intention to
review us for a potential credit rating downgrade. On September 17, 2002, Fitch
Ratings announced that it had placed our senior debt rating on Rating Watch
Negative. In the event of a downgrade, certain of our derivative collateral
lines will be reduced. We anticipate that the reductions in these derivative
collateral lines would require us to pledge an additional $25 million to $40
million in cash to maintain our open derivative positions.
We believe that we will continue to require the execution of securitization
transactions and the renewal of our existing warehouse facilities, in order to
fund our future liquidity needs. There can be no assurance that funding will be
available to us through these sources or, if available, that it will be on terms
acceptable to us. If these sources of funding are unavailable to us on a regular
basis, we will be required to significantly decrease loan origination activities
and implement significant expense reductions, all of which may have a material
adverse affect on our ability to achieve our business and financial objectives.
Our substantial indebtedness could adversely affect our financial health.
We currently have substantial outstanding indebtedness. Our ability to make
payments of principal or interest on, or to refinance, our indebtedness will
depend on our future operating performance and our ability to enter into
additional securitizations and debt and equity financings, which is subject to
economic, financial, competitive and other factors beyond our control.
If we are unable to generate sufficient cash flow in the future to service
our debt, we may be required to refinance all or a portion of our existing debt
or to obtain additional financing. There can be no assurance that any
refinancing would be possible or that any additional financing could be obtained
on acceptable terms. The inability to obtain additional financing could have a
material adverse effect on our financial position, liquidity and results of
operations.
The warehouse credit facilities and the senior note indentures also require
us to comply with certain financial ratios, covenants and asset quality
maintenance requirements. These restrictions may interfere with our ability to
obtain financing, may reduce our access to cash or interfere in our ability to
engage in other necessary or desirable business activities. In addition, certain
of our warehouse credit facilities contain provisions resulting in higher
borrowing costs or acceleration of outstanding indebtedness in the event of a
downgrade of our senior unsecured debt.
If we cannot comply with the requirements in our warehouse credit
facilities and our senior note indentures, or if our senior debt ratings are
downgraded, then the lenders may require us to immediately repay all of the
outstanding debt under our facilities or may increase our borrowing costs. If
our debt payments were accelerated, our assets might not be sufficient to fully
repay the debt. These lenders may also require us to use all of our available
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cash to repay our debt, foreclose upon their collateral or prevent us from
making payments to other creditors on certain portions of our outstanding debt.
We may not be able to obtain a waiver of these provisions or refinance our
debt, if needed. In such a case, our business, results of operations, liquidity
and financial condition would suffer.
Defaults and prepayments on contracts purchased or originated by us could
adversely affect our operations.
Our results of operations, financial condition and liquidity depend, to a
material extent, on the performance of contracts purchased and held by us prior
to their sale in a securitization transaction as well as the subsequent
performance of receivables sold to securitization trusts. Obligors under
contracts acquired or originated by us may default or prepay during the period
prior to their sale in a securitization transaction or if they remain owned by
us. We bear the full risk of losses resulting from defaults during such period.
The longer we hold contracts prior to their sale in a securitization, the longer
we are exposed to this risk. In the event of a default, the collateral value of
the financed vehicle usually does not cover the outstanding loan balance and
costs of recovery. We maintain an allowance for loan losses on loans held for
sale by us, which reflects management's estimates of inherent losses for these
loans. If the allowance is inadequate, then we would recognize as an expense the
losses in excess of that allowance, and results of operations could be adversely
affected. In addition, under the terms of the securitizations and our warehouse
facilities, we are not able to borrow against or sell defaulted loans and loans
greater than 30 days delinquent held by us.
We also retain a substantial portion of the default and prepayment risk
associated with the receivables that we sell pursuant to our securitizations. A
large component of the gain historically recognized on these sales and the
corresponding assets recorded on our balance sheet are credit enhancement assets
which consist of investments in trust receivables, or overcollateralization,
restricted cash and interest-only receivables from trusts. Interest-only
receivables from trusts are based on the present value of estimated future
excess cash flows from the securitized receivables expected to be received by
us. Credit enhancement assets are calculated on the basis of management's
assumptions concerning, among other things, defaults. Actual defaults may vary
from management's assumptions, possibly to a material degree. As of June 30,
2002, credit enhancement assets totaled $1,549 million.
In connection with our recent decision to alter the structure of our future
securitizations to be accounted for as financings rather than sales, we will
bear the full risk of losses from defaults during the term of the contracts,
even though these contracts may be securitized.
We are required to deposit substantial amounts of the cash flows generated
by our interests in our securitizations into additional credit enhancement.
Credit enhancement assets related to our securitizations that have involved the
issuance of financial guaranty insurance policies are currently pledged to FSA
as security for our obligation to reimburse FSA for any amounts that may be paid
out on financial guaranty insurance policies. Credit enhancement assets related
to our securitizations that have involved the sale of subordinate securities
rather than the issuance of financial guaranty insurance policies also cannot be
accessed by us since these assets are available only as security to protect
investors in such securitizations against losses.
We regularly measure our default and other assumptions against the actual
performance of securitized receivables. If we were to determine, as a result of
such regular review or otherwise, that we underestimated defaults, or that any
other material assumptions were inaccurate, we would be required to reduce the
carrying value of our credit enhancement assets. If the change in assumptions
and the impact of the change on the value of the credit enhancement assets were
deemed other than temporary, we would record a charge to income. Future cash
flows from securitization trusts may also be less than expected, and our results
of operations and liquidity would be adversely affected, possibly to a material
degree. In addition, an increase in defaults would reduce the size of our
servicing portfolio, which would reduce our servicing fee income, further
adversely affecting results of operations and cash flow. A material write-down
of credit enhancement assets and the corresponding decreases in earnings and
cash flow could limit our ability to service debt and to enter into future
securitizations and other financings. Although we believe that we have made
reasonable assumptions as to the future cash flows of the various pools of
receivables that have been sold in securitization transactions, actual rates of
default may differ from those assumed, and other assumptions may be required to
be revised upon future events.
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The negative performance of auto contracts in our portfolio could adversely
affect our cash flow and servicing rights.
Generally, the form of credit enhancement agreement we enter into with FSA
in connection with securitization transactions contains specified limits on the
delinquency, default and loss rates on the receivables included in each
securitization trust. If, at any measurement date, the delinquency, default or
loss rate with respect to any trust were to exceed the specified limits,
provisions of the credit enhancement agreement would automatically increase the
level of credit enhancement requirements for that trust, if a waiver was not
obtained. During the period in which the specified delinquency, default and loss
rates were exceeded, excess cash flow, if any, from the trust would be used to
fund the increased credit enhancement levels instead of being distributed to us,
which would have an adverse effect on our cash flow. Further, the credit
enhancement requirements for each securitization trust in which FSA issues a
financial guaranty insurance policy are cross-collateralized to the credit
enhancement requirements established in connection with each of our other
insured securitization trusts, so that excess cash flow from a performing
securitization trust insured by FSA may be used to support increased credit
enhancement requirements for a non-performing securitization trust insured by
FSA, which would further restrict excess cash flow available to us.
As of August 31, 2002, none of our insured securitizations had delinquency,
default or net loss ratios in excess of the targeted levels. However, as a
result of expected seasonal increases in delinquency levels through February
2003 and the prospects for continued economic weakness, we believe that it is
likely that the initially targeted delinquency ratios will be exceeded in
certain of our insured securitizations during that period. In September 2002,
the insurer agreed to revise the targeted delinquency trigger levels through and
including the March 2003 distribution date. As a result, we do not expect to
exceed the revised targets with respect to any trusts that are insured by our
bond insurer. The amount of excess cash flow expected to be received by us
during this period is approximately $100 million. We anticipate that expected
seasonal improvements in delinquency levels after February 2003 will result in
the ratios being reduced below applicable target levels. However, further
deterioration in the economy subsequent to March 2003 could cause targeted
ratios to be exceeded, resulting in greater stress on our liquidity position in
the event additional waivers are not granted. We may be required to
significantly decrease loan origination activities and implement other
significant expense reductions if securitization distributions to us are
materially decreased for a prolonged period of time.
The credit enhancement agreements that we enter into with FSA in connection
with securitization transactions contain additional specified limits on the
delinquency, default and loss rates on the receivables included in each trust
which are higher than the limits referred to in the preceding paragraph. If, at
any measurement date, the delinquency, default or loss rate with respect to any
trust insured by FSA were to exceed these additional specified limits applicable
to that trust, provisions of the credit enhancement agreements permit FSA to
terminate our servicing rights to the receivables sold to that trust. In
addition, the servicing agreements on FSA insured securitization trusts are
cross-defaulted so that a default under one servicing agreement would allow FSA
to terminate our servicing rights under all servicing agreements concerning
securitization trusts in which FSA issues a financial guaranty insurance policy.
Although we have never exceeded these delinquency, default or loss rates, and
believe that we can manage the portfolio to avoid exceeding the revised FSA
limits, there can be no assurance that our servicing rights with respect to the
automobile receivables in these trusts or any other trust which exceeds the
specified limits in future periods will not be terminated. FSA has other rights
to terminate us as servicer for FSA insured securitization trusts if:
. we were to breach our obligations under the servicing agreements;
. FSA was required to make payments under its policies; or
. certain bankruptcy or insolvency events were to occur.
As of August 31, 2002, no such termination events have occurred with
respect to any of the trusts formed by us.
Failure to implement our business strategy could adversely affect our
operations.
Our financial position and results of operations depend on our management's
ability to execute our business strategy. Key factors involved in the execution
of the business strategy include:
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. achieving the desired contract purchase volume;
. continued and successful use of proprietary scoring models for risk
assessment and risk-based pricing;
. the use of sophisticated risk management techniques;
. continued investment in technology to support operating efficiency and
growth; and
. continued access to significant funding and liquidity sources.
Our failure or inability to execute any element of our business strategy
could materially adversely affect our financial position, liquidity and results
of operations.
Continued expansion of our loan production capacity depends on our ability
to increase dealer penetration in our existing markets and on establishing and
developing new channels to provide auto financing directly to the consumer. The
success of this strategy is dependent upon, among other factors, our ability to
hire and retain qualified personnel, to develop relationships with more dealers
and to expand our current relationships with existing dealer customers. We are
faced with intense competition in attracting key personnel and establishing
relationships with new dealers. Dealers often already have favorable non-prime
financing sources, which may restrict our ability to develop dealer
relationships and delay our growth. In addition, the competitive conditions in
our market may result in a reduction in the profitability of the contracts that
we purchase or a decrease in contract acquisition volume, which would adversely
affect our results of operations.
The growth of our managed portfolio has resulted in increased need for
additional personnel and expansion of systems capacity. Our ability to support,
manage and control growth is dependent upon, among other things, our ability to
hire, train, supervise and manage our growing workforce. There can be no
assurance that we will have trained personnel and systems adequate to support
our business strategy.
There is a high degree of risk associated with non-prime borrowers.
We specialize in purchasing and servicing non-prime automobile receivables.
Non-prime borrowers are associated with higher-than-average delinquency and
default rates. While we believe that we effectively manage these risks with our
proprietary credit scoring system, risk-based loan pricing and other
underwriting policies and collection methods, no assurance can be given that
these criteria or methods will be effective in the future. In the event that we
underestimate the default risk or under-price contracts that we purchase, our
financial position, liquidity and results of operations would be adversely
affected, possibly to a material degree.
We are subject to general economic conditions which are beyond our control.
General. During periods of economic slowdown or recession, such as the
United States economy is experiencing, delinquencies, defaults, repossessions
and losses generally increase. These periods also may be accompanied by
decreased consumer demand for automobiles and declining values of automobiles
securing outstanding loans, which weakens collateral coverage and increases the
amount of a loss in the event of default. Significant increases in the inventory
of used automobiles during periods of economic recession may also depress the
prices at which repossessed automobiles may be sold or delay the timing of these
sales. Because we focus on non-prime borrowers, the actual rates of
delinquencies, defaults, repossessions and losses on these loans are higher than
those experienced in the general automobile finance industry and could be more
dramatically affected by a general economic downturn. In addition, during an
economic slow down or recession, our servicing costs may increase without a
corresponding increase in our servicing fee income. While we seek to manage the
higher risk inherent in loans made to non-prime borrowers through the
underwriting criteria and collection methods we employ, no assurance can be
given that these criteria or methods will afford adequate protection against
these risks. Any sustained period of increased delinquencies, defaults,
repossessions or losses or increased servicing costs could also adversely affect
our financial position, liquidity and results of operations and our ability to
enter into future securitizations.
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Wholesale Auction Values. We sell repossessed automobiles at wholesale
auction markets located throughout the United States and Canada. Auction
proceeds from the sale of repossessed vehicles and other recoveries are usually
not sufficient to cover the outstanding balance of the contract, and the
resulting deficiency is charged-off. Decreased auction proceeds resulting from
the depressed prices at which used automobiles may be sold during periods of
economic slowdown or recession, such as the United States economy is
experiencing, will result in higher credit losses for us. Furthermore, depressed
wholesale prices for used automobiles may result from significant liquidations
of rental or fleet inventories, and from increased volume of trade-ins due to
promotional financing programs offered by new vehicle manufacturers. Our
recoveries as a percentage of repossession charge-offs declined to 48% in fiscal
2002 from 51% in fiscal 2001 and 53% in fiscal 2000, and there can be no
assurance that our recovery rates will stabilize or improve in the future.
Interest Rates. Our profitability may be directly affected by the level of
and fluctuations in interest rates, which affects the gross interest rate spread
we earn on our receivables. As the level of interest rates increase, our gross
interest rate spread on new originations will generally decline since the rates
charged on the contracts originated or purchased from dealers are limited by
statutory maximums, restricting our opportunity to pass on increased interest
costs. We believe that our profitability and liquidity could be adversely
affected during any period of higher interest rates, possibly to a material
degree. We monitor the interest rate environment and employ pre-funding and
other hedging strategies designed to mitigate the impact of changes in interest
rates. We can provide no assurance, however, that pre-funding or other hedging
strategies will mitigate the impact of changes in interest rates.
Labor Market Conditions. Competition to hire personnel possessing the
skills and experience we require could contribute to an increase in our employee
turnover rate. High turnover or an inability to attract and retain qualified
replacement personnel could have an adverse effect on our delinquency, default
and net loss rates and, ultimately, our financial condition, results of
operations and liquidity.
We may be unable to successfully compete in our industry.
Competition in the field of non-prime automobile finance is intense. The
automobile finance market is highly fragmented and is served by a variety of
financial entities including:
. the captive finance affiliates of major automotive manufacturers;
. banks;
. thrifts;
. credit unions; and
. independent finance companies.
Many of these competitors have substantially greater financial resources
and lower costs of funds than we do. In addition, our competitors often provide
financing on terms more favorable to automobile purchasers or dealers than we
offer. Many of these competitors also have long standing relationships with
automobile dealerships and may offer dealerships or their customers other forms
of financing, including dealer floor plan financing and leasing, which we do not
provide. Providers of automobile financing have traditionally competed on the
basis of interest rates charged, the quality of credit accepted, the flexibility
of loan terms offered and the quality of service provided to dealers and
customers. In seeking to establish ourselves as one of the principal financing
sources at the dealers we serve, we compete predominately on the basis of our
high level of dealer service and strong dealer relationships and by offering
flexible loan terms. There can be no assurance that we will be able to compete
successfully in this market or against these competitors.
Our business would be adversely affected if we lost our licenses or if in the
future more burdensome government regulations were enacted.
Our operations are subject to regulation, supervision and licensing under
various federal, state and local statutes, ordinances and regulations.
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In most states in which we operate, a consumer credit regulatory agency
regulates and enforces laws relating to consumer lenders and sales finance
agencies such as us. These rules and regulations generally provide for licensing
of sales finance agencies, limitations on the amount, duration and charges,
including interest rates, for various categories of loans, requirements as to
the form and content of finance contracts and other documentation, and
restrictions on collection practices and creditors' rights. In certain states,
we are subject to periodic examination by state regulatory authorities. Some
states in which we operate do not require special licensing or provide extensive
regulation of our business.
We are also subject to extensive federal regulation, including the Truth in
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
These laws require us to provide certain disclosures to prospective borrowers
and protect against discriminatory lending practices and unfair credit
practices. The principal disclosures required under the Truth in Lending Act
include the terms of repayment, the total finance charge and the annual
percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants on the basis of race,
color, sex, age or marital status. Pursuant to Regulation B promulgated under
the Equal Credit Opportunity Act, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. In addition, the
credit scoring system we use must comply with the requirements for such a system
as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair
Credit Reporting Act requires us to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer reporting agency. Additionally, we are subject to the
Gramm-Leach-Bliley Act, which requires us to maintain privacy with respect to
certain consumer data in our possession and to periodically communicate with
consumers on privacy matters. We are also subject to the Soldiers' and Sailors'
Civil Relief Act, which requires us to reduce the interest rate charged on each
loan to customers who have subsequently joined the military.
The dealers who originate automobile finance contracts we purchase also
must comply with both state and federal credit and trade practice statutes and
regulations. Failure of the dealers to comply with these statutes and
regulations could result in consumers having rights of rescission and other
remedies that could have an adverse effect on us.
We believe that we maintain all material licenses and permits required for
our current operations and are in substantial compliance with all applicable
local, state and federal regulations. There can be no assurance, however, that
we will be able to maintain all requisite licenses and permits, and the failure
to satisfy those and other regulatory requirements could have a material adverse
effect on our operations. Further, the adoption of additional, or the revision
of existing, rules and regulations could have a material adverse effect on our
business.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer.
-24-
THE EXCHANGE OFFER
Purpose and Effect
We sold the Old Notes on June 19, 2002 to Bear, Stearns & Co. Inc.,
Deutsche Bank Securities, JP Morgan and RBC Capital Markets, as the initial
purchasers, pursuant to a purchase agreement. The initial purchasers
subsequently resold the Old Notes under Rule 144A under the Securities Act. As
part of the offering of the initial notes, we entered into the Registration
Rights Agreement. The Registration Rights Agreement requires, unless the
exchange offer is not permitted by applicable law or Commission policy, that we
. file an Exchange Offer Registration Statement with the Commission
on or prior to 90 days after the Closing Date;
. use our best efforts to cause the Exchange Offer Registration
Statement to be declared effective by the Commission within 150
days of June 19, 2002; and
. consummate the exchange offer within 30 business days after the
registration statement is declared effective by the Commission.
Except as provided below, upon the completion of the exchange offer,
the Company's obligations with respect to the registration of the Old Notes and
the New Notes will terminate. A copy of the Registration Rights Agreement is
incorporated by reference as an exhibit to the registration statement, of which
this prospectus is a part, and this summary of the material provisions of the
Registration Rights Agreement does not purport to be complete and is qualified
in its entirety by reference to the complete Registration Rights Agreement.
Because the registration statement was not filed on or before September 17,
2002, we are required to pay an amount equal to $0.05 per week per $1,000 of Old
Notes as liquidated damages for the first 90-day period that we have not
complied with our registration and exchange obligations under the Registration
Rights Agreement. This amount will increase by $0.05 per week per $1,000 of Old
Notes for each successive 90-day period, up to a maximum of $0.50 per week per
$1,000 of Old Notes, until the exchange offer has been completed pursuant to the
terms of the Registration Rights Agreement. Following the completion of the
exchange offer (except as set forth in the paragraph immediately below), holders
of Old Notes not tendered will not have any further registration rights and
those Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected upon consummation of the exchange offer.
In order to participate in the exchange offer, a holder must represent
to the Company, among other things, that (a) the New Notes acquired pursuant to
the exchange offer are being obtained in the ordinary course of business of the
holder, (b) the holder is not engaging in and does not intend to engage in a
distribution of the New Notes, (c) the holder does not have an arrangement or
understanding with any person to participate in the distribution of the New
Notes and (d) the holder is not an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of the Company or the Guarantors. Under
certain circumstances specified in the Registration Rights Agreement, the
Company may be required to file a "shelf" registration statement for a
continuous offering pursuant to Rule 415 under the Securities Act in respect of
the Old Notes. See "Registration Rights." For purposes of the foregoing,
"Transfer Restricted Securities" means each Old Note until (a) the date on which
such Old Note has been exchanged by a person other than a broker-dealer for a
New Note in the exchange offer, (b) following the exchange by a broker-dealer in
the exchange offer of an Old Note for a New Note, the date on which such New
Note is sold to a purchaser who receives from such broker-dealer on or prior to
the date of such sale a copy of this prospectus, (c) the date on which such Old
Note has been effectively registered under the Securities Act and disposed of in
accordance with such "shelf" registration statement or (d) the date on which
such Old Note is distributed to the public pursuant to Rule 144 under the
Securities Act or may be distributed to the public pursuant to Rule 144(k) under
the Securities Act. See "-Procedures for Tendering Old Notes."
Based on an interpretation by the Commission's staff set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that, with the exceptions set forth below, New Notes issued pursuant to
the exchange offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than any holder which is an
"affiliate" of the Company within the meaning of
-25-
Rule 405 promulgated under the Securities Act, or a broker-dealer who purchased
Old Notes directly from the Company to resell pursuant to Rule 144A or any other
available exemption promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that the New Notes are acquired in the ordinary course of business of
the holder and the holder does not have an arrangement or understanding with any
person to participate in the distribution of such New Notes. Any holder who
tenders in the exchange offer for the purpose of participating in a distribution
of the New Notes cannot rely on this interpretation by the Commission's staff
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." Broker-dealers who acquired Old Notes directly from us
and not as a result of market-making activities or other trading activities may
not rely on the staff's interpretations discussed above or participate in the
exchange offer and must comply with the prospectus delivery requirements of the
Securities Act in order to sell the Old Notes.
Consequences of Failure to Exchange Old Notes
Following the completion of the exchange offer, holders of Old Notes
who did not tender their Old Notes, or who did not properly tender their Old
Notes, will not have any further registration rights and such Old Notes will
continue to be subject to restrictions on transfer. Accordingly, the liquidity
of the market for a holder's Old Notes could be adversely affected upon
expiration of the exchange offer if such holder elects to not participate in the
exchange offer.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this
prospectus and in the accompanying letter of transmittal, we will accept for
exchange any and all Old Notes that are validly tendered on or prior to 5:00
p.m. New York City time, on the Expiration Date. We will issue $1,000 principal
amount of New Notes in exchange for each $1,000 principal amount of the
outstanding Old Notes accepted in the exchange offer. Holders who have tendered
their Old Notes may withdraw their tender of Old Notes at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The exchange offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the exchange offer is subject to the terms and provisions of
the Registration Rights Agreement. See "--Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes they hold, provided that they appropriately
indicate this fact on the letter of transmittal accompanying the tendered Old
Notes.
The form and terms of the New Notes are substantially the same as the
form and terms of the Old Notes, except that the New Notes have been registered
under the Securities Act and will not bear legends restricting their transfer.
The New Notes will evidence the same debt as the Old Notes and will be issued
pursuant to, and entitled to the benefits of, the Indenture pursuant to which
the Old Notes were issued.
As of the date of this prospectus, $175.0 million in aggregate
principal amount of the Old Notes is outstanding. As of June 19, 2002, Cede &
Co., was the only registered holder of the Old Notes. Cede & Co. held the Old
Notes for ______ of its participants. We have fixed the close of business on
_______ __, 2002 as the record date for purposes of determining the persons to
whom we will mail this prospectus and the letter of transmittal initially. Only
a holder of the Old Notes, or such holder's legal representative or
attorney-in-fact, may participate in the exchange offer. We will not fix a
record date for determining holders of the Old Notes entitled to participate in
the exchange offer. We believe that, as of the date of this prospectus, no such
holder is our affiliate, as defined in Rule 405 under the Securities Act.
We will be deemed to have accepted validly tendered Old Notes when, as
and if we have given oral or written notice thereof to the exchange agent. The
exchange agent will act as agent for the tendering holders of Old Notes and for
the purpose of receiving the New Notes from us.
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If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Holders who tender Old Notes in the exchange offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the exchange offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer. See
"-Fees and Expenses."
Expiration Date; Extensions; Amendments
The expiration date shall be _____ __, 2002, at 5:00 p.m., New York
City time, unless we, in our sole discretion, extend the exchange offer, in
which case the expiration date shall be the latest date and time to which the
exchange offer is extended, but shall not be later than _____ __, 2002.
In order to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right, in our sole discretion,
. to delay accepting any Old Notes,
. to extend the exchange offer,
. if any of the conditions set forth below under "--Conditions of
the Exchange Offer" shall not have been satisfied, to terminate
the exchange offer, by giving oral or written notice of such
delay, extension, or termination to the exchange agent, and
. to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner we determine to constitute a
material change, we will promptly disclose such amendments by means of a
prospectus supplement that we will distribute to the registered holders of the
Old Notes. Modification of the exchange offer, including, but not limited to,
. extension of the period during which the exchange offer is open,
and
. satisfaction of the conditions set forth below under "--Conditions
of the Exchange Offer"
may require that at least five business days remain in the exchange offer.
Conditions of the Exchange Offer
Notwithstanding any other provision of the exchange offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the exchange offer if at any time
before the acceptance of such Old Notes for exchange or the exchange of the New
Notes for the Old Notes, the Company determines that the exchange offer violates
applicable law, any applicable interpretation of the staff of the Commission or
any order of any governmental agency or court of competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time from time to time.
-27-
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
Accrued Interest
The New Notes will bear interest at a rate equal to 9 1/4% per annum,
which interest shall accrue from June 19, 2002 or from the most recent interest
payment date with respect to the Old Notes to which interest was paid or duly
provided for. See "Description of the New Notes--Principal, Maturity and
Interest."
Procedures for Tendering Old Notes
Only a holder of Old Notes may tender the Old Notes in the exchange
offer. Except as set forth under "-Book Entry Transfer," to tender in the
exchange offer a holder must complete, sign, and date the letter of transmittal,
or a copy thereof, have the signatures thereon guaranteed if required by the
letter of transmittal, and mail or otherwise deliver the letter of transmittal
or copy to the Exchange Agent prior to the expiration date. In addition, (1)
certificates for the Old Notes must be received by the Exchange Agent along with
the letter of transmittal prior to the expiration date, (2) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if that procedure is available, into the Exchange Agent's account at DTC
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
expiration date or (3) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the letter of
transmittal and other required documents must be received by the Exchange Agent
at the address set forth under "The Exchange Agent; Assistance" prior to the
Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date
will constitute an agreement between that holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the letter
of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUSTS COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker-dealer, commercial bank, trust company, or other nominee and who wishes
to tender should contact the registered holder promptly and instruct the
registered holder to tender on the beneficial owner's behalf. If the beneficial
owner wishes to tender on the owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivering the owner's
Old Notes, either make appropriate arrangements to register ownership of the Old
Notes in the beneficial owner's name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined) unless
Old Notes tendered pursuant thereto are tendered (i) by a registered holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the letter of transmittal or (ii) for the
account of an Eligible Institution. If signatures on a letter of transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, the
guarantee must be by any eligible guarantor institution that is a member of or
participant in the Securities Transfer Agents Medallion Program, the New York
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Stock Exchange Medallion Signature Program or an "eligible guarantor
institution" with the meaning on Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution").
If the letter of transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, the Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old Notes.
If the letter of transmittal or any Old Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations, or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the letter of
transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any defects, irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the exchange offer (including the instructions in the letter of
transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Although the Company intends to
notify holders of defects or irregularities with respect to tenders of Old
Notes, neither the Company, the Exchange Agent, nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering holders,
unless otherwise provided in the letter of transmittal, as soon as practicable
following ______, 2002, unless the exchange offer is extended.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Notes that remain outstanding after the
expiration date or, as set forth under "-Conditions to the Exchange Offer," to
terminate the exchange offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any such purchases or offers could differ from the terms
of the exchange offer.
By tendering, each holder will represent to the Company that, among
other things, (1) the New Notes acquired pursuant to the exchange offer are
being obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the registered holder, (2) the holder
is not engaging in and does not intend to engage in a distribution of such New
Notes, (3) the holder does not have an arrangement or understanding with any
person to participate in the distribution of such New Notes and (4) the holder
is not an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed letter of
transmittal (or, with respect to the DTC and its participants, electronic
instructions in which the tendering holder acknowledges its receipt of an
agreement to be bound by the letter of transmittal), and all other required
documents. If any tendered Old Notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if Old Notes are submitted
for a greater principal amount than the holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without expense to the
tendering holder thereof (or, in the case of Old Notes tendered, by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
nonexchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the expiration or
termination of the exchange offer.
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Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with
respect to the Old Notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two business days after the date of this prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes being tendered by
causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or copy thereof, with
any required signature guarantees and any other required documents, must, in any
case other than as set forth in the following paragraph, be transmitted to and
received by the Exchange Agent at the address set forth under "--Exchange Agent;
Assistance" on or prior to the Expiration Date or the guaranteed delivery
procedures described below must be complied with.
DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To accept the exchange offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system in lieu of sending a signed, hard copy letter of
transmittal. DTC is obligated to communicate those electronic instructions to
the Exchange Agent. To tender Old Notes through ATOP, the electronic
instructions sent to DTC and transmitted by DTC to the Exchange Agent must
contain the character by which the participant acknowledges its receipt of and
agrees to be bound by the letter of transmittal.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available, or who cannot deliver their Old Notes or any other
documents required by the letter of transmittal to the Exchange Agent prior to
the expiration date, may tender their Old Notes according to the guaranteed
delivery procedures set forth in the letter of transmittal. Pursuant to such
procedures:
(1) the holder tenders through an eligible institution and signs a
notice of guaranteed delivery,
(2) on or prior to the Expiration Date, the Exchange Agent receives
from the holder and the eligible institution a written or facsimile copy of a
properly completed and duly executed notice of guaranteed delivery,
substantially in the form provided by the Company, setting forth the name and
address of the holder, the certificate number or numbers of the tendered Old
Notes, and the principal amount of tendered Old Notes, stating that the tender
is being made thereby and guaranteeing that, within five business days after the
date of delivery of the notice of guaranteed delivery, the tendered Old Notes, a
duly executed letter of transmittal and any other required documents will be
deposited by the eligible institution with the Exchange Agent, and
(3) such properly completed and executed documents required by the
letter of transmittal and the tendered Old Notes in proper form for transfer are
received by the Exchange Agent within five business days after the Expiration
Date.
Any holder who wishes to tender Old Notes pursuant to the guaranteed
delivery procedures described above must ensure that the Exchange Agent receives
the notice of guaranteed delivery and letter of transmittal relating to such Old
Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all the conditions to the exchange
offer, we will accept any and all Old Notes that are properly tendered in the
exchange offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the exchange offer will be delivered promptly
after acceptance of the Old
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Notes. For purposes of the exchange offer, we shall be deemed to have accepted
validly tendered Old Notes, when, as, and if we have given oral or written
notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted
for exchange pursuant to the exchange offer will be made only after the Exchange
Agent timely receives such Old Notes, a properly completed and duly executed
letter of transmittal and all other required documents; provided, however, we
reserve the absolute right to waive any defects or irregularities in the tender
or conditions of the exchange offer. If we do not accept any tendered Old Notes
for any reason, we will return such unaccepted Old Notes without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the exchange offer.
Withdrawal Rights
Holders may withdraw tenders of Old Notes at any time prior to 5:00
p.m., New York City time, on the Expiration Date. For the withdrawal to be
effective, the Exchange Agent must receive a written notice of withdrawal at its
address set forth on the back cover page of this prospectus. The notice of
withdrawal must:
. specify the name of the person who tendered the Old Notes to be
withdrawn (the "Depositor");
. identify the Old Notes to be withdrawn, including the certificate
number or numbers and principal amount of withdrawn Old Notes;
. be signed by the holder in the same manner as the original
signature on the letter of transmittal by which such Old Notes
were tendered, including any required signature guarantees, or be
accompanied by a bond power in the name of the person withdrawing
the tender, in satisfactory form as determined by us in our sole
discretion, duly executed by the registered holder, with the
signature thereon guaranteed by an eligible institution together
with the other documents required upon transfer by the indenture;
and
. specify the name in which such Old Notes are to be registered, if
different from the person who deposited the Old Notes, pursuant to
such documents of transfer.
We will determine all questions as to the validity, form and
eligibility, including time of receipt, of such notices in our sole discretion.
The Old Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer. Any Old Notes which have been
tendered for exchange but which are withdrawn will be returned to their holder
without cost to such holder as soon as practicable after withdrawal. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described under "The Exchange Offer--Procedures for Tendering Old Notes" at any
time on or prior to the Expiration Date.
The Exchange Agent; Assistance
Bank One, NA is the Exchange Agent. All tendered Old Notes, executed
letters of transmittal and other related documents should be directed to the
Exchange Agent. Questions and requests for assistance and requests for
additional copies of this prospectus, the letter of transmittal and other
related documents should be addressed to the exchange agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
Bank One, NA
1111 Polaris Parkway
Mail Code OH1-0184
Columbus, Ohio 43240
Attention: Exchanges
-31-
BY HAND OR OVERNIGHT COURIER:
Bank One, NA
55 Water Street, 1/st/ Floor
Geannette Park Entrance
New York, New York 10041
BY FACSIMILE:
(614) 248-9987 (OH)
Confirm by Telephone: (614) 248-4856 (OH)
Fees and Expenses
We will bear all expenses incident to the consummation of the exchange
offer and compliance with the Registration Rights Agreement, including, without
limitation: (1) all registration and filing fees, including fees and expenses of
compliance with state securities or Blue Sky laws; (2) printing expenses,
including expenses of printing certificates for the New Notes in a form eligible
for deposit with DTC and of printing prospectuses; (3) messenger, telephone and
delivery expenses; (4) fees and disbursements of our counsel; (5) fees and
disbursements of independent certified public accountants; (6) rating agency
fees; (7) our internal expenses, including all salaries and expenses of our
officers and employees performing legal or accounting duties; and (8) fees and
expenses, if any, incurred in connection with the listing of the New Notes on a
securities exchange.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer. We, however, will pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the exchange offer. If, however, a transfer tax is imposed
for any reason other than the exchange of Old Notes pursuant to the exchange
offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption is not submitted
with the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
Accounting Treatment
We will record the New Notes at the same carrying value as the Old
Notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes. We
will amortize expenses of the exchange offer over the term of the New Notes.
-32-
CAPITALIZATION
The following table sets forth certain information regarding our debt and
capitalization as of June 30, 2002, and as adjusted to reflect the receipt by us
of the net proceeds of the follow-on offering of our common stock. You should
read this information in conjunction with our consolidated financial statements
and the notes to those financial statements which are incorporated by reference
into this prospectus.
As of June 30, 2002
---------------------------
Actual As Adjusted
------ -----------
(dollars in thousands)
Cash and cash equivalents .................................. $ 119,445 $ 589,795
========== ==========
Debt:
Warehouse credit facilities ........................... $1,751,974 $1,751,974
9 1/4% Senior Notes due 2004 .......................... 39,631 39,631
9 7/8% Senior Notes due 2006 .......................... 205,548 205,548
9 1/4% Senior Notes due 2009 .......................... 172,895 172,895
Other notes payable (1) ............................... 66,811 66,811
---------- ----------
Total debt ................................ 2,236,859 2,236,859
Shareholders' equity:
Preferred stock, $0.01 par value per share;
20,000,000 shares authorized, none issued ........... -- --
Common stock, $0.01 par value per share;
230,000,000 shares authorized
91,716,416 and 158,716,416 shares issued (2) ........ 917 1,587
Additional paid-in capital ............................ 573,956 1,043,636
Accumulated other comprehensive income ................ 42,797 42,797
Retained earnings ..................................... 832,446 832,446
Treasury stock, at cost (5,899,241 shares) ............ (17,800) (17,800)
---------- ----------
Total shareholders' equity ........................ 1,432,316 1,902,666
---------- ----------
Total capitalization ......................... $3,669,175 $4,139,525
========== ==========
(1) Consists of certain capitalized equipment leases and construction
financing.
(2) Does not include shares of common stock reserved for issuance under our
stock option plans and 1,287,691 shares of common stock issuable under
warrants to be issued to our bond insurer.
-33-
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents certain selected historical consolidated
financial data. The historical consolidated financial information under the
captions, "Statement of Income Data" and "Cash Flow Data" for each of the years
in the five-year period ended June 30, 2002 and under the caption "Balance Sheet
Data" for each of the years in the two-year period ended June 30, 2002 have been
derived from our consolidated financial statements. The consolidated financial
statements as of June 30, 2002 and June 30, 2001 and for each of the years in
the three-year period ended June 30, 2002, and the report of independent
accountants thereon, are included elsewhere herein. The selected historical
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our Consolidated Financial Statements (including related notes thereto)
contained in this prospectus.
Historically, except for two securitization transactions in fiscal 1995,
we have structured our securitization transactions to meet the criteria for
sales of auto receivables under U.S. generally accepted accounting principles.
Thus, for all securitizations completed to date, except for the transactions in
fiscal 1995, we recorded a gain on sale of receivables when we sold the auto
receivables to a securitization trust. We have made a decision to alter the
structure of our future securitization transactions to no longer meet the
criteria for sales of auto receivables. Accordingly, following a securitization,
the receivables and the related securitization indebtedness will remain on our
balance sheet. This change will significantly impact our future results of
operations compared to our historical results. Therefore, our historical results
and management's discussion of such results may not be indicative of our future
results.
Fiscal Years Ended June 30,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(dollars in thousands)
Statement of Income Data:
Revenue:
Finance charge income ................ $ 339,430 $ 225,210 $ 124,150 $ 75,288 $ 55,837
Gain on sale of receivables .......... 448,544 301,768 209,070 169,892 103,194
Servicing fee income ................. 389,371 281,239 170,251 85,966 47,910
Other income ......................... 12,887 10,007 6,209 4,310 2,395
---------- ---------- ---------- ---------- ----------
Total revenue ....................... 1,190,232 818,224 509,680 335,456 209,336
Costs and expenses ................... 625,220 455,864 319,388 213,766 129,174
---------- ---------- ---------- ---------- ----------
Income before taxes .................. 565,012 362,360 190,292 121,690 80,162
Provision for taxes .................. 217,529 139,508 75,791 46,850 30,861
---------- ---------- ---------- ---------- ----------
Net income .......................... $ 347,483 $ 222,852 $ 114,501 $ 74,840 $ 49,301
========== ========== ========== ========== ==========
Cash Flow Data:
Cash revenue:
Finance charge income ................ $ 339,430 $ 225,210 $ 124,150 $ 75,288 $ 55,837
Cash servicing fee(1) ................ 227,491 187,790 126,168 73,441 37,043
Other cash revenue(2) ................ 38,678 67,784 29,103 16,445 9,184
Securitization distributions ......... 243,596 214,629 125,104 44,531 43,807
---------- ---------- ---------- ---------- ----------
Total cash revenue ................... 849,195 695,413 404,525 209,705 145,871
Cash expenses:
Operating expenses(3) ................ 385,759 288,713 203,862 152,700 89,986
Interest expense, excluding senior
notes(4) ............................ 101,082 80,086 33,537 18,490 13,620
---------- ---------- ---------- ---------- ----------
Total cash expenses ................. 486,841 368,799 237,399 171,190 103,606
---------- ---------- ---------- ---------- ----------
Cash EBIT ......................... $ 362,354 $ 326,614 $ 167,126 $ 38,515 $ 42,265
========== ========== ========== ========== ==========
Credit enhancement deposits .......... $ 185,995 $ 123,008 $ 120,000 $ 82,750 $ 56,725
Other Data:
Auto loan originations ............... $8,929,352 $6,378,652 $4,427,945 $2,879,796 $1,737,813
Auto loans securitized ............... $8,608,909 $5,300,004 $3,999,999 $2,770,000 $1,637,499
Number of branches ................... 251 232 196 176 129
-34-
Fiscal Years Ended,
--------------------------------------------------------------------
June 30, June 30, June 30, June 30, June 30,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(dollars in thousands)
Managed Data:
Net margin(5) ................................. $ 1,539,115 $ 997,501 $ 643,658 $ 400,090 $ 220,405
Net charge-offs ............................... 573,818 301,691 214,276 147,344 88,002
Operating expenses ............................ 424,131 308,453 223,219 165,345 94,484
Managed auto receivables ...................... 14,762,461 10,203,746 6,649,981 4,105,468 2,302,516
Average managed auto receivables .............. 12,464,346 8,291,636 5,334,580 3,129,463 1,649,416
Average principal amount per
managed auto receivable (in dollars) ...... 13,129 12,384 11,706 11,209 10,782
Managed auto receivables greater
than 60 days delinquent ................... 485,018 250,091 150,624 73,512 59,175
Delinquencies greater than 60 days as a
percentage of managed auto receivables ... 3.3% 2.5% 2.3% 1.8% 2.6%
Net charge-offs as a percentage of
average managed auto receivables .......... 4.6% 3.6% 4.0% 4.7% 5.3%
Ratios:
Ratio of earnings to fixed charges(6) ......... 4.9x 4.0x 3.6x 3.9x 4.0x
Percentage of total indebtedness to
total capitalization ........................ 61.0% 64.6% 58.0% 55.9% 54.7%
Return on average common equity ............... 27.5% 26.0% 21.6%(7) 22.0% 20.1%
Operating expenses as a percentage of
average managed auto receivables ............ 3.4% 3.7% 4.1% 5.0% 5.4%
Percentage of senior unsecured debt to
total equity ................................ 29.2% 35.4% 54.5% 93.8% 60.8%
June 30,
2002
--------------------------
As June 30,
Actual Adjusted(8) 2001
----------- ------------- -----------
Balance Sheet Data:
Cash and cash equivalents ......................... $ 119,445 $ 589,795 $ 77,053
Credit enhancement assets (9) .................... 1,549,132 1,549,132 1,151,275
Receivables held for sale, net .................... 2,198,391 2,198,391 1,921,465
Total assets ...................................... 4,224,931 4,695,281 3,384,907
Warehouse credit facilities ....................... 1,751,974 1,751,974 1,502,879
Credit enhancement facility ....................... -- -- 3,319
Senior notes ...................................... 418,074 418,074 375,000
Other notes payable ............................... 66,811 66,811 23,077
Total debt ........................................ 2,236,859 2,236,859 1,937,275
Shareholders' equity .............................. 1,432,316 1,902,666 1,060,196
Credit Statistics:
Senior notes/Cash EBIT ............................ 1.2x 1.2x 1.1x
Cash EBIT/Senior notes interest expense ........... 10.4x 10.4x 9.1x
- ---------------------------
(1) Cash servicing fee consists of servicing fee income less accretion of
present value discount.
(2) Other cash revenue consists of other income and cash gain on sale, loss on
retirement and discount on issuance of senior notes.
(3) Represents operating expenses, less depreciation and amortization.
(4) Represents interest expense, excluding interest expense on senior notes.
(5) Net margin is the difference between (a) finance charge, fee and other
income earned on our receivables and (b) the cost to fund the receivables.
Net margin is a calculation that assumes that securitized receivables have
not been sold or are still on our consolidated balance sheet. Net margin is
not a measurement of financial performance under generally accepted
accounting principles and should not be considered as an alternative to any
other measures of performance derived in accordance with generally accepted
accounting principles.
(6) Represents the ratio of the sum of income before taxes plus fixed charges
for the period to fixed charges. Fixed charges, for the purpose of this
computation, represents interest and a portion of rentals representative of
an implicit interest factor for such rentals.
(7) Excludes charge for the closing of our mortgage business in fiscal 2000.
(8) The as adjusted balance sheet data have been calculated giving effect to
the follow-on offering of our common stock and the application of the net
proceeds therefrom as if it had occurred on June 30, 2002.
(9) Credit enhancement assets consist of restricted cash, investments in trust
receivables and interest-only receivables from trusts. See Note 3 of Notes
to Consolidated Financial Statements.
-35-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Historically, we have generated earnings and cash flow primarily from the
purchase, securitization and servicing of auto receivables. We purchase auto
finance contracts from franchised and select independent automobile dealerships
and, to a lesser extent, make auto loans directly to consumers. As used in this
prospectus, "loans" include auto finance contracts originated by dealers and
purchased by us and extensions of credit made directly by us to consumer
borrowers. To fund the acquisition of receivables prior to securitization, we
utilize borrowings under our warehouse credit facilities. We earn finance charge
income on our receivables pending securitization ("receivables held for sale")
and pay interest expense on borrowings under our warehouse credit facilities.
We periodically sell receivables to securitization trusts ("Trusts") that,
in turn, sell asset-backed securities to investors. We recognize a gain on the
sale of receivables to the Trusts, which represents the difference between the
sale proceeds to us, net of transaction costs, and our net carrying value of the
receivables, plus the present value of the estimated future excess cash flows to
be received by us over the life of the securitization. Excess cash flows result
from the difference between the interest received from the obligors on the
receivables and the interest paid to investors in the asset-backed securities,
net of credit losses and expenses.
Excess cash flows from the Trusts are initially utilized to fund credit
enhancement requirements in order to attain specific credit ratings for the
asset-backed securities issued by the Trusts. Once predetermined credit
enhancement requirements are reached and maintained, excess cash flows are
distributed to us. In addition to excess cash flows, we earn monthly base
servicing fee income of 2.25% per annum on the outstanding principal balance of
domestic receivables securitized ("serviced receivables") and collect other fees
such as late charges as servicer for those Trusts.
Historically, except for two securitization transactions in fiscal 1995, we
have structured our securitization transactions to meet the criteria for sales
of auto receivables under generally accepted accounting principles in the United
States of America ("GAAP"). Thus, for all securitizations completed to date,
except for the transactions in fiscal 1995, we recorded a gain on sale of
receivables when we sold the auto receivables to a Trust. The gain-on-sale that
we recorded was based on the net present value of expected excess cash flows
from the securitized receivables.
We have made a decision to alter the structure of our future securitization
transactions to no longer meet the criteria for sales of auto receivables.
Accordingly, following a securitization, the receivables and the related
securitization indebtedness will remain on our balance sheet. We will recognize
finance charge and fee income on the receivables and interest expense on the
securities issued in the securitization and will record a provision for loan
losses over the life of the securitization. This change will significantly
impact our future results of operations compared to our historical results.
Therefore, our historical results and management's discussion of such results
may not be indicative of our future results. This structure, combined with our
strategy to increase our initial credit enhancement deposits, will allow our
reported earnings to be more closely aligned with cash flow distributions from
securitization trusts than our previous structure. Additionally, this structure
will decrease our reliance on origination growth in order to achieve earnings
growth and will provide greater visibility of future finance charge income and
net margins related to our managed auto loan portfolio.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions which affect the reported amounts
of assets and liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and the amount of revenue
and costs and expenses during the reporting periods. Actual results could differ
from those estimates and those differences may be material. The accounting
policies that we believe are the most critical to understanding and evaluating
our reported financial results include the following:
-36-
Gain on Sale of Receivables
We periodically sell receivables to Trusts that, in turn, sell asset-backed
securities to investors. Historically, we have recognized a gain on the sale of
receivables to the Trusts, which represents the difference between the sale
proceeds to us, net of transaction costs, and our net carrying value of the
receivables, plus the present value of the estimated future excess cash flows to
be received by us over the life of the securitization. We have made assumptions
in order to determine the present value of the estimated future excess cash
flows to be generated by the pool of receivables sold. The most significant
assumptions made are the cumulative credit losses to be incurred on the pool of
receivables sold and the rate at which the estimated future excess cash flows
are discounted. The assumptions used represent our best estimates and are
described under the caption "Revenue" below. The use of different assumptions
could produce different financial results.
We have made a decision to alter the structure of our future securitization
transactions to no longer meet the criteria for sales of auto receivables.
Accordingly, following a securitization, the receivables and the related
securitization indebtedness will remain on our balance sheet. We will recognize
finance charge and fee income on the receivables and interest expense on the
securities issued in the securitization and will record a provision for loan
losses over the life of the securitization. Therefore, our historical results
and management's discussion of such results may not be indicative of our future
results.
Fair Value Measurements
Certain of our assets, including the our derivative financial instruments
and credit enhancement assets, are recorded at fair value. Fair values for
derivative financial instruments are based on third-party quoted market prices,
where possible. However, market prices are not readily available for our credit
enhancement assets and, accordingly, fair value is determined using discounted
cash flow models. The most significant assumptions made are the cumulative
credit losses to be incurred on the pool of receivables sold and the rate at
which estimated future excess cash flows are discounted. The assumptions used
represent our best estimates, and are described under the caption "Revenue"
below. The use of different assumptions could produce different financial
results.
Allowance for Loan Losses
We review historical origination and charge-off relationships, charge-off
experience factors, collection data, delinquency reports, estimates of the value
of the underlying collateral, economic conditions and trends and other
information in order to make the necessary judgments as to the appropriateness
of the provision for loan losses and the allowance for loan losses. Receivables
are charged-off to the allowance for loan losses when we repossess and dispose
of the collateral or the account is otherwise deemed uncollectable. We believe
that the allowance for loan losses is adequate to cover probable losses inherent
in our receivables; however, because the allowance for loan losses is based on
estimates, there can be no assurance that the ultimate charge-off amount will
not exceed such estimates.
Results of Operations
Year Ended June 30, 2002 as compared to Year Ended June 30, 2001
Revenue
Our average managed receivables outstanding consisted of the following (in
thousands):
Years Ended June 30,
------------------------------
2002 2001
------------- ---------------
Auto:
Held for sale ................ $ 1,753,182 $1,046,306
Serviced ..................... 10,711,164 7,245,330
------------- ---------------
12,464,346 8,291,636
Other ........................ 2,969
------------- ---------------
$12,464,346 $8,294,605
============= ===============
-37-
Average managed receivables outstanding increased by 50% as a result of
higher loan purchase volume. We purchased $8,929.4 million of auto loans during
fiscal 2002, compared to purchases of $6,378.7 million during fiscal 2001. This
growth resulted from increased loan production at branches open during both
periods as well as expansion of our branch network. Loan purchases at branch
offices opened prior to June 30, 2000, were 10% higher in fiscal 2002 versus
fiscal 2001. We operated 251 auto lending branch offices as of June 30, 2002,
compared to 232 as of June 30, 2001.
The average new loan size was $16,428 for fiscal 2002, compared to $15,430
for fiscal 2001. The average annual percentage rate on loans purchased during
fiscal 2002 was 17.7%, compared to 19.0% during fiscal 2001. Decreasing
short-term market interest rates have lowered our cost of funds, allowing us to
pass along some of this benefit in the form of lower loan pricing.
Finance charge income increased by 51% to $339.4 million for fiscal 2002
from $225.2 million for fiscal 2001. Finance charge income was higher due
primarily to an increase of 68% in average auto receivables held for sale in
fiscal 2002 versus fiscal 2001. Our effective yield on our auto receivables held
for sale decreased to 19.4% for fiscal 2002 from 21.5% for fiscal 2001. The
effective yield is higher than the contractual rates of our auto finance
contracts as a result of finance charge income earned between the date the auto
finance contract is originated by the automobile dealership and the date the
auto finance contract is funded by us. The effective yield decreased for fiscal
2002 due to lower loan pricing.
The gain on sale of receivables increased by 49% to $448.5 million for
fiscal 2002 from $301.8 million for fiscal 2001. The increase in gain on sale of
auto receivables resulted from the sale of $8,608.9 million of receivables in
fiscal 2002 as compared to $5,300.0 million of receivables sold in fiscal 2001.
The gain as a percentage of auto receivables sold decreased to 5.2% for fiscal
2002 from 5.7% for fiscal 2001 primarily due to the use of higher cumulative
credit loss assumptions.
Significant assumptions used in determining the gain on sale of auto
receivables were as follows:
Years Ended June 30,
--------------------------
2002 2001
---------- -----------
Cumulative credit losses (including unrealized gains at time of sale) ......... 12.5% 11.3%
Discount rate used to estimate present value:
Interest-only receivables from Trusts ..................................... 14.0% 14.0%
Investments in Trust receivables .......................................... 9.8% 9.8%
Restricted cash ........................................................... 9.8% 9.8%
The cumulative credit loss assumptions utilized at the time of sale of
receivables were determined using a range of possible outcomes based on
historical experience, credit attributes for the specific pool of receivables
and general economic factors. We increased the assumption for cumulative credit
losses used in determining the gain on sale of receivables during fiscal 2002 to
incorporate an expected increase in credit losses resulting from the general
decline in the economy, including higher unemployment rates.
The unrealized gains at time of sale represent the excess of the fair value
of credit enhancement assets over our carrying value related to such interests
when receivables are sold. The cumulative credit loss assumption, including
unrealized gains at time of sale, reflects the approximate level that cumulative
credit losses could reach (notwithstanding other assumptions) in a
securitization pool before the credit enhancement assets could suffer an other
than temporary impairment.
The discount rates used to estimate the present value of credit enhancement
assets are based on the relative risks of each asset type. Interest-only
receivables from Trusts represent estimated future excess cash flows in the
Trusts and have a first loss position to absorb any shortfall in Trust cash
flows due to adverse credit loss development or adverse changes in Trust
performance relative to other assumptions. While we earn a higher yield on our
securitized receivables, we utilize a 14% discount rate for interest-only
receivables from Trusts since net undiscounted estimated future excess cash
flows already incorporate a default assumption and the receivables underlying
the securitization represent a diverse pool of assets. Restricted cash and
investments in Trust receivables are backed by cash and receivables and are
senior to interest-only receivables from Trusts for credit enhancement
-38-
purposes. Accordingly, restricted cash and investments in Trust receivables are
assigned a lower discount rate than the interest-only receivables from Trusts.
Servicing fee income increased to $389.4 million, or 3.6% of average
serviced auto receivables, for fiscal 2002, compared to $281.2 million, or 3.9%
of average serviced auto receivables, for fiscal 2001. Servicing fee income
represents accretion of the present value discount on estimated future excess
cash flows from the Trusts, base servicing fees and other fees earned by us as
servicer of the receivables sold to the Trusts. The growth in servicing fee
income is primarily attributable to the increase in average serviced auto
receivables outstanding for fiscal 2002 compared to fiscal 2001.
Costs and Expenses
Operating expenses as a percentage of average managed receivables
outstanding decreased to 3.4% for fiscal 2002, compared to 3.7% for fiscal 2001.
The ratio improved as a result of economies of scale realized from a growing
receivables portfolio and automation of loan origination, processing and
servicing functions. The dollar amount of operating expenses increased by $115.7
million, or 38%, primarily due to the addition of branch offices and loan
processing and servicing staff.
The provision for loan losses increased to $65.2 million for fiscal 2002
from $31.4 million for fiscal 2001 primarily due to higher average amounts of
receivables held for sale and the use of a higher provision for loan loss rate.
As a percentage of average receivables held for sale, the provision for loan
losses was 3.7% and 3.0% for fiscal 2002 and 2001, respectively. The increase in
the rate of provision for loan losses reflects the general expectation that
continuing weakness in the economy, including an increase in unemployment rates,
will cause a higher number of delinquent accounts. Since accounts delinquent for
greater than 30 days are ineligible for securitization, receivables held
indefinitely by us may increase, resulting in higher losses on receivables prior
to securitization.
Interest expense increased to $135.9 million for fiscal 2002 from $116.0
million for fiscal 2001 due to higher debt levels. Average debt outstanding was
$2,366.3 million and $1,255.0 million for fiscal 2002 and 2001, respectively.
Our effective rate of interest paid on our debt decreased to 5.7% from 9.2% as a
result of lower short-term market interest rates.
Our effective income tax rate was 38.5% for fiscal 2002 and 2001.
Other Comprehensive Income
The unrealized (losses) gains on credit enhancement assets consisted of the
following (in thousands):
Years Ended June 30,
------------------------
2002 2001
----------- -----------
Unrealized gains at time of sale ......................................................... $ 47,634 $ 27,424
Unrealized holding (losses) gains related to changes in credit loss assumptions .......... (68,224) 36,056
Unrealized holding (losses) gains related to changes in interest rates ................... (22,276) 55,191
Net reclassification into earnings ....................................................... (7,939) (7,564)
----------- -----------
$(50,805) $111,125
=========== ===========
The unrealized gains at time of sale represent the excess of the fair value
of credit enhancement assets over our carrying value related to such interests
when receivables are sold. Unrealized gains at time of sale were higher for
fiscal 2002 as compared to fiscal 2001 due to a greater amount of receivables
sold in fiscal 2002.
The cumulative credit loss assumptions used to estimate the fair value of
credit enhancement assets are periodically reviewed by us and modified to
reflect the actual credit performance for each securitization pool through the
reporting date as well as estimates of future losses considering several factors
including changes in the general economy. Changes in the fair value of credit
enhancement assets as a result of modifications to the credit loss assumptions
are reported as unrealized holding gains or losses in other comprehensive income
until realized, or, in the case of unrealized holding losses considered to be
other than temporary, as a charge to operations.
We increased the cumulative credit loss assumptions (including remaining
unrealized gains at time of sale) used in measuring the fair value of credit
enhancement assets to a range of 10.4% to 12.7% as of June 30, 2002,
-39-
from a range of 8.7% to 11.7% as of June 30, 2001, resulting in an unrealized
holding loss of $68.2 million for fiscal 2002. The range of cumulative credit
loss assumptions was increased to reflect adverse actual credit performance
compared to previous assumptions as well as expectations for higher future
losses due to deterioration in the general economy during fiscal 2002.
We decreased the cumulative credit loss assumptions (including remaining
unrealized gain at time of sale) used in measuring the fair value of credit
enhancement assets to a range of 8.7% to 11.7% as of June 30, 2001, from a range
of 9.4% to 12.6% as of June 30, 2000, resulting in an unrealized holding gain of
$36.1 million for fiscal 2001. The range of cumulative credit loss assumptions
was decreased to reflect favorable actual credit performance compared to
previous assumptions.
Differences between cumulative credit loss assumptions used in individual
securitization pools can be attributed to the original credit attributes of a
pool, actual credit performance through the reporting date and pool seasoning to
the extent that changes in economic trends will have more of an impact on the
expected future performance of less seasoned pools.
Unrealized holding losses related to changes in interest rates of $22.3
million for fiscal 2002 resulted primarily from a decline in estimated future
cash flows to be generated from investment income earned on restricted cash and
Trust cash collection accounts due to lower short-term market interest rates.
Unrealized holding gains related to changes in interest rates of $55.2 million
for fiscal 2001 resulted primarily from an increase in estimated future cash
flows from the Trusts due to lower interest rates payable to investors on the
floating rate tranches of securitization transactions. This unrealized gain was
offset by the unrealized losses on cash flow hedges for fiscal 2001 described
below.
Net unrealized gains of $7.9 million and $7.5 million were reclassified
into earnings during fiscal 2002 and 2001, respectively, and relate primarily to
recognition of excess estimated cash flows over our initial investment and cash
collected to date as well as recognition of unrealized gains at time of sale.
Another component of other comprehensive income is unrealized losses on
cash flow hedges. Unrealized losses on cash flow hedges were $11.8 million for
fiscal 2002, compared to $64.2 million for fiscal 2001. Short-term market
interest rates decreased during fiscal 2002 and 2001, resulting in an increase
in the liability related to our interest rate swap agreements. The unrealized
losses were less in fiscal 2002, since, commencing in January 2001, interest
rate swap agreements have been executed within the Trusts, thus neutralizing the
impact of changes in interest rates (except relative to investment income) on
the fair value of credit enhancement assets for Trusts established thereafter.
Unrealized gains or losses on cash flow hedges are reclassified into earnings as
our unrealized gain or loss related to interest rate fluctuations on our credit
enhancement assets are reclassified. Net unrealized losses reclassified into
earnings were $9.1 million for fiscal 2002.
Net Margin
A key measure of our performance is net margin. Net margin is the
difference between finance charge, fee and other income earned on our
receivables and the cost to fund the receivables as well as the cost of debt
incurred for general corporate purposes.
Our net margin as reflected in the consolidated income statements is as
follows (in thousands):
Years Ended June 30,
-------------------------------
2002 2001
-------------- --------------
Finance charge, fee and other income ................................... $ 352,317 $ 235,217
Funding costs .......................................................... (135,928) (116,024)
------------- --------------
Net margin ............................................................. $ 216,389 $ 119,193
============= ==============
We evaluate the profitability of our lending activities based partly upon
the net margin related to our managed auto loan portfolio, including receivables
held for sale and serviced receivables. We have historically securitized our
receivables held for sale and recorded a gain on the sale of such receivables.
The net margin on a managed basis presented below assumes that securitized
receivables have not been sold and are still on our consolidated balance
-40-
sheet. Accordingly, no gain on sale or servicing fee income would have been
recognized. Instead, finance charges and fees would be recognized over the life
of the securitized receivables as accrued, and interest and other costs related
to the asset-backed securities would be recognized as incurred.
Net margin for our managed auto loan portfolio is as follows (in
thousands):
Years Ended June 30,
--------------------------------
2002 2001
----------- -----------
Finance charge, fee and other income ................................... $ 2,298,439 $ 1,628,483
Funding costs .......................................................... (759,324) (630,982)
----------- -----------
Net margin ............................................................. $ 1,539,115 $ 997,501
=========== ===========
Net margin as a percentage of average managed auto receivables outstanding
is as follows (dollars in thousands):
Years Ended June 30,
--------------------------------
2002 2001
------------ -----------
Finance charge, fee and other income ................................... 18.4% 19.6%
Funding costs .......................................................... (6.1) (7.6)
------------ -----------
Net margin as a percentage of average managed auto receivables ......... 12.3% 12.0%
============ ===========
Average managed auto receivables ....................................... $ 12,464,346 $ 8,291,636
============ ===========
Net margin as a percentage of average managed auto receivables increased
for fiscal 2002 compared to fiscal 2001 as we were able to retain some of the
benefit of declining interest rates in our loan pricing strategies.
Year Ended June 30, 2001 as compared to Year Ended June 30, 2000
Revenue
Our average managed receivables outstanding consisted of the following (in
thousands):
Years Ended June 30,
-------------------------------
2001 2000
----------- -----------
Auto:
Held for sale ............................................................ $ 1,046,306 $ 543,518
Serviced ................................................................. 7,245,330 4,791,062
----------- -----------
8,291,636 5,334,580
Other .................................................................... 2,969 22,011
----------- -----------
$ 8,294,605 $ 5,356,591
=========== ===========
Average managed receivables outstanding increased by 55% as a result of
higher loan purchase volume. We purchased $6,378.7 million of auto loans during
fiscal 2001, compared to purchases of $4,427.9 million during fiscal 2000. This
growth resulted from increased loan production at branches open during both
periods as well as expansion of our branch network. Loan purchases at branch
offices opened prior to June 30, 1999, were 19.0% higher in fiscal 2001 versus
fiscal 2000. We operated 232 auto lending branch offices as of June 30, 2001,
compared to 196 as of June 30, 2000.
The average new loan size was $15,430 for fiscal 2001, compared to $14,257
for fiscal 2000. The average annual percentage rate on loans purchased during
fiscal 2001 was 19.0%, compared to 18.9% during fiscal 2000.
Finance charge income consisted of the following (in thousands):
-41-
Years Ended June 30,
----------------------------
2001 2000
--------- ---------
Auto ................................... $ 225,210 $ 123,093
Other .................................. 1,057
--------- ---------
$ 225,210 $ 124,150
========= =========
The increase in finance charge income was primarily due to an increase of
93% in average auto receivables held for sale in fiscal 2001 versus fiscal 2000.
Our effective yield on our auto receivables held for sale decreased to 21.5% for
fiscal 2001 from 22.7% for fiscal 2000. The effective yield is higher than the
contractual rates of our auto finance contracts primarily as a result of finance
charge income earned between the date the auto finance contract is originated by
the automobile dealership and the date the auto finance contract is funded by
us. The effective yield decreased for fiscal 2001 due to lower levels of finance
charges earned between the origination date and funding date.
The gain on sale of receivables consisted of the following (in thousands):
Years Ended June 30,
---------------------------
2001 2000
--------- ---------
Auto ................................... $ 301,768 $ 207,559
Other .................................. 1,511
--------- ---------
$ 301,768 $ 209,070
========= =========
The increase in gain on sale of auto receivables of 45% resulted from the
sale of $5,300.0 million of receivables in fiscal 2001 as compared to $4,000.0
million of receivables sold in fiscal 2000. The gain as a percentage of auto
receivables sold increased to 5.7% for fiscal 2001 from 5.2% for fiscal 2000
primarily due to increased interest margins as a result of a decrease in
short-term market interest rates.
Significant assumptions used in determining the gain on sale of auto
receivables were as follows (the weighted average discount rate was used in
fiscal 2000 due to the discount rate change during that year):
Years Ended June 30,
---------------------------
2001 2000
---------- ---------
Cumulative credit losses (including unrealized gains at time of sale) ............. 11.3% 10.9%
Discount rate used to estimate present value:
Interest-only receivables from Trusts .......................................... 14.0% 12.30%
Investments in Trust receivables ............................................... 9.8% 8.1%
Restricted cash ................................................................ 9.8% 8.1%
The cumulative credit loss assumptions utilized at the time of sale of
receivables were determined using a range of possible outcomes based on
historical experience, credit attributes for the specific pool of receivables
and general economic factors. We increased the assumption for cumulative credit
losses used in determining the gain on sale of receivables during fiscal 2001 to
incorporate an expected increase in credit losses resulting from the general
decline in the economy, including higher unemployment rates.
The unrealized gains at time of sale represent the excess of the fair value
of credit enhancement assets over our carrying value related to such interests
when receivables are sold. The cumulative credit loss assumption, including
unrealized gains at time of sale, reflects the approximate level that cumulative
credit losses could reach (notwithstanding other assumptions) in a
securitization pool before the credit enhancement assets could suffer an other
than temporary impairment.
-42-
The discount rates used to estimate the present value of credit enhancement
assets are based on the relative risks of each asset type. Interest-only
receivables from Trusts represent estimated future excess cash flows in the
Trusts and have a first loss position to absorb any shortfall in Trust cash
flows due to adverse credit loss development or adverse changes in Trust
performance relative to other assumptions. While we earn a higher yield on our
securitized receivables, we utilize a 14.0% discount rate for interest-only
receivables from Trusts since undiscounted estimated future excess cash flows
already incorporate a default assumption and the receivables underlying the
securitization represent a diverse pool of assets. Restricted cash and
investments in Trust receivables are backed by cash and receivables and are
senior to interest-only receivables from Trusts for credit enhancement purposes.
Accordingly, restricted cash and investments in Trust receivables are assigned a
lower discount rate than the interest-only receivables from Trusts.
We increased the discount rate used in determining the gain on sale of auto
receivables effective for auto receivables sold subsequent to June 1, 2000. The
discount rate used to estimate the present value of interest-only receivables
from Trusts increased to 14.0% from 12.0% and the discount rate used to estimate
the present value of investments in Trust receivables and restricted cash
increased to 9.8% from 7.8%. The increased discount rate results only in a
difference in the timing of revenue recognition from securitizations and has no
effect on our estimate of expected excess cash flows from such transactions.
While the total amount of revenue recognized over the term of a securitization
transaction is the same, a higher discount rate results in (1) lower initial
gains on the sale of receivables and (2) higher subsequent servicing fee income
from accretion of the additional discount.
Servicing fee income increased to $281.2 million, or 3.9% of average
serviced auto receivables, for fiscal 2001, compared to $170.3 million, or 3.6%
of average serviced auto receivables, for fiscal 2000. Servicing fee income
represents accretion of the present value discount on estimated future excess
cash flows from the Trusts, base servicing fees and other fees earned by us as
servicer of the auto receivables sold to the Trusts. The growth in servicing fee
income is attributable to the increase in average serviced auto receivables
outstanding for fiscal 2001 compared to fiscal 2000.
Costs and Expenses
Operating expenses as a percentage of average managed receivables
outstanding decreased to 3.7% for fiscal 2001, compared to 4.2% for fiscal 2000.
The ratio improved as a result of economies of scale realized from a growing
receivables portfolio and automation of loan origination, processing and
servicing functions. The dollar amount of operating expenses increased by $85.2
million, or 38%, primarily due to the addition of branch offices and loan
processing and servicing staff.
The provision for loan losses increased to $31.4 million for fiscal 2001
from $16.4 million for fiscal 2000 due to higher average amounts of receivables
held for sale. As a percentage of average receivables held for sale, the
provision for loan losses was 3.0% for fiscal 2001 and 2000.
Interest expense increased to $116.0 million for fiscal 2001 from $69.3
million for fiscal 2000 due to higher debt levels. Average debt outstanding was
$1,255.0 million and $697.3 million for fiscal 2001 and 2000, respectively. Our
effective rate of interest paid on our debt decreased to 9.2% from 9.9% as a
result of lower short-term market interest rates.
Our effective income tax rate was 38.5% for fiscal 2001 and 39.8% for
fiscal 2000. The effective tax rate was higher for fiscal 2000 due to the
non-deductible write-off of goodwill related to the closing of the mortgage
operations.
Other Comprehensive Income
The unrealized gains on credit enhancement assets consisted of the
following (in thousands):
-43-
Years Ended
June 30,
----------------------
2001 2000
--------- ---------
Unrealized gains at time of sale ........................................... $ 27,424 $ 21,283
Unrealized holding gains related to changes in credit loss assumptions ..... 36,056 19,073
Unrealized holding gains related to changes in interest rates .............. 55,191
Net reclassification into earnings ......................................... (7,546) (2,361)
--------- ---------
$ 111,125 $ 37,995
========= =========
The unrealized gains at time of sale represent the excess of the fair value
of credit enhancement assets over our carrying value related to such interests
when receivables are sold. Unrealized gains at time of sale were higher for
fiscal 2001 as compared to fiscal 2000 due to a greater amount of receivables
sold in fiscal 2001.
The cumulative credit loss assumptions used to estimate the fair value of
credit enhancement assets are periodically reviewed by us and modified to
reflect the actual credit performance for each securitization pool through the
reporting date as well as estimates of future losses considering several factors
including changes in the general economy. Changes in the fair value of credit
enhancement assets as a result of modifications to the credit loss assumptions
are reported as unrealized holding gains or losses in other comprehensive income
until realized, or, in the case of unrealized holding losses considered to be
other than temporary, as a charge to operations.
We decreased the cumulative credit loss assumptions (including remaining
unrealized gains at time of sale) used in measuring the fair value of credit
enhancement assets to a range of 8.7% to 11.7% as of June 30, 2001, from a range
of 9.4% to 12.6% as of June 30, 2000, resulting in an unrealized holding gain of
$36.1 million for fiscal 2001. The range of cumulative credit loss assumptions
was decreased to reflect favorable actual credit performance compared to
previous assumptions.
We decreased the cumulative credit loss assumptions (including remaining
unrealized gains at time of sale) used in measuring the fair value of credit
enhancement assets on certain of our securitization pools as of June 30, 2000,
resulting in an unrealized holding gain of $19.1 million for fiscal 2000. The
cumulative credit loss assumptions were decreased in those securitization pools
to reflect favorable actual credit performance compared to previous assumptions.
Differences between cumulative credit loss assumptions used in individual
securitization pools can be attributed to the original credit attributes of a
pool, actual credit performance through the reporting date and pool seasoning to
the extent that changes in economic trends will have more of an impact on the
expected future performance of less seasoned pools.
Unrealized holding gains related to changes in interest rates of $55.2
million for fiscal 2001 resulted primarily from an increase in estimated future
cash flows from the Trusts due to lower interest rates payable to investors on
the floating rate tranches of securitization transactions. This gain was offset
by the unrealized losses on cash flow hedges for fiscal 2001 described below.
There were no unrealized holding gains related to changes in interest rates for
fiscal 2000.
Net unrealized gains of $7.5 million and $2.4 million were reclassified
into earnings during fiscal 2001 and 2000, respectively, and relate primarily to
recognition of excess estimated cash flows over our initial investment and cash
collected to date as well as recognition of unrealized gains at time of sale.
Another component of other comprehensive income is unrealized losses on
cash flow hedges. Unrealized losses on cash flow hedges were $64.2 million for
fiscal 2001. Short-term market interest rates decreased during fiscal 2001,
resulting in an increase in the liability related to our interest rate swap
agreements. Prior to our adoption of Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133, an amendment of FASB Statement No. 133," and Statement
of Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133" ("SFAS 133"), on July 1, 2000, we recognized our derivative financial
instruments as a part of our credit enhancement assets rather than as a separate
liability on our consolidated balance sheets. Accordingly, no unrealized gains
or losses on cash
-44-
flow hedges were recognized in fiscal 2000. Unrealized gains or losses on cash
flow hedges are reclassified into earnings as our unrealized gain or loss
related to interest rate fluctuations on our credit enhancement assets are
reclassified.
Net Margin
A key measure of our performance is net margin. Net margin is the
difference between finance charge, fee and other income earned on our
receivables and the cost to fund the receivables as well as the cost of debt
incurred for general corporate purposes.
Our net margin as reflected in the consolidated income statements is as
follows (in thousands):
Years Ended June 30,
----------------------
2001 2000
--------- ---------
Finance charge, fee and other income ........ $ 235,217 $ 130,359
Funding costs ............................... (116,024) (69,310)
--------- ---------
Net margin .................................. $ 119,193 $ 61,049
========= =========
We evaluate the profitability of our lending activities based partly upon
the net margin related to our managed auto loan portfolio, including receivables
held for sale and serviced receivables. We have historically securitized our
receivables held for sale and recorded a gain on the sale of such receivables.
The net margin on a managed basis presented below assumes that securitized
receivables have not been sold and are still on our consolidated balance sheet.
Accordingly, no gain on sale or servicing fee income would have been recognized.
Instead, finance charges and fees would be recognized over the life of the
securitized receivables as accrued, and interest and other costs related to the
asset-backed securities would be recognized as incurred.
Net margin for the our managed auto loan portfolio is as follows (in
thousands):
Years Ended June 30,
-------------------------
2001 2000
---------- ----------
Finance charge, fee and other income ....... $1,628,483 $1,048,382
Funding costs .............................. (630,982) (404,724)
---------- ----------
Net margin ................................. $ 997,501 $ 643,658
========== ==========
Net margin as a percentage of average managed auto receivables outstanding
is as follows (dollars in thousands):
Years Ended June 30,
---------------------------
2001 2000
----------- -----------
Finance charge, fee and other income ................................ 19.6% 19.6%
Funding costs ....................................................... (7.6) (7.6)
----------- -----------
Net margin as a percentage of average managed auto receivables ...... 12.0% 12.0%
=========== ===========
Average managed auto receivables .................................... $ 8,291,636 $ 5,334,580
=========== ===========
Credit Quality
We provide financing in relatively high-risk markets, and, therefore,
anticipate a corresponding high level of delinquencies and charge-offs.
Historically, receivables purchased by us have been held on our balance
sheet until such loans are sold in a securitization transaction. However,
receivables may be ineligible for sale if they do not meet certain criteria
established in connection with securitization transactions, the most significant
of which is that receivables must be less than 31 days delinquent at the time of
sale. Provisions for loan losses are charged to operations in amounts sufficient
to maintain the allowance for loan losses on the balance sheet at a level
considered adequate to cover probable credit losses on receivables that are
either currently ineligible for sale or may in the future become
-45-
ineligible for sale and thus may be held indefinitely by us. Receivables held
for sale are charged-off to the allowance for loan losses when we repossess and
dispose of the collateral or the account is otherwise deemed uncollectable.
We have periodically sold receivables in securitization transactions to
Trusts and retained an interest in the receivables sold in the form of credit
enhancement assets. Credit enhancement assets are reflected on our balance sheet
at fair value, calculated based upon the present value of estimated excess
future cash flows from the Trusts using, among other assumptions, estimates of
future cumulative credit losses on the receivables sold. Charge-offs of
receivables that have been sold to Trusts decrease the amount of excess future
cash flows from the Trusts. If such charge-offs are expected to exceed our
original estimates of cumulative credit losses, the fair value of credit
enhancement assets could be written down through an impairment charge to
earnings.
The following tables present certain data related to our managed
receivables portfolio (dollars in thousands):
June 30, 2002
-----------------------------------------------------
Total
Held for Sale Serviced Managed
--------------- ------------- ---------------
Principal amount of receivables ................................ $2,261,718 $12,500,743 $14,762,461
=============== ============= ===============
Nonaccretable acquisition fees ................................. (40,618) (40,618)
Allowance for loan losses ...................................... (22,709) $(1,380,213)(a) $(1,402,922)
--------------- ============= ===============
Receivables, net ............................................... $2,198,391
===============
Number of outstanding contracts ................................ 148,826 975,562 1,124,388
=============== ============= ===============
Average principal amount of outstanding contract
(in dollars) ............................................... $ 15,197 $ 12,814 $ 13,129
=============== ============= ===============
Allowance for loan losses and nonaccretable acquisition fees
as a percentage of receivables ............................. 2.8% 11.0% 9.8%
=============== ============= ===============
(a) The allowance for loan losses related to serviced auto receivables
is factored into the valuation of interest-only receivables from
Trusts in our consolidated balance sheets. Assumptions for
cumulative credit losses are added and charge-offs of receivables
that have been sold to Trusts reduce the allowance for loan
losses.
June 30, 2001
-----------------------------------------------------
Total
Held for Sale Serviced Managed
--------------- ------------- ---------------
Principal amount of receivables ................................ $1,973,828 $ 8,229,918 $10,203,746
=============== ============= ===============
Nonaccretable acquisition fees ................................. (42,280) (42,280)
Allowance for loan losses ...................................... (10,083) $ (868,184)(a) $ (878,267)
--------------- ============= ===============
Receivables, net ............................................... $1,921,465
===============
Number of outstanding contracts ................................ 133,214 690,705 823,919
=============== ============= ===============
Average principal amount of outstanding contract
(in dollars) ............................................... $ 14,817 $ 11,915 $ 12,384
=============== ============= ===============
Allowance for loan losses and nonaccretable acquisition fees
as a percentage of receivables ............................. 2.7% 10.6% 9.0%
=============== ============= ===============
(a) The allowance for loan losses related to serviced auto receivables
is factored into the valuation of interest-only receivables from
Trusts in our consolidated balance sheets. Assumptions for
cumulative credit losses are added and charge-offs of receivables
that have been sold to Trusts reduce the allowance for loan
losses.
-46-
The following is a summary of auto receivables that are (1) more than 30
days delinquent, but not yet in repossession, and (2) in repossession (dollars
in thousands):
June 30, 2002
----------------------------------------------------------------------------
Held for Sale Serviced Total Managed
--------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------- -------- ---------- ------- ---------- -------
Delinquent contracts:
31 to 60 days .............. $41,512 1.8% $1,000,753 8.0% $1,042,265 7.0%
Greater than 60 days ....... 34,084 1.5 450,934 3.6 485,018 3.3
------- -------- ---------- ------- ---------- -------
75,596 3.3 1,451,687 11.6 1,527,283 10.3
In repossession ............ 14,257 0.7 147,272 1.2 161,529 1.1
------- -------- ---------- ------- ---------- -------
$89,853 4.0% $1,598,959 12.8% $1,688,812 11.4%
======= ======== ========== ======= ========== =======
June 30, 2001
----------------------------------------------------------------------------
Held for Sale Serviced Total Managed
--------------------- ---------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------- -------- ---------- ------- ---------- -------
Delinquent contracts:
31 to 60 days .............. $36,791 1.9% $ 639,634 7.7% $ 676,425 6.6%
Greater than 60 days ....... 14,778 0.8 235,313 2.9 250,091 2.5
------- -------- ---------- ------- ---------- -------
51,569 2.7 874,947 10.6 926,516 9.1
In repossession ............ 8,737 0.4 96,766 1.2 105,503 1.0
------- -------- ---------- ------- ---------- -------
$60,306 3.1% $ 971,713 11.8% $1,032,019 10.1%
======= ======== ========== ======= ========== =======
Delinquencies in our managed receivables portfolio may vary from period to
period based upon the average age or seasoning of the portfolio, seasonality
within the calendar year and economic factors. Due to our target customer base,
a relatively high percentage of accounts become delinquent at some point in the
life of a loan and there is a fairly high rate of account movement between
current and delinquent status in the portfolio. Delinquencies were higher as of
June 30, 2002, compared to June 30, 2001, due to continued weakness in the
economy, including higher unemployment rates, and, to a lesser extent, an
increase in the average age of our managed receivables portfolio.
In accordance with our policies and guidelines, we at times offer payment
deferrals to consumers, whereby the consumer is allowed to move a delinquent
payment to the end of the loan typically by paying a fee (approximately the
interest portion of the payment deferred). Our policies and guidelines, as well
as certain contractual restrictions in our securitization transactions, limit
the number and frequency of deferments that may be granted. An account for which
all delinquent payments are deferred is classified as current at the time the
deferment is granted. Thereafter, such account is aged based on the timely
payment of future installments in the same manner as any other account.
Contracts receiving a payment deferral as an average quarterly percentage of
average managed auto receivables outstanding were 4.9%, 4.7% and 4.4% for fiscal
2002, 2001 and 2000, respectively. Receivables held for sale receiving a payment
deferral were less than 2.0% of the total amount deferred in fiscal 2002, 2001
and 2000.
We evaluate the results of our deferment strategies based upon the amount
of cash installments that are collected on accounts that have been deferred
versus the extent to which the collateral underlying deferred accounts has
depreciated over the same period of time. We believe that payment deferrals
granted according to our policies and guidelines are an effective portfolio
management technique and result in higher ultimate cash collections from the
portfolio.
-47-
The following table presents charge-off data with respect to our auto
receivables portfolio (dollars in thousands):
Years Ended June 30,
----------------------------------------
2002 2001 2000
------------ ----------- -------------
Held for sale:
Repossession charge-offs ............................................. $ 76,799 $ 26,554 $ 16,080
Less: Recoveries ..................................................... (39,520) (13,850) (8,490)
Mandatory charge-offs (1) ............................................ 17,141 4,630 2,033
------------ ----------- -------------
Net charge-offs ...................................................... $ 54,420 $ 17,334 $ 9,623
============ =========== =============
Serviced:
Repossession charge-offs ............................................. $ 740,016 $ 432,590 $ 325,115
Less: Recoveries ..................................................... (355,252) (220,565) (173,591)
Mandatory charge-offs (1) ............................................ 134,634 72,332 53,129
------------ ----------- -------------
Net charge-offs ...................................................... $ 519,398 $ 284,357 $ 204,653
============ =========== =============
Total managed:
Repossession charge-offs ............................................. $ 816,815 $ 459,144 $ 341,195
Less: Recoveries ..................................................... (394,772) (234,415) (182,081)
Mandatory charge-offs (1) ............................................ 151,775 76,962 55,162
------------ ----------- -------------
Net charge-offs ...................................................... $ 573,818 $ 301,691 $ 214,276
============ =========== =============
Net charge-offs as a percentage of average managed receivables
outstanding ......................................................... 4.6% 3.6% 4.0%
============ =========== =============
Recoveries as a percentage of repossession charge-offs ................. 48.3% 51.1% 53.4%
============ =========== =============
(1) Mandatory charge-offs represent accounts charged off in full with no
recovery amounts realized at time of charge off.
Net charge-offs as an annualized percentage of average managed receivables
outstanding may vary from period to period based upon the average age or
seasoning of the portfolio and economic factors. Net charge-offs increased for
fiscal 2002 compared to fiscal 2001 due to continued weakness in the economy,
including higher unemployment rates, and due to lower net recoveries on
repossessed vehicles. Net charge-offs decreased for fiscal 2001 compared to
fiscal 2000 due to changes in our credit strategies and favorable economic
conditions. Recoveries as a percentage of repossession charge-offs decreased due
to general declines in used car auction values.
Liquidity and Capital Resources
Our primary sources of cash have been borrowings under our warehouse
facilities and sales of auto receivables to Trusts in securitization
transactions. Our primary uses of cash have been purchases of receivables and
funding credit enhancement requirements for securitization transactions.
We required cash of $9,055.0 million, $6,367.8 million and $4,425.8 million
for the purchase of auto finance contracts during fiscal 2002, 2001 and 2000,
respectively. These purchases were funded initially utilizing warehouse
facilities and subsequently through the sale of auto receivables in
securitization transactions.
As of October 9, 2002, we have three separate funding agreements with
administrative agents on behalf of institutionally managed commercial paper
conduits and bank groups with aggregate structured warehouse financing
availability of approximately $3,295.0 million. One of the commercial paper
facilities is renewable annually and provides for available structured warehouse
financing of $250.0 million through September 2003. Another facility provides
for multi-year structured warehouse financing with availability of $500.0
million through November 2003. A third facility provides for available
structured warehouse financing of $2,545.0 million, of which $380.0 million
matures
-48-
in March 2003 and the remaining $2,165.0 million matures in March 2005. No
amounts were outstanding under these facilities as of June 30, 2002.
We also have three funding agreements with administrative agents on behalf
of institutionally managed medium term note conduits under which $500.0 million,
$750.0 million and $500.0 million, respectively, of proceeds are available
through the terms of the agreements. The funding agreements allow for the
substitution of auto receivables (subject to an overcollateralization formula)
for cash, and vice versa, thus allowing us to use the medium term note proceeds
to finance auto receivables on a revolving basis. The agreements mature in
December 2003, June 2004 and February 2005, respectively. A total of $1,750.0
million was outstanding under these facilities as of June 30, 2002.
Our Canadian subsidiary has a revolving credit agreement, under which the
subsidiary may borrow up to $150 million Cdn., subject to a defined borrowing
base. This facility matures in August 2003. A total of $2.0 million was
outstanding under the Canadian revolving credit agreement as of June 30, 2002.
Additionally, our Canadian subsidiary has a warehouse credit facility with
availability of $100.0 million Cdn., subject to a defined borrowing base. The
warehouse credit facility expires in May 2003. No amounts were outstanding under
the warehouse credit facility as of June 30, 2002.
As is customary in our industry, certain of our warehouse facilities need
to be renewed on an annual basis. We have historically been successful in
renewing and expanding these facilities on an annual basis. If we were unable to
renew these facilities on acceptable terms, there could be a material adverse
effect on our financial position, results of operations and liquidity.
In June 2002, we issued $175.0 million of 9.25% senior notes that are due
in May 2009. Interest on the notes is payable semiannually in May and November.
The proceeds from the senior notes issuance were used to redeem $135.4 million
of our $175.0 million 9.25% senior notes due in 2004. Subsequent to June 2002,
we redeemed the remaining $39.6 million of senior notes due in 2004.
The following table summarizes the scheduled payments under our contractual
long-term debt obligations (in thousands):
Years Ending June 30,
---------------------------------------------------------------------
2003 2004 - 2005 2006 - 2007 After 2007 Total
------------- ------------- ------------- ------------ -----------
Operating leases ......................... $ 80,605 $ 28,572 $ 21,280 $ 33,002 $ 163,459
Other notes payable ...................... 37,291 17,976 7,674 3,870 66,811
Medium term notes ........................ 1,750,000 1,750,000
Senior notes ............................. 39,631 200,000 175,000 414,631
--------- ----------- --------- --------- -----------
Total ............................... $ 157,527 $ 1,796,548 $ 228,954 $ 211,872 $ 2,394,901
========= =========== ========= ========= ===========
We completed thirty-three auto receivables securitization transactions
through June 30, 2002. The proceeds from the transactions were primarily used to
repay borrowings outstanding under our warehouse facilities.
-49-
A summary of the active transactions through June 30, 2002 is as follows
(in millions):
Original Balance at
Transaction (a) Date Amount June 30, 2002
---------------------- ----------------- --------------- ---------------
1998-D ............... November 1998 $ 625.0 $ 74.5
1999-A ............... February 1999 700.0 104.1
1999-B ............... May 1999 1,000.0 196.9
1999-C ............... August 1999 1,000.0 257.9
1999-D ............... October 1999 900.0 260.5
2000-A ............... February 2000 1,300.0 437.8
2000-B ............... May 2000 1,200.0 488.0
2000-C ............... August 2000 1,100.0 506.2
2000-1 ............... November 2000 495.0 235.3
2000-D ............... November 2000 600.0 319.4
2001-A ............... February 2001 1,400.0 794.2
2001-1 ............... April 2001 1,089.0 663.9
2001-B ............... July 2001 1,850.0 1,342.8
2001-C ............... September 2001 1,600.0 1,269.0
2001-D ............... October 2001 1,800.0 1,469.2
2002-A ............... February 2002 1,600.0 1,466.3
2002-1 ............... April 2002 990.0 922.7
2002-A Canada (b) .... May 2002 158.9 147.5
2002-B ............... June 2002 1,200.0 1,191.5
--------------- ---------------
$20,607.9 $12,147.7
=============== ===============
(a) Transactions 1994-A, 1995-A and B, 1996-A, B, C and D, 1997-A, B, C
and D, and 1998-A, B and C originally totaling $3,520.5 million have
been paid off as of June 30, 2002.
(b) The balance at June 30, 2002 reflects fluctuations in foreign
currency translation rates as well as principal pay downs.
In connection with securitization transactions, we are required to provide
credit enhancement in order to attain specific credit ratings for the
asset-backed securities issued by the Trusts. We typically make an initial
deposit to a restricted cash account and subsequently use excess cash flows
generated by the Trusts to either increase the restricted cash account or repay
the outstanding asset-backed securities on an accelerated basis, thus creating
additional credit enhancement through overcollateralization in the Trusts. When
the credit enhancement levels reach specified percentages of the Trust's pool of
receivables, excess cash flows are distributed to us. We generally expect to
begin to receive excess cash flow distributions from our insured securitization
transactions approximately 15 to 18 months after receivables are securitized,
although the timing of cash flow distributions is dependent upon the structure
of the securitization transaction.
We employ two types of securitization structures. The structure we utilize
most frequently involves the purchase of a financial guaranty policy issued by
an insurer to cover the asset-backed securities and the use of reinsurance and
other alternative credit enhancements to reduce the required initial deposit to
the restricted cash account. The reinsurance used to reduce our initial cash
deposit has typically been arranged by the insurer of the asset-backed
securities. As of June 30, 2002, we had commitments from the insurer for an
additional $125.5 million of reinsurance that expires in December 2002. In
August 2002, we obtained an additional $200.0 million of reinsurance commitments
that will expire in December 2003. The new reinsurance commitments increase our
initial cash deposit requirement to a level of 3%, compared to 2% under the
previous commitments, which will require an additional $50.0 million of cash
deposits over the term of the new commitments. Also, in August 2002, we entered
into a revolving credit enhancement facility that provides for borrowing up to
$290 million for the financing of bonds rated BBB- and BB- by Standard and
Poor's in connection with securitization transactions. This credit facility
provides additional liquidity for credit enhancement in future. We rely on these
reinsurance arrangements and the credit facility to supplement the amount of
cash we would otherwise require to support our securitization program. If
-50-
we were unable to access reinsurance or alternative credit enhancements on
acceptable terms, there could be a material adverse effect on our liquidity.
We had a credit enhancement facility with a financial institution which we
used to fund a portion of the initial cash deposit in securitization
transactions through October 2001, similar to the amount covered by the
reinsurance described above. Borrowings under the credit enhancement facility
were collateralized by our credit enhancement assets. In June 2002, this credit
enhancement facility was terminated by mutual agreement and borrowings under
this facility have been repaid with a corresponding release of restricted cash.
We replaced the credit enhancement provided by this facility with a $130.0
million letter of credit from another financial institution. This letter of
credit does not represent funded debt and, therefore, is not recorded as debt on
our consolidated balance sheet.
Our second securitization structure involves the sale of subordinate
asset-backed securities in order to provide credit enhancement for the senior
asset-backed securities. The subordinate asset-backed securities replace a
portion of our initial credit enhancement deposit otherwise required in a
securitization transaction in a manner similar to the utilization of reinsurance
or other alternative credit enhancements described in the preceding paragraphs.
Initial deposits for credit enhancement purposes were $368.5 million,
$180.0 million and $192.0 million for fiscal 2002, 2001 and 2000, respectively.
Borrowings under the credit enhancement facility of $182.5 million, $57.0
million and $72.0 million for fiscal 2002, 2001 and 2000, respectively, were
used to fund initial deposits for credit enhancement purposes. Excess cash flows
distributed to us were $243.6 million, $214.6 million and $125.1 million for
fiscal 2002, 2001 and 2000, respectively.
With respect to our securitization transactions covered by a financial
guaranty insurance policy, agreements with the insurer provide that if
delinquency, default or net loss ratios in a Trust's pool of receivables exceed
certain targets, the specified credit enhancement levels would be increased. If
a targeted ratio were exceeded in any insured securitization and a waiver were
not granted by the insurer, excess cash flows from all of our insured
securitizations could be used by the insurer to increase credit enhancement for
the securitization in which a ratio was exceeded to higher specified levels
rather than being distributed to us. If a targeted ratio were exceeded for an
extended period of time in larger securitizations requiring a greater amount of
additional credit enhancement, there could be a material adverse effect on our
liquidity.
As of August 31, 2002, none of our securitizations had delinquency, default
or net loss ratios in excess of the targeted levels. However, as a result of
expected seasonal increases in delinquency levels through February 2003 and the
prospects for continued economic weakness, we believe that it is likely that the
initially targeted delinquency ratios will be exceeded in certain of our
securitizations during that time period. In September 2002, the insurer agreed
to revise the targeted delinquency trigger levels through and including the
March 2003 distribution date. As a result, we do not expect to exceed the
revised targets with respect to any Trusts. We anticipate that expected seasonal
improvements in delinquency levels after February 2003 will result in the ratios
being reduced below applicable target levels. However, further deterioration in
the economy subsequent to March 2003 could cause targeted ratios to be exceeded,
resulting in greater stress on our liquidity position in the event additional
waivers are not granted. We may be required to significantly decrease loan
origination activities, and implement other significant expense reductions, if
securitization distributions to us are materially decreased for a prolonged
period of time.
On September 12, 2002, Moody's Investors Service announced its intention to
review us for a potential credit rating downgrade. On September 17, 2002, Fitch
Ratings announced that it had placed our senior debt rating on Rating Watch
Negative. In the event of a downgrade, certain of our derivative collateral
lines will be reduced. We anticipate that the reductions in these derivative
collateral lines would require us to pledge an additional $25 million to $40
million in cash to maintain our open derivative positions.
We believe that we will continue to require the execution of securitization
transactions and the renewal of our existing warehouse facilities, in order to
fund our future liquidity needs. There can be no assurance that funding will be
available to us through these sources or, if available, that it will be on terms
acceptable to us. If these sources of funding are unavailable to us on a regular
basis, we may be required to significantly decrease loan origination activities
and implement significant expense reductions, all of which may have a material
adverse affect on our ability to achieve our business and financial objectives.
-51-
Interest Rate Risk
Our earnings are affected by changes in interest rates as a result of our
dependence upon the issuance of interest-bearing securities and the incurrence
of debt to fund our lending activities. Several factors can influence our
ability to manage interest rate risk. First, auto finance contracts are
purchased at fixed interest rates, while the amounts borrowed under warehouse
credit facilities bear interest at variable rates that are subject to frequent
adjustment to reflect prevailing market interest rates. Second, the interest
rate demanded by investors in securitizations is a function of prevailing market
rates for comparable transactions and the general interest rate environment.
Because the auto finance contracts purchased by us have fixed interest rates, we
bear the risk of smaller gross interest rate spreads in the event interest rates
increase during the period between the date receivables are purchased and the
completion and pricing of securitization transactions. In addition, the
securities issued by the Trusts in our securitization transactions may bear
interest at floating rates that are subject to monthly adjustment to reflect
prevailing market interest rates.
We utilize several strategies to minimize the risk of interest rate
fluctuations, including the use of derivative financial instruments, the regular
sale of auto receivables to the Trusts and pre-funding of securitization
transactions. Pre-funding securitizations is the practice of issuing more
asset-backed securities than the amount of receivables initially sold to the
Trust. The proceeds from the pre-funded portion are held in an escrow account
until additional receivables are sold to the Trust in amounts up to the balance
of the pre-funded escrow account. In pre-funded securitizations, borrowing costs
are locked in with respect to the loans subsequently delivered to the Trust.
However, we incur an expense in pre-funded securitizations equal to the
difference between the money market yields earned on the proceeds held in escrow
prior to the subsequent delivery of receivables and the interest rate paid on
the asset-backed securities outstanding.
Derivative financial instruments are utilized to manage the gross interest
rate spread on our securitization transactions. We sell fixed rate auto
receivables to Trusts that, in turn, sell either fixed rate or floating rate
securities to investors. The fixed rates on securities issued by the Trusts are
indexed to market interest rate swap spreads for transactions of similar
duration or various London Interbank Offered Rates ("LIBOR"). The floating rates
on securities issued by the Trusts are indexed to LIBOR. We use interest rate
swap agreements to convert the floating rate exposures on securities issued by
the Trusts to a fixed rate hedging the variability in future excess cash flows
to be received by us over the life of the securitization attributable to
interest rate risk. We utilize these derivative financial instruments to modify
our net interest sensitivity to levels deemed appropriate based on our risk
tolerance.
We also use an interest rate swap agreement to hedge the fair value of
certain of our fixed rate senior notes. The carrying value of the senior notes
is adjusted to reflect the effective portion of the fair value hedge. The fair
value of the interest rate swap agreement is included on our consolidated
balance sheets in other assets.
In addition, we utilize interest rate cap agreements as part of our
interest rate risk management strategy for securitization transactions as well
as for warehouse credit facilities. The purchaser of the interest rate cap
agreement pays a premium in return for the right to receive the difference in
the interest cost at any time a specified index of market interest rates rises
above the stipulated "cap" rate. The interest rate cap agreement purchaser bears
no obligation or liability if interest rates fall below the "cap" rate. Our
special purpose finance subsidiaries are contractually required to purchase
interest rate cap agreements as credit enhancement in connection with
securitization transactions involving notes with floating interest rates and
warehouse credit facilities. We simultaneously sell a corresponding interest
rate cap agreement in order to offset cash needed to purchase the interest rate
cap agreement. The fair value of the interest rate cap agreements purchased and
sold by us is included in other assets and liabilities on our consolidated
balance sheets. The fair value of the interest rate cap agreements purchased by
the Trusts is reflected in the valuation of the credit enhancement assets.
-52-
The following table provides information about our interest rate-sensitive
financial instruments by expected maturity date as of June 30, 2002 (dollars in
thousands):
Years Ending June 30,
------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Fair Value
------------ ------------ ------------ ------------ ------------ ------------ ------------
Assets:
Receivables held for sale ..... $ 2,198,391 $ 2,315,010
Interest-only receivables
from Trusts ................. $ 138,748 $ 177,201 $ 167,402 $ 31,146 $ 514,497
Interest rate swaps
Notional amounts ............ $ 200,000 $ 200,000 $ 200,000 $ 166,667 $ 5,548
Average pay rate ............ 6.95% 8.68% 9.73% 10.21%
Average receive rate ........ 9.88% 9.88% 9.88% 9.88%
Interest rate caps purchased
Notional amounts ............ $ 1,668,864 $ 1,444,276 $ 1,192,558 $ 911,248 $ 595,942 $ 242,017 $ 16,741
Average strike rate ......... 6.61% 6.60% 6.60% 6.59% 6.59% 6.59%
Liabilities:
Warehouse credit facilities
Principal amounts ........... $ 1,974 $ 1,250,000 $ 500,000 $ 1,751,974
Weighted average effective
interest rate .............. 2.78% 4.57% 5.58%
Senior notes
Principal amounts ........... $ 39,631 $ 200,000 $ 175,000 $ 403,798
Weighted average effective
interest rate .............. 9.25% 9.88% 9.36%
Interest rate swaps
Notional amounts ............ $ 1,086,341 $ 535,780 $ 162,288 $ 9,655 $ 66,869 (a)
Average pay rate ............ 7.08% 7.13% 7.07% 6.86%
Average receive rate ........ 2.50% 4.26% 5.48% 5.91%
Interest rate caps sold
Notional amounts ............ $ 3,016,192 $ 2,273,768 $ 1,561,615 $ 980,597 $ 600,015 $ 242,017 $ 19,053
Average strike rate ......... 6.77% 6.81% 6.84% 6.66% 6.60% 6.59%
(a) Unrealized losses on interest rate swap agreements are offset by unrealized
gains on credit enhancement assets.
-53-
The following table provides information about our interest-rate sensitive
financial instruments by expected maturity date as of June 30, 2001 (dollars in
thousands):
Years Ending June 30,
------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Fair Value
------------ ------------ ------------ ------------ ------------ ------------ ------------
Assets:
Receivables held for sale ..... $ 1,921,465 $ 2,032,603
Interest-only receivables
from Trusts ................. $ 148,016 $ 107,034 $ 113,310 $ 19,535 $ 387,895
Interest rate caps purchased
Notional amounts ............ $ 3,285,879 $ 2,822,020 $ 2,101,618 $ 1,301,145 $ 516,854 $ 152,013 $ 18,640
Average strike rate ......... 7.36% 7.40% 7.44% 7.46% 7.37% 7.31%
Liabilities:
Warehouse credit facilities
Principal amounts ........... $ 252,879 $ 1,250,000 $ 1,502,879
Weighted average effective
interest rate .............. 4.61% 6.64%
Senior notes
Principal amounts ........... $ 175,000 $ 200,000 $ 374,125
Weighted average effective
interest rate .............. 9.25% 9.88%
Interest rate swaps
Notional amounts ............ $ 1,564,897 $ 1,070,612 $ 520,980 $ 144,440 $ 8,538 $ 64,156 (a)
Average pay rate ............ 7.03% 7.08% 7.13% 7.08% 6.82%
Average receive rate ........ 4.14% 4.14% 4.10% 4.06% 4.06%
Interest rate caps sold
Notional amounts ............ $ 3,285,879 $ 2,822,020 $ 2,101,618 $ 1,301,145 $ 516,854 $ 152,013 $ 18,640
Average strike rate ......... 7.36% 7.40% 7.44% 7.46% 7.37% 7.31%
(a) Unrealized losses on interest rate swap agreements are offset by
unrealized gains on credit enhancement assets.
We assume that receivables held for sale will be sold within one year of
origination. Interest-only receivables from Trusts are estimated to be realized
by us in future periods using discount rate, prepayment and credit loss
assumptions similar to our historical experience. Notional amounts on interest
rate swap and cap agreements are based on contractual terms. Warehouse credit
facilities and senior notes principal amounts have been classified based on
expected payoff.
Notional amounts, which are used to calculate the contractual payments to
be exchanged under the contracts, represent average amounts that will be
outstanding for each of the years included in the table. Notional amounts do not
represent amounts exchanged by parties and, thus, are not a measure of our
exposure to loss through our use of these agreements.
Management monitors our hedging activities to ensure that the value of
hedges, their correlation to the contracts being hedged and the amounts being
hedged continue to provide effective protection against interest rate risk. All
transactions are entered into for purposes other than trading.
There can be no assurance that our strategies will be effective in
minimizing interest rate risk or that increases in interest rates will not have
an adverse effect on our profitability.
-54-
Current Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142,
"Accounting for Goodwill and Intangible Assets" ("SFAS 142"). SFAS 141 and SFAS
142 require that all business combinations initiated after June 30, 2001, be
accounted for under the purchase method and establish the specific criteria for
the recognition of intangible assets separately from goodwill. Under SFAS 142,
goodwill will no longer be amortized, but will be subject to impairment tests at
least annually. We adopted SFAS 141 on July 1, 2001, and it did not impact our
financial position or results of operations. SFAS 142 will be effective for our
fiscal year ending June 30, 2003. We do not believe that the adoption of SFAS
142 will have any impact of our financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). The
statement requires that retirement obligations be recorded as a liability using
the present value of the estimated cash flows and a corresponding amount would
be capitalized as part of the asset's carrying amount. The capitalized asset
retirement cost would be amortized to expense over the asset's useful life using
a systematic and rational allocation method. The estimate of the asset
retirement obligation will change and have to be revised over time. We do not
believe that the adoption of this statement will have any impact on our
financial position or results of operations. This statement will be effective
for our fiscal year ending June 30, 2003.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS
144"). SFAS 144 superceded Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." We do not believe that the adoption of this statement will have
any impact on our financial position or results of operations. This statement
will be effective for our fiscal year ending June 30, 2003.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002" ("SFAS 145"). SFAS
145 rescinds Statement of Financial Accounting Standards No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that statement,
Statement of Financial Accounting Standards No. 64, "Extinguishment of Debt Made
to Satisfy Sinking-Fund Requirements." SFAS 145 also rescinds Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback transactions
and the required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS 145 also amends
other existing authoritative pronouncements to make various technical
corrections, clarify meanings or describe their applicability under changed
conditions. We do not believe that the adoption of this statement will have a
material effect on our financial position or results of operations. This
statement will be effective for our fiscal year ending June 30, 2003.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities"
("SFAS 146"). SFAS 146 addresses the accounting and reporting for costs
associated with exit or disposal activities and certain costs associated with
those activities. We do not believe that the adoption of this statement will
have any impact on our financial position or results of operations. This
statement will be effective for our fiscal year ending June 30, 2003.
-55-
BUSINESS
General
We were incorporated in Texas on May 18, 1988, and succeeded to the
business, assets and liabilities of a predecessor corporation formed under the
laws of Texas on August 1, 1986. Our predecessor began operations in March 1987,
and the business has been operated continuously since that time.
We and our subsidiaries have been operating in the automobile finance
business since September 1992. We purchase auto finance contracts without
recourse from franchised and select independent automobile dealerships and, to a
lesser extent, makes loans directly to consumers buying used and new vehicles.
As used in this prospectus, "loans" includes auto finance contracts originated
by dealers and purchased by us and direct extensions of credit made by us to
consumer borrowers. We target consumers who are typically unable to obtain
financing from traditional sources. Funding for our auto lending activities is
obtained primarily through the sale of loans in securitization transactions. We
service our automobile lending portfolio at regional centers using automated
loan servicing and collection systems.
Automobile Finance Operations
Target Market. Our automobile lending programs are designed to serve
customers who have limited access to traditional automobile financing. Our
typical borrowers have experienced prior credit difficulties or have modest
income. Because we serve customers who are unable to meet the credit standards
imposed by most traditional automobile financing sources, we generally charge
interest at higher rates than those charged by traditional financing sources. As
we provide financing in a relatively high risk market, we also expect to sustain
a higher level of credit losses than traditional automobile financing sources.
Marketing. Since we are primarily an indirect lender, we focus our
marketing activities on automobile dealerships. We are selective in choosing the
dealers with whom we conduct business and primarily pursue manufacturer
franchised dealerships with used car operations and select independent
dealerships. We select these dealers based on the type of vehicles sold.
Specifically, we prefer to finance later model, low mileage used vehicles and
moderately priced new vehicles. Of the contracts we purchased during the fiscal
year ended June 30, 2002, approximately 97% were originated by manufacturer
franchised dealers and 3% by select independent dealers. We purchased contracts
from 19,401 dealers during the fiscal year ended June 30, 2002. No dealer
location accounted for more than 1% of the total volume of contracts we
purchased for that same period.
Prior to entering into a relationship with a dealer, we consider the
dealer's operating history and reputation in the marketplace. We then maintain a
non-exclusive relationship with the dealer. This relationship is actively
monitored with the objective of maximizing the volume of applications received
from the dealer that meet our underwriting standards and profitability
objectives. Due to the non-exclusive nature of our relationships with
dealerships, the dealerships retain discretion to determine whether to obtain
financing from us or from another source for a loan made by the dealership to a
customer seeking to make a vehicle purchase. Branch personnel and other
marketing representatives regularly telephone and visit dealers to solicit new
business and to answer any questions dealers may have regarding our financing
programs and capabilities. These personnel explain our underwriting philosophy,
including the preference for non-prime quality contracts secured by later model,
low mileage vehicles. To increase the effectiveness of these contacts, marketing
personnel have access to our management information systems which detail current
information regarding the number of applications submitted by a dealership, our
response and the reasons why a particular application was rejected.
We have a strategic marketing alliance with Chase Automotive Finance. Under
this alliance, our personnel and representatives from Chase Automotive Finance
jointly market to automobile dealers with us providing non-prime auto financing
and Chase Automotive Finance providing prime auto financing. The alliance allows
us and Chase Automotive Finance to better service automobile dealers by offering
auto financing across a broad credit spectrum. We also benefit from being able
to market our auto financing programs to automobile dealers who have
relationships with Chase Automotive Finance.
Finance contracts are generally purchased by us without recourse to the
dealer, and accordingly, the dealer usually has no liability to us if the
consumer defaults on the contract. To mitigate the risk from potential credit
losses, we may charge dealers a non-refundable acquisition fee when purchasing
finance contracts. Such acquisition fees are assessed on a contract-by-contract
basis. Although finance contracts are purchased without recourse to the dealer,
the dealer typically makes certain representations as to the validity of the
contract and compliance with certain laws, and indemnifies us against any
claims, defenses and set-offs that may be asserted against us because of
assignment of the contract. Recourse based upon such representations and
indemnities would be limited in circumstances in which the dealer has
insufficient financial resources to perform upon such representations and
indemnities. We do
-56-
not view recourse against the dealer on these representations and indemnities to
be of material significance in our decision to purchase finance contracts from a
dealer.
To supplement our indirect lending activities, we have introduced certain
other automobile finance programs. In our Valued Customer Program, we seek to
provide pre-approvals for qualifying existing customers for their next auto loan
when they trade-in their vehicle financed by us or purchase an additional
vehicle. Additionally, through strategic alliances with certain online lending
sources and through our own website, we process online credit applications in
order to provide direct auto financing via the Internet.
In 2001, we joined certain other auto finance companies in providing equity
capital to launch a new company, DealerTrack Holdings, Inc. DealerTrack was
established to automate the dealer-lender process, allowing dealers to submit
consumer credit applications via the Internet to any participating lender.
Real-time contract status information and historical data regarding applications
and approvals are also available to dealers. We are one of the lenders that
offers services through DealerTrack.
Branch Office Network. We primarily use a branch office network to market
our indirect financing programs to selected dealers, develop relationships with
these dealers and underwrite contracts submitted by the dealerships. Marketing
representatives are also utilized in areas not covered by a branch office with
support from our central loan purchasing office. Branch office and marketing
personnel are responsible for the solicitation, enrollment and education of
dealers regarding our financing programs. We believe a local presence enables us
to be more responsive to dealer concerns and local market conditions. We select
markets for branch office locations based upon numerous factors, including
demographic trends and data, competitive conditions, regulatory environment and
availability of qualified personnel. Branch offices are typically situated in
suburban office buildings that are accessible to local dealers.
Each branch office solicits dealers for contracts and maintains our
relationship with the dealers in the geographic vicinity of that branch office.
Branch office locations are typically staffed by a branch manager, an assistant
manager and several dealer and customer service representatives. Larger branch
offices may also have additional assistant managers or dealer marketing
representatives. We believe that the personal relationships our branch managers
and other branch personnel establish with the dealership staff are an important
factor in creating and maintaining productive relationships with our dealer
customer base. Branch managers are compensated with base salaries and annual
incentives based on overall branch performance including factors such as branch
loan credit quality, loan pricing adequacy and loan volume objectives. The
incentives are typically paid in cash and stock-based awards. The branch
managers report to regional vice presidents.
Our regional vice presidents monitor branch office compliance with our
underwriting guidelines and assist in local branch marketing activities. Our
management information systems provide the regional vice presidents access to
credit application information enabling them to consult with the branch managers
on credit decisions and review exceptions to our underwriting guidelines. The
regional vice presidents also make periodic visits to the branch offices to
conduct operating reviews.
The following table sets forth information with respect to the number of
branches, dollar volume of contracts purchased and number of producing
dealerships for the periods set forth below.
Years Ended June 30,
--------------------------------------------
2002 2001 2000
------------ ------------ ------------
(dollars in thousands)
Number of branch offices ........................... 251 232 196
Dollar volume of contracts purchased ............... $ 8,929,352 $ 6,378,652 $ 4,427,945
Number of producing dealerships (1) ................ 19,401 16,280 14,076
(1) A producing dealership refers to a dealership from which we had
purchased contracts in the respective period.
Underwriting and Purchasing of Contracts
Proprietary Credit Scoring System and Risk-based Pricing. We utilize a
proprietary credit scoring system to support the credit approval process. The
credit scoring system was developed through statistical analysis of our consumer
demographic and portfolio databases. Credit scoring is used to differentiate
credit applicants and to rank order credit risk in terms of expected default
rates, which enables us to evaluate credit applications for approval and tailor
loan pricing and structure according to this statistical assessment of credit
risk. For example, a consumer with a lower score would indicate a higher
probability of default and, therefore, we would either decline the application,
or, if approved, compensate for this higher default risk through the structuring
and pricing of the transaction.
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While we employ a credit scoring system in the credit approval process, credit
scoring does not eliminate credit risk. Adverse determinations in evaluating
contracts for purchase could negatively affect the credit quality of our
receivables portfolio.
The credit scoring system considers data contained in the customer's credit
application and credit bureau report as well as the structure of the proposed
loan and produces a statistical assessment of these attributes. This assessment
is used to segregate applicant risk profiles and determine whether risk is
acceptable and the price we should charge for that risk. Our credit scorecards
are validated on a monthly basis through the comparison of actual versus
projected performance by score. We endeavor to refine our proprietary scorecards
based on new information and identified correlations relating to receivables
performance.
Indirect Loan Approval Process. We purchase individual contracts through
our branch offices using a credit approval process tailored to local market
conditions. Branch personnel have a specific credit authority based upon their
experience and historical loan portfolio results as well as established credit
scoring parameters. Contracts may also be purchased through our central loan
purchasing office for specific dealers requiring centralized service, in certain
markets where a branch office is not present or, in some cases, outside of
normal branch office working hours. Although the credit approval process is
decentralized, our application processing system includes controls designed to
ensure that credit decisions comply with our credit scoring strategies and
underwriting policies and procedures.
Finance contract application packages completed by prospective obligors are
received from dealers via facsimile, electronically, or by telephone. Since we
are a participating lender in DealerTrack, automobile dealers can send
application data to us electronically via an Internet connection. Such data
automatically interfaces with our application processing systems providing for
faster processing. We received 33% of credit applications from dealers via
DealerTrack for our fiscal year ended June 30, 2002. Application data received
by facsimile or telephone is entered into our application processing system. A
credit bureau report is automatically accessed and a credit score is computed.
Company personnel with credit authority review the application package and
determine whether to approve the application, approve the application subject to
conditions that must be met or deny the application. The credit decision is
based primarily on the applicant's credit score. We estimate that approximately
60% of applicants are denied credit by us typically because of their credit
histories or other factors. Dealers are contacted regarding credit decisions
electronically, by facsimile or by telephone. Declined and conditioned
applicants are also provided with appropriate notification of the decision.
Our underwriting and collateral guidelines, including credit scoring
parameters, form the basis for the credit decision. Exceptions to credit
policies and authorities must be approved by a regional vice president or other
designated credit officer. Exceptions are also monitored by our centralized risk
management group.
Completed contract packages are sent by the automobile dealers to us. Once
the contract package is received, a customer service representative verifies
certain applicant employment and residency information when required by our
credit policies. Loan terms and insurance coverages may be reverified with the
customer. Key loan documentation is scanned to create electronic images and
electronically forwarded to our centralized loan processing department. The
original documents are subsequently sent to the loan processing department and
are stored in a fire resistant vault.
Upon electronic receipt of loan documentation, the loan processing
department reviews the loan packages for proper documentation and regulatory
compliance and completes the entry of information into our loan accounting
system. Once cleared for funding, the loan processing department electronically
transfers funds to the dealer or issues a check. Upon funding of the contract,
we acquire a perfected security interest in the automobile that was financed.
Daily loan reports are generated for review by senior operations management. All
of our contracts are fully amortizing with substantially equal monthly
installments.
Direct Loan Approval Process. We offer our direct loan program to consumers
in most states via strategic alliances with certain online lending sources and
our own website, www.americredit.com.
An online loan application is completed by prospective obligors via the
Internet. The application is transmitted to our automated application processing
system, and within seconds a credit bureau report is accessed and a credit score
is computed. The applicant is automatically approved or declined and the
decision is electronically sent to the applicant. Our underwriting and
collateral guidelines as well as proprietary credit scoring parameters form the
basis for the credit decision. All credit decisions made via our automated
application processing system are valid for a 45-day period. Declined applicants
are provided with appropriate notification of the decision.
A package of loan documents is provided to approved applicants explaining
the terms and conditions of the loan. The package may be used at an automobile
dealer of the applicant's choice to purchase and finance a vehicle. The
applicant and dealer complete the loan package and submit the package to either
us or our online lending partners for funding.
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Loan packages received directly by us are processed in a manner similar to
indirect loans. In the case of loans originated through one of our Internet
partners, the dealer deposits a documentary draft that is presented to the
partner for funding. Once cleared for funding, we electronically transfer funds
to the partner and purchase the loan.
Servicing and Collections Procedures
General. Our servicing activities consist of collecting and processing
customer payments, responding to customer inquiries, initiating contact with
customers who are delinquent in payment of an installment, maintaining the
security interest in the financed vehicle, monitoring physical damage insurance
coverage of the financed vehicle, arranging for the repossession of, and
liquidating collateral when necessary.
We use monthly billing statements to serve as a reminder to customers as
well as an early warning mechanism in the event a customer has failed to notify
us of an address change. Approximately 15 days before a customer's first payment
due date and each month thereafter, we mail the customer a billing statement
directing the customer to mail payments to a lockbox bank for deposit in a
lockbox account. Payment receipt data is electronically transferred from our
lockbox bank to us for posting to the loan accounting system. Payments may also
be received directly by us from customers. All payment processing and customer
account maintenance is performed centrally at our operations center in
Arlington, Texas.
Our collections activities are performed at regional centers located in
Arlington, Texas; Tempe, Arizona; Charlotte, North Carolina; Jacksonville,
Florida and Peterborough, Ontario. A predictive dialing system is utilized to
make phone calls to customers whose payments are past due. The predictive dialer
is a computer-controlled telephone dialing system that simultaneously dials
phone numbers of multiple customers from a file of records extracted from our
database. Once a live voice responds to the automated dialer's call, the system
automatically transfers the call to a collector and the relevant account
information to the collector's computer screen. The system also tracks and
notifies collections management of phone numbers that the system has been unable
to reach within a specified number of days, thereby promptly identifying for
management all customers who cannot be reached by telephone. By eliminating the
time spent on attempting to reach customers, the system gives a single collector
the ability to speak with a larger number of accounts daily.
Once an account reaches a certain level of delinquency, the account moves
to one of our mid-range collection units. The objective of these collectors is
to prevent the account from becoming further delinquent. After a scheduled
payment on an account becomes more than 90 days past due, we typically repossess
the financed vehicle. However, initiation of repossession may occur prior to an
account becoming 90 days past due. We may repossess a financed vehicle without
regard to the length of payment delinquency if an account is deemed
uncollectable, the financed vehicle is deemed by collection personnel to be in
danger of being damaged, destroyed or hidden, the customer deals in bad faith or
the customer voluntarily surrenders the financed vehicle.
At times, we offer payment deferrals to customers who have encountered
temporary financial difficulty, hindering their ability to pay as contracted. A
deferral allows the customer to move a delinquent payment to the end of the
loan, usually by paying a fee that is calculated in a manner specified by
applicable law. The collector reviews the customer's past payment history and
statistically based behavioral score and assesses the customer's desire and
capacity to make future payments. Before agreeing to a deferral, the collector
also considers whether the deferment transaction complies with our policies and
guidelines. Exceptions to our policies and guidelines for deferrals must be
approved by a collections officer. While payment deferrals are initiated and
approved in the collections department, a separate department processes
authorized deferment transactions. As of June 30, 2002, approximately 17% of our
managed receivables had received a deferral.
Repossessions. Repossessions are subject to prescribed legal procedures,
which include peaceful repossession, one or more customer notifications, a
prescribed waiting period prior to disposition of the repossessed automobile and
return of personal items to the customer. Some jurisdictions provide the
customer with reinstatement or redemption rights. Legal requirements,
particularly in the event of bankruptcy, may restrict our ability to dispose of
the repossessed vehicle. Repossessions are handled by independent repossession
firms engaged by us and must be approved by a collections officer. Upon
repossession and after any prescribed waiting period, the repossessed automobile
is sold at auction. We do not sell any vehicles on a retail basis. The proceeds
from the sale of the automobile at auction, and any other recoveries, are
credited against the balance of the contract. Auction proceeds from sale of the
repossessed vehicle and other recoveries are usually not sufficient to cover the
outstanding balance of the contract, and the resulting deficiency is
charged-off. We may pursue collection of deficiencies when we deem it to be
appropriate.
Charge-Off Policy. Our policy is to charge-off an account in the month in
which the account becomes 120 days contractually delinquent if we have not
repossessed the related vehicle. Otherwise, we charge-off the account when the
vehicle securing the delinquent contract is repossessed and liquidated. The
charge-off represents the difference between the actual net sales proceeds and
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the amount of the delinquent contract, including accrued interest. Accrual of
finance charge income is suspended on accounts that are more than 60 days
contractually delinquent.
Risk Management
Overview. Our risk management department is responsible for monitoring the
contract approval process and supporting the supervisory role of senior
operations management. This department tracks via databases key variables, such
as loan applicant data, credit bureau and credit score information, loan
structures and terms and payment histories. The risk management department also
regularly reviews the performance of our credit scoring system and is
responsible for the development and enhancement of our credit scorecards.
The risk management department prepares regular credit indicator packages
reviewing portfolio performance at various levels of detail including total
company, branch office and dealer. Various daily reports and analytical data are
also generated by our management information systems. This information is used
to monitor credit quality as well as to refine the structure and mix of new loan
originations. We review portfolio returns on a consolidated basis, as well as at
the branch office, dealer and contract levels.
Behavioral Scoring. Statistically-based behavioral assessment models are
used to project the relative probability that an individual account will default
and to validate the credit scoring system after the receivable has aged for a
sufficient period of time, generally six months. Default probabilities are
calculated for each account independent of the credit score. Projected default
rates from the behavioral assessment models and credit scoring systems are
compared and analyzed to monitor the effectiveness of our credit strategies.
Collateral Value Management. The value of the collateral underlying our
receivables portfolio is updated monthly with a loan-by-loan link to national
wholesale auction values. This data, along with our own experience relative to
mileage and vehicle condition, are used for evaluating collateral disposition
activities as well as for reserve analysis models.
Compliance Audits. Our internal audit and quality control departments
conduct regular reviews of branch office operations, loan operations, processing
and servicing, collections and other functional areas. The primary objective of
the reviews is to identify risks and associated controls and measure compliance
with our written policies and procedures as well as regulatory matters. Branch
office reviews performed by our internal dealer quality control department
include a review of compliance with underwriting policies, completeness of loan
documentation, collateral value assessment and applicant data investigation.
Written reports are distributed to departmental managers and officers for
response and follow-up. Results and responses are also reviewed by senior
executive management.
Securitization of Loans
Since December 1994, we have pursued a strategy of securitizing our
receivables to diversify our funding, improve liquidity and obtain a
cost-effective source of funds for the purchase of additional automobile finance
contracts. We apply the net proceeds from securitizations to pay down borrowings
under our warehouse credit facilities, thereby increasing availability
thereunder for further contract purchases. Through June 30, 2002, we had
securitized approximately $24.1 billion of automobile receivables since 1994.
In our securitizations, we, through wholly-owned subsidiaries, transfer
automobile receivables to newly-formed securitization trusts, which issue one or
more classes of asset-backed securities. The asset-backed securities are in turn
sold to investors.
We typically arrange for a financial guaranty insurance policy to achieve a
high grade credit rating on the asset-backed securities issued by the
securitization trusts. The financial guaranty insurance policies have been
provided by Financial Security Assurance Inc., or FSA, a monoline insurer, which
insures the payment of principal and interest due on the asset-backed
securities. We have limited reimbursement obligations to FSA; however, credit
enhancement requirements, including FSA's encumbrance of certain restricted cash
accounts and subordinated interests in trusts, provide a source of funds to
cover shortfalls in collections and to reimburse FSA for any claims which may be
made under the policies issued with respect to our securitizations. We are
currently seeking to establish relationships with other financial guaranty
insurance providers.
The credit enhancement requirements for our securitizations include
restricted cash accounts that are generally established with an initial deposit
and subsequently funded through excess cash flows from securitized receivables.
Funds would be withdrawn from the restricted cash accounts to cover any
shortfalls in amounts payable on the asset-backed securities. Funds generated
from securitization transactions insured by FSA are also available to be
withdrawn in an event of default to reimburse FSA for draws on its financial
guaranty insurance policy. In addition, the restricted cash account for each
securitization trust insured by FSA is cross-collateralized to the restricted
cash accounts established in connection with our other FSA insured
securitization trusts, such that excess cash flow from a performing
securitization trust insured by FSA may be used to support cash flow shortfalls
from a non-
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performing securitization trust insured by FSA, thereby further restricting
excess cash flow available to us. We are entitled to receive amounts from the
restricted cash accounts to the extent the amounts deposited exceed
predetermined required minimum levels.
FSA has a security interest in the restricted cash accounts, interest-only
receivables from Trusts and investments in Trust receivables, such that, if the
security interest is foreclosed upon in the event of a payment by FSA under one
of its insurance policies or certain material adverse changes in our business,
FSA would control all of the restricted cash accounts, interest-only receivables
from Trusts and investments in Trust receivables with respect to securitization
transactions it has insured. The terms of each insured securitization also
provide that, under certain tests relating to delinquencies, defaults and
losses, cash may be retained in the restricted cash account and not released to
us until increased minimum levels of credit enhancement requirements have been
reached and maintained.
Since November 2000, we have completed three securitization transactions in
the United States and one in Canada involving the sale of subordinate
asset-backed securities in order to provide credit enhancement for the senior
asset-backed securities and protect investors from losses. We also provided
credit enhancement in these transactions in the form of a restricted cash
account and overcollateralization, whereby more receivables are transferred to
the trusts than the amount of asset-backed securities issued by the trusts.
Excess cash flows are used to increase the credit enhancement assets to required
minimum levels, after which time excess cash flows are distributed to us. Since
these transactions did not involve the issuance of a financial guaranty
insurance policy, the credit enhancement assets related to these trusts are not
cross-collateralized to the credit enhancement assets established in connection
with any of our other securitization trusts.
Trade Names
We have obtained federal trademark protection for the "AmeriCredit" name
and the logo that incorporates the "AmeriCredit" name. Certain other names,
logos and phrases we use in our business operations have also been trademarked.
Regulation
Our operations are subject to regulation, supervision and licensing under
various federal, state and local statutes, ordinances and regulations.
In most states in which we operate, a consumer credit regulatory agency
regulates and enforces laws relating to consumer lenders and sales finance
agencies such as us. Such rules and regulations generally provide for licensing
of sales finance agencies, limitations on the amount, duration and charges,
including interest rates, for various categories of loans, requirements as to
the form and content of finance contracts and other documentation, and
restrictions on collection practices and creditors' rights. In certain states,
we are subject to periodic examination by state regulatory authorities. Some
states in which we operate do not require special licensing or provide extensive
regulation of our business.
We are also subject to extensive federal regulation, including the Truth in
Lending Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
These laws require us to provide certain disclosures to prospective borrowers
and protect against discriminatory lending practices and unfair credit
practices. The principal disclosures required under the Truth in Lending Act
include the terms of repayment, the total finance charge and the annual
percentage rate charged on each loan. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants on the basis of race,
color, sex, age or marital status. Pursuant to Regulation B promulgated under
the Equal Credit Opportunity Act, creditors are required to make certain
disclosures regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection. In addition, the
credit scoring system we use must comply with the requirements for such a system
as set forth in the Equal Credit Opportunity Act and Regulation B. The Fair
Credit Reporting Act requires us to provide certain information to consumers
whose credit applications are not approved on the basis of a report obtained
from a consumer reporting agency. Additionally, we are subject to the
Gramm-Leach-Bliley Act, which requires us to maintain privacy with respect to
certain consumer data in our possession and to periodically communicate with
consumers on privacy matters. We are also subject to the Soldiers' and Sailors'
Civil Relief Act, which requires us to reduce the interest rate charged on each
loan to customers who have subsequently joined the military.
The dealers who originate automobile finance contracts we purchase also
must comply with both state and federal credit and trade practice statutes and
regulations. Failure of the dealers to comply with these statutes and
regulations could result in consumers having rights of rescission and other
remedies that could have an adverse effect on us.
We believe that we maintain all material licenses and permits required for
our current operations and are in substantial compliance with all applicable
local, state and federal regulations. There can be no assurance, however, that
we will be able to maintain all requisite licenses and permits, and the failure
to satisfy those and other regulatory requirements could have a material
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adverse effect on our operations. Further, the adoption of additional, or the
revision of existing, rules and regulations could have a material adverse effect
on our business.
Competition
Competition in the field of non-prime automobile finance is intense. The
automobile finance market is highly fragmented and is served by a variety of
financial entities including the captive finance affiliates of major automotive
manufacturers, banks, thrifts, credit unions and independent finance companies.
Many of these competitors have substantially greater financial resources and
lower costs of funds than we do. In addition, our competitors often provide
financing on terms more favorable to automobile purchasers or dealers than we
offer. Many of these competitors also have long standing relationships with
automobile dealerships and may offer dealerships or their customers other forms
of financing, including dealer floor plan financing and leasing, which we do not
provide. Providers of automobile financing have traditionally competed on the
basis of interest rates charged, the quality of credit accepted, the flexibility
of loan terms offered and the quality of service provided to dealers and
customers. In seeking to establish ourselves as one of the principal financing
sources at the dealers we serve, we compete predominately on the basis of our
high level of dealer service and strong dealer relationships and by offering
flexible loan terms. There can be no assurance that we will be able to compete
successfully in this market or against these competitors.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information regarding our current
directors and executive officers as of June 30, 2002:
Name Age Position with the Company
- ---- --- -------------------------
Clifton H. Morris, Jr. ............................ 67 Executive Chairman of the Board
Michael R. Barrington ............................. 43 Vice Chairman of the Board, President and Chief
Executive Officer
Daniel E. Berce ................................... 48 Vice Chairman of the Board and Chief Financial Officer
Steven P. Bowman .................................. 35 Executive Vice President, Chief Credit Officer
Chris A. Choate ................................... 39 Executive Vice President, Chief Legal Officer and
Secretary
Richard E. Daly ................................... 55 Executive Vice President, Chief Learning Officer
Edward H. Esstman ................................. 61 Vice Chairman of the Board
S. Mark Floyd ..................................... 49 President, Dealer Services
Joseph E. McClure ................................. 55 Executive Vice President, Chief Information Officer
Cheryl L. Miller .................................. 37 President, Consumer Services
Michael T. Miller ................................. 41 Executive Vice President, Chief Operating Officer
Preston A. Miller ................................. 38 Executive Vice President, Treasurer
Karl J. Reeb ...................................... 44 Executive Vice President, Chief Administration Officer
A.R. Dike ......................................... 66 Director
James H. Greer .................................... 75 Director
Douglas K. Higgins ................................ 52 Director
Kenneth H. Jones, Jr. ............................. 67 Director
Clifton H. Morris, Jr. has been a director since 1988. Mr. Morris has been
Executive Chairman of the Board since July 2000 and served as Chairman of the
Board and Chief Executive Officer from May 1988 to July 2000. Mr. Morris also
served as President from May 1988 until April 1991 and from April 1992 to
November 1996. Mr. Morris is also a director of Service Corporation
International, a publicly held company that owns and operates funeral homes and
related businesses, and Cash America International, a publicly held pawn
brokerage company.
Michael R. Barrington has been a director since 1990. Mr. Barrington has
been Vice Chairman, President and Chief Executive Officer since July 2000. Mr.
Barrington served as Vice Chairman, President and Chief Operating Officer from
November 1996 to July 2000 and was Executive Vice President and Chief Operating
Officer from May 1991 until November 1996.
Daniel E. Berce has been a director since 1990. Mr. Berce has been Vice
Chairman and Chief Financial Officer since November 1996. Mr. Berce served as
Executive Vice President, Chief Financial Officer and Treasurer from November
1994 until November 1996. Mr. Berce was formerly a director of INSpire Insurance
Solutions, Inc., a publicly held company that provides policy and claims
administration services to the property and casualty insurance industry. Mr.
Berce is also a director of Curative Health Services, Inc., a publicly held
company that provides specialty health care services, and AZZ Incorporated
(formerly Aztec Manufacturing, Co.), a publicly held company that manufactures
specialty electrical equipment and provides galvanizing services to the steel
fabrication industry.
Steven P. Bowman has been Executive Vice President, Chief Credit Officer
since March 2000. He served as Senior Vice President, Risk Management from May
1998 until March 2000 and was Vice President, Risk Management from June 1997
until May 1998. From February 1996 until June 1997, Mr. Bowman was Assistant
Vice President, Risk Management.
Chris A. Choate has been Executive Vice President, Chief Legal Officer and
Secretary since November 1999. He served as Senior Vice President, General
Counsel and Secretary from November 1996 to November 1999. Mr. Choate was Vice
President, General Counsel and Secretary from November 1994 until November 1996
and has been with the Company since 1991.
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Richard E. Daly has been Executive Vice President, Chief Learning Officer
since January 2002. He served as Senior Vice President, Learning & Performance
from July 2000 until January 2002. Prior to July 2000, Dr. Daly was President of
Humanex, Inc., a management consulting firm, serving in that position for over
five years.
Edward H. Esstman has been a director since 1996. Mr. Esstman has been Vice
Chairman since August 2001. Mr. Esstman served as Executive Vice President,
Dealer Services and Co-Chief Operating Officer from October 2000 to August 2001,
Executive Vice President, Dealer Services from October 1999 to October 2000,
Executive Vice President, Auto Finance Division from November 1996 to October
1999 and Senior Vice President and Chief Credit Officer from November 1994 to
November 1996.
S. Mark Floyd has been President, Dealer Services since August 2001. He
served as Executive Vice President, Dealer Services from November 1999 to August
2001 and was Senior Vice President, Director Strategic Alliance from January
1998 to November 1999. Mr. Floyd was Senior Vice President, Strategic Alliance
from September 1997 to January 1998.
Joseph E. McClure has been Executive Vice President, Chief Information
Officer since April 1999. He served as Senior Vice President, Chief Information
Officer from October 1998 until April 1999. Prior to October 1998, Mr. McClure
was Executive Vice President and Division Information Officer of Associates
First Capital Corp., and was in that position for more than five years.
Cheryl L. Miller has been President, Consumer Services since May 2001. She
served as Executive Vice President, Director of Collections and Customer Service
from June 1998 to May 2001 and was Senior Vice President, Collections and
Customer Service from October 1994 to June 1998.
Michael T. Miller has been Executive Vice President, Chief Operating
Officer since August 2001. He served as Executive Vice President, Co-Chief
Operating Officer from October 2000 to August 2001, President, e-Services from
March 2000 to October 2000, Executive Vice President, Chief Credit Officer from
July 1998 until March 2000, and Senior Vice President, Chief Credit Officer from
November 1996 until July 1998. Mr. Miller was Senior Vice President, Risk
Management, Credit Policy and Planning and Chief of Staff from November 1994
until November 1996 and has been with the Company since 1991.
Preston A. Miller has been Executive Vice President, Treasurer since July
1998. He served as Senior Vice President, Treasurer from November 1996 until
July 1998 and Vice President, Controller from November 1994 until November 1996.
Mr. Miller joined the Company in 1989.
Karl J. Reeb has been Executive Vice President, Chief Administration
Officer since November 1999. Mr. Reeb previously held various human resource
executive positions with Verizon for approximately 10 years.
A.R. Dike has been a director since 1998. Mr. Dike has served as President
and Chief Executive Officer of The Dike Company, Inc., a private insurance
agency, since July 1999. Prior to July 1999, Mr. Dike served as President of
Willis Corroon Life, Inc. of Texas for more than five years. Mr. Dike is also a
director of Cash America International.
James H. Greer has been a director since 1990. Mr. Greer is Chairman of
Greer Capital Corp. Investments and has been in such position for more than five
years. In December 2001, Mr. Greer retired as Chairman of the Board of Shelton
W. Greer Co., Inc., a company which engineers, manufactures, fabricates and
installs building specialty products. Mr. Greer is also a director of Service
Corporation International.
Douglas K. Higgins has been a director since 1996. Mr. Higgins is a private
investor and owner of Higgins & Associates and has been in that position since
July 1994.
Kenneth H. Jones, Jr. has been a director since 1988. Mr. Jones, a private
investor, retired as Vice Chairman of KBK Capital Corporation ("KBK"), a
publicly held non-bank commercial finance company, in December 1999. Mr. Jones
had been Vice Chairman of KBK since January 1995. Prior to January 1995, Mr.
Jones was a shareholder in the Decker, Jones, McMackin, McClane, Hall & Bates,
P.C. law firm in Fort Worth, Texas, and was with such firm and its predecessor
or otherwise involved in the private practice of law in Fort Worth, Texas for
more than five years.
Employment Contracts, Termination of Employment and Change-in Control
Arrangements
We have entered into employment agreements with all of our executive
officers. These agreements, as amended, contain terms that renew annually for
successive five year periods (ten years in the case of Mr. Morris), and the
compensation under these
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agreements is determined annually by our Board of Directors, subject to the
following minimum annual compensation: Mr. Morris, $350,000; Messrs. Barrington
and Berce, $345,000; Mr. Michael T. Miller, $255,000; and Mr. Preston A. Miller,
$145,000. Included in each agreement is a covenant of the employee not to
compete with us during the term of his employment and for a period of, in the
case of Mr. Preston A. Miller, one year thereafter, and in the case of Messrs.
Morris, Barrington, Berce and Michael T. Miller, three years thereafter. The
employment agreements for each of the executive officers other than Mr. Preston
A. Miller and Mr. Michael T. Miller also provide that if the employee is
terminated by us other than for cause, or in the event the employee resigns or
is terminated other than for cause within twelve months after a "change in
control" of us (as that term is defined in the employment agreements), we will
pay to the employee the remainder of his current year's salary (undiscounted)
plus the discounted present value (employing an interest rate of 8%) of two
additional years' salary. The employment agreements for Mr. Preston A. Miller
and Mr. Michael T. Miller provide that, in the event of a termination or
resignation under the circumstances described in the immediately preceding
sentence, we will pay to Mr. Preston A. Miller or Mr. Michael T. Miller, as the
case may be, an amount equal to one year's salary. For all of the executive
officers other than Mr. Morris, "salary" includes the annual rate of
compensation immediately prior to the "change in control" plus the average
annual cash bonus for the immediately preceding three-year period. For Mr.
Morris, "salary" includes the highest annual rate of compensation plus the
highest annual cash bonus or other incentive payment provided in any of the
seven fiscal years preceding the year in which a "change in control" occurs.
In addition to the employment agreements described above, the terms of all
stock options granted to our executive officers provide that the options will
become immediately vested and exercisable upon the occurrence of a change in
control as defined in the stock option agreements evidencing such grants.
The provisions and terms contained in these employment and option
agreements could have the effect of increasing the cost of a change in control
of us and thereby delay or hinder such a change in control.
Board Committees and Meetings
Standing committees of the Board include the Audit Committee, the Stock
Option/Compensation Committee and the Nominating and Governance Committee.
The Audit Committee's principal responsibilities consist of (1)
recommending the selection of independent auditors, (2) reviewing the scope of
the audit conducted by the auditors, as well as the audit itself, (3) reviewing
our internal audit activities and matters concerning financial reporting,
accounting and audit procedures, and policies generally and (4) monitoring the
independence and performance of our independent auditors and internal auditors.
Members consist of Messrs. Dike, Greer, Higgins and Jones. In fiscal 2002, the
Audit Committee met two times, and pursuant to the authority delegated to him by
the Audit Committee, Mr. Jones, Chairman of the Committee, met with our
independent auditors prior to the public issuance of our quarterly and annual
financial results. The Audit Committee plans to meet four times in fiscal 2003.
The Stock Option/Compensation Committee (1) administers our employee stock
option and other stock-based compensation plans and oversees the granting of
stock options, (2) reviews and approves compensation for executive officers and
(3) reviews Board member compensation. Members consist of Messrs. Dike, Greer,
Higgins and Jones. In fiscal 2002, the Stock Option/Compensation Committee met
or adopted resolutions by unanimous consent in lieu of a meeting four times.
The Nominating and Governance Committee was established in August 2001. The
Nominating and Governance Committee (1) establishes procedures for the
nomination of directors, (2) recommends to the Board of Directors a slate of
nominees for directors to be presented on behalf of the Board for election by
shareholders at each Annual Meeting of the Company, (3) recommends to the Board
appropriate nominees to fill Board vacancies, (4) considers nominees to the
Board recommended by shareholders, (5) recommends to the Board director nominees
for each committee, (6) recommends to the Board any corporate governance
guidelines applicable to us and (7) leads the Board in its annual review of the
Board's performance.
Our committees continue to monitor and review legislative, regulatory and
New York Stock Exchange actions in connection with corporate governance, and the
committees will adopt policies and procedures in response to such actions.
The Board of Directors held five regularly scheduled meetings during the
fiscal year ended June 30, 2002. Various matters were also approved during the
last fiscal year by unanimous written consent of the Board of Directors. No
director attended fewer than 75% of the aggregate of (1) the total number of
meetings of the Board of Directors and (2) the total number of meetings held by
all committees of the Board on which such director served.
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Director Compensation
Members of the Board of Directors currently receive a $2,500 quarterly
retainer fee and an additional $4,000 fee for attendance at each meeting of the
Board. Members of Committees of the Board of Directors are paid $2,000 per
quarter for participation in all committee meetings held during that quarter.
At our 2000 Annual Meeting of Shareholders, we adopted the 2000 Limited
Omnibus and Incentive Plan for AmeriCredit Corp. (the "2000 Plan"), which
provides for grants to our executive officers (other than Messrs. Morris,
Barrington and Berce) and to non-employee directors of stock options and
reserves, in the aggregate, a total of 2,000,000 shares of Common Stock for
issuance upon exercise of stock options granted under the plan. On November 6,
2001, the date of our 2001 Annual Meeting of Shareholders, options to purchase
20,000 shares of our common stock were granted under the 2000 Plan to each of
Messrs. Dike, Greer, Higgins and Jones at an exercise price of $16.10 per share.
The exercise price for the options granted to Messrs. Dike, Greer, Higgins and
Jones is equal to the last reported sale price of our common stock on the New
York Stock Exchange on the day preceding the date of grant. These options, which
have a term of ten years, are fully vested upon the date of grant, but may not
be exercised prior to the expiration of six months after the date of grant.
The Board of Directors anticipates that an annual grant of stock options
will be authorized under our 2000 Plan to non-employee directors in October 2002
in amounts and upon the terms as were authorized following our 2001 Annual
Meeting of Shareholders.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following sets forth information concerning the compensation of our
Chief Executive Officer and each of our other four most highly compensated
executive officers (the "Named Executive Officers") for the fiscal years shown.
Long Term
Annual Compensation Compensation Awards
-------------------------------------- --------------------------------
Shares of
Common
Restricted Stock
Other Annual Stock Underlying All Other
Fiscal Salary Compensation Award(s) Stock Options Compensation
Name and Principal Position Year ($)(1) Bonus ($) ($)(2) ($)(3) (#) ($) (4)
- --------------------------------- -------- --------- ----------- -------------- ------------- --------------- --------------
Clifton H. Morris, Jr. 2002 380,000 875,000 88,472 -- -- 82,650
Executive Chairman 2001 380,000 525,000 -- -- -- 82,650
2000 730,000 1,050,000 -- -- -- 79,800
Michael R. Barrington 2002 755,058 1,775,137 75,464 -- -- 47,678
Vice Chairman, CEO & 2001 680,000 975,000 -- -- -- 44,770
President 2000 630,000 900,000 -- -- -- 43,819
Daniel E. Berce 2002 711,301 1,675,103 68,217 -- -- 47,683
Vice Chairman & CFO 2001 655,000 937,500 -- -- -- 47,989
2000 630,000 900,000 -- -- -- 44,566
Michael T. Miller 2002 435,000 543,750 -- -- -- 8,229
Executive Vice President & COO 2001 386,849 453,973 -- -- 150,000 8,208
2000 325,000 325,000 -- -- 40,000 5,340
Preston A. Miller 2002 360,000 450,000 -- 435,560 31,100 8,151
Executive Vice President & 2001 306,849 306,849 -- 154,275 12,800 8,151
Treasurer 2000 240,000 240,000 -- -- 30,000 5,301
(1) Includes Board of Directors fees to Messrs. Morris, Barrington, and Berce.
(2) Includes the use of our aircraft valued on the basis of the aggregate
incremental cost to us of $79,577 for Mr. Morris; $69,055 for Mr.
Barrington; and $59,733 for Mr. Berce.
(3) On May 1, 2001, the restricted shares granted and the value thereof were:
5,500 shares, $250,000. On November 1, 2001, the restricted shares granted
and the value thereof were: 15,528 shares, $250,000. These restricted
shares vest three years after the date of grant.
(4) The amounts disclosed in this column for fiscal 2002 include:
(a) Contributions to 401(k) retirement plans on behalf of Messrs.
Morris, Barrington, Berce, Michael T. Miller and Preston A.
Miller in the amount of $7,650 ;
(b) Payment of premiums for term life insurance on behalf of Mr.
Barrington, $2,037; Mr. Berce, $2,120; Mr. Michael T. Miller,
$579. and Mr. Preston A. Miller, $501; and
(c) Annual premium payments under split-dollar life insurance
policies on Mr. Morris, $75,000; Mr. Barrington, $37,991; and Mr.
Berce, $37,913.
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Option Grants in Last Fiscal Year
The following table shows all individual grants of stock options to our
Named Executive Officers during the fiscal year ended June 30, 2002.
Shares of
Common Stock % of Total
Underlying Options
Options Granted to Exercise Grant Date
Granted Employees in Price Expiration Present
Name and Principal Position (#) Fiscal Year ($/Sh) Date Value ($)(2)
- -------------------------------- ------------ ------------ -------- ---------- ------------
Clifton H. Morris, Jr. ............. -- -- -- -- --
Executive Chairman
Michael R. Barrington .............. -- -- -- -- --
Vice Chairman, CEO & President
Daniel E. Berce .................... -- -- -- -- --
Vice Chairman & CFO
Michael T. Miller .................. -- -- -- -- --
Executive Vice President & COO
Preston A. Miller .................. 31,100(1) 0.77% 16.10 11/6/2011 373,649(2)
Executive Vice President, Treasurer
(1) The options granted to Preston A. Miller, which expire ten years after the
grant date, become exercisable 20% on May 6, 2002, 20% on November 6, 2002,
20% on November 6, 2003, 20% on November 6, 2004 and 20% on November 6,
2005.
(2) As suggested by the Securities and Exchange Commission's rules on executive
compensation disclosure, we used the Black-Scholes model of option
valuation to determine grant date pre-tax present value. We do not advocate
or necessarily agree that the Black-Scholes model can properly determine
the value of an option. The calculation is based on the expectation that
the options are fully exercised within five years of the grant date and
upon the following additional assumptions: annual dividend growth of 0
percent, volatility of approximately 101%, and a risk-free rate of return
equal to 4.28%. There can be no assurance that the amounts reflected in
this column will be achieved.
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Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Shown below is information with respect to our Named Executive Officers
regarding option exercises during the fiscal year ended June 30, 2002, and the
value of unexercised options held as of June 30, 2002.
Shares of
Common Stock
Underlying
Unexercised Value of Unexercised
Options at In-the-Money
FY-End Options at
Shares Value (#) Fy-End ($)(2)
Acquired on Realized Exercisable/ Exercisable/
Name and Principal Position Exercise (#) ($) (1) Unexercisable Unexercisable
- ------------------------------- ------------- ---------- ------------- -------------
Clifton H. Morris, Jr .............. 300,000 16,405,000 1,436,000/284,000 24,247,800/4,558,200
Executive Chairman
Michael R. Barrington .............. 135,000 6,650,935 951,000/284,000 15,263,550/4,558,200
Vice Chairman, CEO & President
Daniel E. Berce .................... 0 0 1,536,000/284,000 26,252,800/4,558,200
Vice Chairman & CFO
Michael T. Miller .................. 111,680 1,720,648 3,680/269,680 42,964/1,967,372
Executive Vice President, COO
Preston A. Miller .................. 0 0 145,060/52,540 2,215,152/502,643
Executive Vice President Treasurer
(1) The "value realized" represents the difference between the exercise price of
the option shares and the market price of the option shares on the date the
options were exercised. The value realized was determined without
considering any taxes which may have been owed.
(2) Values stated are pre-tax, net of cost and are based upon the closing price
of $28.05 per share of our common stock on the New York Stock Exchange on
June 28, 2002, the last trading day of the fiscal year.
Compensation Committee Interlocks and Insider Participation
No member of the Stock Option/Compensation Committee is or has been an
officer or employee of ours or any of our subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of Regulation S-K promulgated by the
Securities and Exchange Commission. No member of the Stock Option/Compensation
Committee served on the compensation committee, or as a director, of another
corporation, one of whose directors or executive officers served on our Stock
Option/Compensation Committee or whose executive officers served on our Board of
Directors.
Related Party Transactions
We engage independent contractors to solicit business from motor vehicle
dealers in certain geographic locations. One such independent contractor was CHM
Company, L.L.C. ("CHM Company"), a Delaware limited liability company that is
controlled by Clifton H. Morris, III, an adult son of Mr. Clifton H. Morris,
Jr., our Executive Chairman. A per contract commission was paid to CHM Company
for each motor vehicle contract we originated that was attributable to the
marketing efforts of CHM Company. Our contractual arrangement with CHM Company
has been cancelled effective December 31, 2000. Although the contract has been
cancelled, CHM Company is entitled to continue receiving monthly payments under
the original contract terms with respect to motor vehicle contracts originated
by CHM Company prior to contract termination that meet certain portfolio
performance criteria. We made payments of $199,893 to CHM Company during fiscal
2002.
We select independent contractors on a competitive bid basis from a group
of qualified vehicle recovery and repossession agencies with whom we maintain
ongoing relationships. During fiscal 2002, we engaged Texas Expeditors of
Dallas/Fort Worth, LP, a Texas limited partnership, and Texas Expeditors of San
Antonio, LP, a Texas limited partnership, as two of our vehicle recovery
agencies. Both of these recovery agencies are controlled by Clifton H. Morris,
III, an adult son of Mr. Clifton H. Morris, Jr., our Executive Chairman. A per
vehicle payment is made pursuant to a fee schedule submitted by Texas Expeditors
of Dallas/Fort Worth, LP and Texas Expeditors of San Antonio, LP for each
recovery, repossession or other service performed. During fiscal 2002, we made
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payments of $279,245 and $146,943 to Texas Expeditors of Dallas/Fort Worth, LP
and to Texas Expeditors of San Antonio, LP, respectively.
On September 21, 2001, Messrs. Barrington and Berce, two of our executive
officers, each executed Amended and Restated Revolving Credit Notes in the
amount of $2,500,000 in favor of us. These notes, which modify and extend notes
in the principal amount of $1,000,000 executed by Messrs. Barrington and Berce
in September 2000, bear interest at a rate equal to LIBOR plus 1%, and provide
that Messrs. Barrington and Berce can borrow, repay and reborrow under the notes
from time to time. On July 29, 2002, Mr. Barrington's note was amended to
provide that all amounts outstanding thereunder shall be due and payable on the
earlier to occur of (1) December 31, 2003, or (2) sixty days after the last day
of his employment with us. During fiscal 2002, the largest amount of
indebtedness outstanding under Mr. Barrington's note was $2,480,000, and the
amount outstanding as of June 30, 2002 was $2,480,000. During fiscal 2002, the
largest amount of indebtedness outstanding under Mr. Berce's loan was
$1,249,980. Mr. Berce paid off his loan in full on August 7, 2002, and the note
was cancelled and is not available for further borrowing. The notes will not be
renewed or further amended.
In August 2000, the Board of Directors adopted stock ownership guidelines
that are designed to encourage the accumulation of our stock by our executive
officers. These guidelines, stated as a multiple of executives' base salaries,
are as follows: Chairman and Vice Chairmen, four times; Segment Presidents and
Treasurer, three times; other Executive Team members, two times. The recommended
time period for reaching the above guidelines is the later of (1) August 1,
2003, (2) five years from date of hire or (3) three years from date of promotion
to an executive officer position. Shares of our stock directly owned by an
executive officer and shares owned by an officer through our 401(k) and employee
stock purchase programs constitute qualifying ownership. Stock options are not
counted towards compliance with the guidelines. The Board of Directors also
adopted an Officer Stock Loan Program to facilitate compliance with the stock
ownership guidelines. Executive officers used loan proceeds to acquire and hold
shares of our common stock. The loans bear interest at a rate equal to LIBOR
plus 1%. The stock held as a result of loans under the program must be pledged
to us. The aggregate principal balance of all outstanding loans under the
program may not exceed $20,000,000 at any time. Messrs. Michael T. Miller,
Steven P. Bowman and Joseph E. McClure obtained loans under this program during
fiscal 2002. During fiscal 2002, the largest amount of indebtedness outstanding
under Mr. Michael T. Miller's loan was $860,048, and the amount outstanding as
of June 30, 2002 was $860,048. During fiscal 2002, the largest amount of
indebtedness outstanding under Mr. Bowman's loan was $27,861, and the amount
outstanding as of June 30, 2002 was $27,861. During fiscal 2002, the largest
amount of indebtedness outstanding under Mr. McClure's loan was $1,305,692, and
the amount outstanding as of June 30, 2002 was $1,305,692.
On July 29, 2002, the Stock Option/Compensation Committee terminated the
Officer Stock Loan Program and approved amendments to the outstanding revolving
promissory note and pledge agreements under the Officer Stock Loan Program
between us and three executive officers (including Mr. Michael T. Miller) which
provided that each officer repay amounts in full, including principal and
interest, on the earlier to occur of: (1) December 31, 2003 or (2) sixty days
after the last day of the officer's employment with us. The loans outstanding
under this program will not be renewed or further amended.
All loans made to executive officers, including loans made under the
Officer Stock Loan Program, provide for full personal recourse to the executive
officers, and we have no agreements, written or oral, with our executive
officers to cancel or forgive such indebtedness in the future.
PRINCIPAL SHAREHOLDERS
The following table and the notes thereto set forth certain information
regarding the beneficial ownership of our common stock as of October 1, 2002, by
(1) each current director and nominee for director of ours, (2) each Named
Executive Officer, (3) all of our present executive officers and directors as a
group, and (4) each other person known to us to own beneficially more than five
percent of our presently outstanding common stock. Unless otherwise indicated,
the address for the following shareholders is 801 Cherry Street, Suite 3900,
Fort Worth, Texas 76102.
Common Stock Percent of Class
Owned Owned
Beneficially (1) Beneficially (1)
---------------- ----------------
Capital Guardian Trust Company .......... 16,764,400(2) 10.97%
Wasatch Advisors Inc. ................... 14,423,038(3) 9.44%
Legg Mason, Inc. ........................ 10,767,652(4) 7.04%
Fidelity Investments .................... 8,253,500(5) 5.40%
PIMCO Equity Advisors. .................. 7,700,000(6) 5.04%
Clifton H. Morris, Jr. .................. 2,423,135(7) 1.57%
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Michael R. Barrington. ...................................... 1,391,386 (8) *
Daniel E. Berce ............................................. 2,021,516 (9) 1.31%
A. R. Dike .................................................. 145,300(10) *
James H. Greer .............................................. 478,300(11) *
Douglas K. Higgins .......................................... 320,000(12) *
Kenneth H. Jones, Jr. ....................................... 209,000(13) *
Michael T. Miller ........................................... 350,385(14) *
Preston A. Miller ........................................... 241,433(15) *
ll Present Executive Officers and Directors as a Group
(17 Persons) (7)(8)(9)(10)(11)(12)(13)(14)(15) ............ 9,409,793 5.88%
- ----------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the shares of our common stock
shown as beneficially owned by them. Beneficial ownership as reported in
the above table has been determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended. The percentages are based upon
152,846,076 shares outstanding as of October 1, 2002, except for certain
parties who hold options that are presently exercisable or exercisable
within 60 days of October 1, 2002. The percentages for those parties who
hold options that are presently exercisable or exercisable within 60 days
of October 1, 2002 are based upon the sum of 152,846,076 shares outstanding
plus the number of shares subject to options that are presently exercisable
or exercisable within 60 days of October 1, 2002 held by them, as indicated
in the following notes.
(2) Capital Guardian Trust Company reports holding an aggregate of 16,764,400
shares as of October 1, 2002, which includes 9,000,000 shares purchased in
our follow-on common stock offering.
The address of Capital Guardian Trust Company is 111000 Santa Monica
Boulevard, Los Angeles, California 90025.
(3) Wasatch Advisors Inc. reports holding an aggregate of 14,423,038 shares as
of October 1, 2002, which includes 3,408,500 shares purchased in our
follow-on common stock offering. The address of Wasatch Advisors Inc. is
150 Social Hall Avenue, Salt Lake City, Utah 84111.
(4) Legg Mason, Inc. reports holding an aggregate of 10,767,652 shares as of
August 31, 2002. The address of Legg Mason, Inc. is 100 Light Street,
Baltimore, Maryland 21202.
(5) Fidelity Investments reports holding an aggregate of 8,253,500 shares as of
October 1, 2002, which includes 8,000,000 shares purchased in our follow-on
common stock offering. The address of Fidelity Investments is 82 Devonshire
Street, Boston, Massachusetts 02109.
(6) PIMCO Equity Advisors reports holding an aggregate of 7,700,000 shares as
of October 1, 2002, which includes 1,250,000 shares purchased in our
follow-on common stock offering. The address of PIMCO Equity Advisors is
1345 Avenue of the Americas, 50/th/ Floor, New York, New York 10105.
(7) This amount includes 1,720,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days. This amount also
includes 76,272 shares of common stock in the name of Sheridan C. Morris,
Mr. Morris' wife. This amount also includes 500,000 shares owned by
Clydesdale Partners Fund Limited Partnership, L.L.P. ("Clydesdale"), a
limited partnership of which the sole general partner is SCHM Investments,
Inc. ("SCHM"); the sole shareholder of SCHM is Mr. Morris and his wife. The
limited partners of Clydesdale are Mr. Morris, his wife and SCHM.
(8) This amount includes 1,235,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days.
(9) This amount includes 1,820,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days.
(10) The amount includes 80,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days. This amount also
includes 7,000 shares of common stock held in the name of Sara B. Dike, Mr.
Dike's wife.
(11) This amount includes 120,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days. This amount does not
include 39,216 shares of common stock held by Mr. Greer's wife as separate
property, as to which Mr. Greer disclaims any beneficial interest.
(12) This amount includes 140,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days. This amount does not
include 34,000 shares held in trust for the benefit of certain family
members of Mr. Higgins, as to which Mr. Higgins disclaims any beneficial
interest.
(13) This amount includes 180,000 shares subject to stock options that are
currently exercisable or exercisable within 60 days.
(14) This amount includes 257,360 shares subject to stock options that are
currently exercisable or exercisable within 60 days.
(15) This amount includes 154,960 shares subject to stock options that are
currently exercisable or exercisable within 60 days.
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DESCRIPTION OF THE NEW NOTES
General
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." In this description, the words
"Company" and "AmeriCredit" refer only to AmeriCredit Corp. and not to any of
its subsidiaries.
The Old Notes were, and the New Notes will be, issued by AmeriCredit
under the Indenture dated June 19, 2002 (the "Indenture") among itself, the
Guarantors and Bank One, NA, as trustee (the "Trustee"). The terms of the Old
Notes and the New Notes (collectively, the "Notes") include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The New Notes are
substantially identical to the terms and provisions of the Old Notes, except for
certain transfer restrictions and registration rights relating to the Old Notes.
The term "Notes" refers to both the Old Notes and the New Notes.
The following description is a summary of the material provisions of
the Indenture. It does not restate the Indenture in its entirety. Because this
is a summary, we urge you to read the Indenture and the relevant portions of the
Trust Indenture Act because they, and not this description, define your rights
as holders of the Notes. We have filed copies of the Indenture as an exhibit to
the registration statement which includes this prospectus.
Brief Description of the Notes and the Guarantees
The Notes are:
. general obligations of the Company;
. rank equally in right of payment with the Original Notes, the
Secondary Notes, the 1999 Notes and all current and future
unsecured senior Indebtedness of the Company;
. effectively subordinated to the secured Indebtedness of the Company
and its Subsidiaries;
. effectively subordinated to the Indebtedness of the Securitization
Trusts and certain obligations under Credit Enhancement Agreements;
and
. unconditionally guaranteed by the Guarantors.
These Notes are guaranteed by the following subsidiaries of the
Company:
. AmeriCredit Financial Services, Inc.;
. AmeriCredit Management Company;
. Americredit Corporation of California;
. ACF Investment Corp;
. AmeriCredit Consumer Discount Company;
. AmeriCredit Flight Operations, LLC;
. AmeriCredit Service Center Ltd.;
. AmeriCredit Financial Services of Canada Ltd.;
. AmeriCredit NS I Co.; and
. AmeriCredit NS II Co.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. As of the date
of the Indenture, all of the Company's Subsidiaries, other than Subsidiaries
that are Securitization Trusts, will be Restricted Subsidiaries. All of the
Company's current and future Restricted Subsidiaries will guarantee the
Company's payment obligations under the Notes on a senior unsecured basis. As of
the date of the Indenture, the following entities, which hold substantial
assets, are Securitization Trusts and will not guarantee the Notes:
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. AFS Funding Corp.;
. AFS SenSub Corp.,
. AmeriCredit Funding Corp. II;
. AmeriCredit Funding Corp. V;
. AmeriCredit Funding Corp. VII;
. AmeriCredit Funding Corp. VIII;
. AmeriCredit MTN Corp.;
. AmeriCredit MTN Corp. II; and
. AmeriCredit MTN Corp. III.
See "Risk Factors - Because of our holding company structure and the
security interests our subsidiaries have granted in their assets, the repayment
of the Notes will be effectively subordinated to substantially all of our other
debt."
As of the date of the Indenture, all of the Company's Subsidiaries will
be Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants set forth in the Indenture.
Principal, Maturity and Interest
The Company issued the Old Notes with an aggregate principal amount of
$175.0 million. The Company will issue Notes in denominations of $1,000 and
integral multiples of $1,000. The Notes will mature on May 1, 2009.
Interest on the Notes will accrue at the rate of 9 1/4% per annum and
will be payable semi-annually in arrears on May 1 and November 1, commencing on
November 1, 2002. The Company will make each interest payment to Holders of
record on the immediately preceding April 15 and October 15.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder has given wire transfer instructions to the Company, the
Company will make all principal, premium and interest payments on those Notes in
accordance with those instructions. All other payments on these Notes will be
made at the office or agency of the Paying Agent and Registrar within the City
and State of New York unless the Company elects to make interest payments by
check mailed to the Holders at their address set forth in the register of
Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as Paying Agent and Registrar. The
Company may change the Paying Agent or Registrar without prior notice to the
Holders of the Notes, and the Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
Transfer and Exchange
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
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The registered Holder of a Note will be treated as the owner of it for
all purposes.
Subsidiary Guarantees
The Guarantors will jointly and severally guarantee the Company's
obligations under the Notes. The Subsidiary Guarantees will rank equally with
the Original Guarantees, the Secondary Guarantees and the 1999 Guarantees. The
obligations of each Guarantor under its Subsidiary Guarantee will be limited as
necessary to prevent that Subsidiary Guarantee from constituting a fraudulent
conveyance under applicable law. See, "Risk Factors--Federal and state statutes
allow courts, under specific circumstances, to void the Notes and the guarantees
and require the noteholders to return payments received from us or the
guarantors."
A Guarantor may not consolidate with or merge with or into (whether or
not such Guarantor is the surviving Person), another corporation, Person or
entity whether or not affiliated with such Guarantor unless:
(1) subject to the provisions of the following paragraph, the Person
formed by or surviving any such consolidation or merger (if other
than such Guarantor) assumes all the obligations of that Guarantor
pursuant to a supplemental indenture satisfactory to the Trustee;
(2) immediately after giving effect to such transaction, no Default or
Event of Default exists;
(3) such Guarantor, or any Person formed by or surviving any such
consolidation or merger, would have Consolidated Net Worth
(immediately after giving effect to such transaction), equal to or
greater than the Consolidated Net Worth of such Guarantor
immediately preceding the transaction; and
(4) the Company would be permitted by virtue of the Company's pro
forma Consolidated Leverage Ratio, immediately after giving effect
to such transaction, to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Leverage Ratio test set
forth in the covenant described below under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock."
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with the sale of other disposition of all of the
assets of that Guarantor (including by way of merger or
consolidation), if the Company applies the Net Proceeds of that
sale or other disposition in accordance with the applicable
provisions of the Indenture; or
(2) in connection with the sale or of other disposition of all of the
capital stock of that Guarantor, if the Company applies the Net
Proceeds of that sale or of the disposition in accordance with the
applicable provisions of the Indenture.
See "Repurchase at the Option of Holders--Asset Sales."
Optional Redemption
During the first 36 months after May 1, 2002, AmeriCredit may on any
one or more occasions redeem up to 35% of the aggregate principal amount of
Notes at a redemption price of 109.250% of the principal amount thereof, plus
accrued and unpaid interest and liquidated damages, if any, to the redemption
date, with the net cash proceeds of a public offering of the Company's common
stock; provided that:
(1) at least 65% in aggregate principal amount of Notes remain
outstanding immediately after the occurrence of such redemption;
and
(2) the redemption shall occur within 45 days of the date of the
closing of the public offering of common stock.
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Except pursuant to the preceding paragraph, the Company will not be
able to redeem the Notes prior to May 1, 2006. After May 1, 2006 the Company may
redeem all or part of the Notes upon not less than 30 nor more than 60 days
notice at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and liquidated damages to the
redemption date, if redeemed during the twelve-month period beginning on May 1
of the years indicated below:
Year Percentage
---- ----------
2006 ........................................... 104.625%
2007 ........................................... 102.313%
2008 and thereafter ............................ 100.000%
Selection and Notice
If the Company redeems less than all of the Notes at any time, the
Trustee will select the Notes for redemption as follows:
(1) if the Notes are listed, in compliance with the requirements of
the principal national securities exchange on which the Notes are
listed; or,
(2) if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate.
No Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any Note is to be redeemed in part only, the notice of redemption
that relates to that Note shall state the portion of the principal amount
thereof to be to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on Notes or portions of them called for redemption.
Mandatory Redemption
Except as set forth below under "Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of Notes will have the right
to require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder's Notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Company will offer a cash
payment equal to 101% of the aggregate principal amount of Notes repurchased
plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the
date of purchase. Within ten days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes on the
Change of Control Payment Date specified in that notice, which will be no
earlier than 30 days and no later than 60 days from the date the notice is
mailed, pursuant to the procedures required by the Indenture and described in
that notice. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes as a result of a Change of Control.
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On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all Notes or portions of the Notes
so tendered; and
(3) deliver or cause to be delivered to the Trustee the Notes so
accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being
purchased by the Company.
The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Payment Date.
The provisions described above that require the Company to make Change
of Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Company's other senior Indebtedness contains prohibitions of
certain events that would constitute a Change of Control. In addition, the
exercise by the Holders of Notes of their right to require the Company to
repurchase the Notes could cause a default under such other senior Indebtedness
due to the financial effect of such repurchases on the Company even if the
Change of Control itself does not. Finally, the Company's ability to pay cash to
the Holders of Notes upon a repurchase may be limited by the Company's then
existing financial resources. See "Risk Factors--We may not be able to
repurchase our senior notes or repay debt under our warehouse credit facilities
in the event of a change of control."
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of such Asset Sale at least
equal to the fair market value of the assets or Equity Interests
issued or sold or otherwise disposed of;
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(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors
set forth in an Officer's Certificate delivered to the Trustee;
and
(3) at least 85% of the consideration therefor received by the Company
or such Restricted Subsidiary is in the form of cash; provided
that the amount of
(a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities that are by their terms
subordinated to the Notes or any Guarantee) that are assumed
by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or
such Restricted Subsidiary into cash (to the extent of the
cash received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds at its option:
(a) permanently reduce the Specified Senior Indebtedness of the
Company and its Restricted Subsidiaries including the
Original Notes, the Secondary Notes and the 1999 Notes;
provided, however, that the Company shall apply such Net
Proceeds to all Specified Senior Indebtedness of the Company
and its Restricted Subsidiaries on a pro rata basis, or
(b) to an Investment;
(c) to make a capital expenditure; or
(d) to acquire Receivables or other tangible assets, in each
case, in or with respect to a Permitted Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce Indebtedness under Credit Facilities and/or Warehouse
Facilities or otherwise invest such Net Proceeds in any manner that is not
prohibited by the Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will be deemed to constitute Excess
Proceeds. When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company will be required to make an Asset Sale Offer to all Holders of
Original Notes to purchase the maximum principal amount of Original Notes that
may be purchased out of the Excess Proceeds. The offer price will be equal to
100% of the principal amount plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase and will be payable in cash.
If the Holders of Secondary Notes tender an aggregate amount of
Secondary Notes that is less than the Excess Proceeds, the Company will make a
Third Asset Sale Offer to all Holders of 1999 Notes to purchase the maximum
principal amount of 1999 Notes that may be purchased out of Excess Proceeds. The
offer price will be equal to 100% of the principal amount plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of purchase, and
will be payable in cash.
If the Holders of 1999 Notes tender an aggregate amount of 1999 Notes
that is less than the Excess Proceeds, the Company will make a Fourth Asset Sale
Offer to all Holders of Notes to purchase the maximum principal amount of Notes
that may be purchased out of Excess Proceeds. The offer price will be equal to
100% of
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the principal amount plus accrued and unpaid interest and Liquidated Damages, if
any, to the date of purchase, and will be payable in cash.
If any Excess Proceeds remain after the consummation of the Fourth Asset
Sale Offer, the Company may use such Excess Proceeds for general corporate
purposes. If the aggregate principal amount of Original Notes, Secondary Notes,
1999 Notes or Notes tendered into such Asset Sale Offer exceeds the amount of
Excess Proceeds, the Trustee shall select the Original Notes, Secondary Notes,
1999 Notes or Notes to be purchased on a pro rata basis. Upon completion of such
offer to purchase Notes, the amount of Excess Proceeds shall be reset at zero.
Certain Covenants
Changes in Covenants when Notes Rated Investment Grade
Following the first date upon which, but only for so long as:
(1) the Notes are rated Baa3 or better by Moody's Investors Service, Inc.
and BBB- or better by Standard & Poor's Ratings Group (or, if either
such entity ceases to rate the Notes for reasons outside of the
control of the Company, the equivalent investment grade credit rating
from any other "nationally recognized statistical rating organization"
within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act
selected by the Company as a replacement agency); and
(2) no Default or Event of Default shall have occurred and be continuing,
then the covenants specifically listed under the following captions in this
prospectus will no longer be applicable to the Notes:
(1) "--Restricted Payments;"
(2) "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
(3) "--Dividend and Other Payment Restrictions Affecting Subsidiaries;"
(4) "--Transactions with Affiliates;"
(5) "--Limitation on Issuances and Sales of Capital Stock of Wholly-Owned
Restricted Subsidiaries;"
(6) "--Business Activities;" and
(7) clause (4) of the covenant listed under "--Merger, Consolidation, or
Sale of Assets."
There can be no assurance that the Notes will ever achieve or maintain an
investment grade rating.
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of the Company's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the
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Company or any direct or indirect parent of the Company or other
Affiliate of the Company (other than any such Equity Interests
owned by the Company or any Wholly-Owned Restricted Subsidiary of
the Company);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness
that is subordinated to the Notes, except a payment of interest or
principal at Stated Maturity; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted
Payment:
(1) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto, have been permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described
below under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock;" and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries
after March 31, 1999 (excluding Restricted Payments permitted by
clause (b) of the next succeeding paragraph), is less than the sum of:
(a) 25% of the aggregate cumulative Consolidated Net Income of
the Company for the period (taken as one accounting period)
from and after March 31, 1999 to the end of the Company's
most recently ended fiscal quarter for which internal
financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for
such period is a deficit, less 100% of such deficit); plus
(b) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since March 31, 1999 of
Equity Interests of the Company (other than Disqualified
Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into
such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock
or convertible debt securities that have been converted into
Disqualified Stock), plus
(c) to the extent that any Restricted Investment that was made
after March 31, 1999 is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (i) the cash
return of capital with respect to such Restricted Investment
(less the cost of disposition, if any); and (ii) the initial
amount of such Restricted Investment.
The preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the Indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of
the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Company) of, other Equity Interests of the Company (other than any
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from
clause (3)(b) of the preceding paragraph;
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(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of the Company
to the holders of its common Equity Interests on a pro rata basis; and
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Restricted
Subsidiary of the Company held by any member of the Company's (or any
of its Restricted Subsidiaries') management pursuant to any management
equity subscription agreement or stock option agreement in effect as
of the date of the Indenture; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity
Interests shall not exceed $250,000 in any twelve-month period and no
Default or Event of Default shall have occurred and be continuing
immediately after such transaction.
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if such designation would not cause
a Default; provided that in no event shall the business currently operated by
AmeriCredit Financial Services, Inc. or AmeriCredit Financial Services of
Canada, Ltd. be transferred to or held by an Unrestricted Subsidiary. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greater of:
(1) the net book value of such Investments at the time of such
designation; or
(2) the fair market value of such Investments at the time of such
designation. Such designation will only be permitted if such
Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant shall be determined by the Board of Directors of the Company whose
resolution with respect thereto shall be delivered to the Trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $10.0 million. Not later than 15 days after the end of
any fiscal quarter during which any Restricted Payment is made, the Company
shall deliver to the Trustee an Officers' Certificate stating that Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this "Restricted Payments" covenant were computed, together with a
copy of any fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt) and the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company and the Guarantors may incur Indebtedness (including Acquired Debt) and
issue shares of Disqualified Stock or preferred stock if the Consolidated
Leverage Ratio of the Company, calculated on a pro forma basis after giving
effect to the incurrence or issuance of the additional Indebtedness to be
incurred or the Disqualified Stock or preferred stock to be issued, would have
been less than 2.0 to 1.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
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(1) the existence of Credit Facilities and the Guarantees thereof by the
Guarantors and the incurrence by the Company and any Guarantor of
revolving credit Indebtedness pursuant to one or more Credit
Facilities if the proceeds are applied to purchase or originate
Receivables; provided that the aggregate principal amount of all
revolving credit Indebtedness outstanding under all Credit Facilities
after giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance, defease, renew
or replace any Indebtedness incurred pursuant to this clause (1) and
with letters of credit being deemed to have a principal amount equal
to the maximum potential liability of the Company and its Restricted
Subsidiaries thereunder, does not at any time exceed the amount of the
Borrowing Base (any such outstanding Indebtedness that exceeds the
amount of the Borrowing Base as of the close of any Business Day shall
cease to be Permitted Debt pursuant to this clause (1) as of the close
of business on the third Business Day thereafter and shall be deemed
to be an incurrence of such Indebtedness that is not permitted by this
clause (1) by the Company or such Guarantor, as applicable, as of such
third Business Day);
(2) the existence of Warehouse Facilities, regardless of amount, and the
incurrence by the Company or any of its Restricted Subsidiaries or the
Warehouse Trusts of Permitted Warehouse Debt in an aggregate principal
amount at any time outstanding (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of
the Company and its Restricted Subsidiaries or the Warehouse Trusts
thereunder) not to exceed 100% of the aggregate principal amount
(exclusive of Acquisition Fees included therein) of all Eligible
Receivables owned by the Company and its Restricted Subsidiaries or
the Warehouse Trusts (or such Warehouse Facilities in the case of
Permitted Warehouse Debt in the form of repurchase agreements) at such
time;
(3) the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(4) the incurrence by the Company of Indebtedness represented by the
Original Notes, the Secondary Notes, the 1999 Notes and the Notes and
the incurrence by the Guarantors of the Original Guarantees, the
Secondary Guarantees, the 1999 Guarantees and the Subsidiary
Guarantees;
(5) obligations of the Company and its Restricted Subsidiaries and the
Securitization Trusts under Credit Enhancement Agreements;
(6) the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance, defease, renew or
replace any Indebtedness (other than intercompany Indebtedness) that
was permitted by the Indenture to be incurred;
(7) the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of the
Guarantors; provided, however, that
(a) if the Company is the obligor on such Indebtedness, such
Indebtedness is expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the Notes and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
the Company or a Guarantor and (ii) any sale or other transfer of
any such Indebtedness to a Person that is not either the Company
or a Guarantor shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this
clause (7);
(8) the issuance by a Restricted Subsidiary of preferred stock to the
Company or to any of the Guarantors; provided, however, that any
subsequent event or issuance or transfer of any Capital Stock that
results in the owner of such preferred stock ceasing to be a Guarantor
of the Company or any subsequent transfer of such preferred stock to a
Person other than the Company or any of the Guarantors, shall be
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deemed to be an issuance of preferred stock by such Restricted
Subsidiary that was not permitted by this clause (8);
(9) the incurrence by the Company or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred:
(a) for the purpose of fixing or hedging interest rate risk with
respect to any floating rate Indebtedness that is permitted by
the terms of this Indenture to be outstanding; or
(b) for the purpose of hedging, fixing or capping interest rate risk
in connection with any completed or pending Securitization,
Warehouse Facility or Residual Funding Facility;
(10) the guarantee by the Company or any of the Guarantors of Indebtedness
of the Company or a Restricted Subsidiary of the Company, a Warehouse
Trust or a Securitization Trust that was permitted to be incurred by
another provision of this covenant;
(11) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness
ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company that was not permitted by this
clause (11); and
(12) the incurrence by the Company of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any
time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness
incurred pursuant to this clause (12), not to exceed $20.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (12) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof.
Limitation on Senior Subordinated Debt
The Company will not, and will not permit any of its Restricted
Subsidiaries to incur any Indebtedness that is contractually subordinated to any
Indebtedness of the Company or any such Restricted Subsidiary unless such
Indebtedness is also contractually subordinated to the Notes, or the Subsidiary
Guarantee of such Restricted Subsidiary (as applicable), on substantially
identical terms; provided, however, that no Indebtedness shall be deemed to be
contractually subordinated to any other Indebtedness solely by virtue of being
unsecured.
Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind upon any of their property or assets, now
owned or hereafter acquired, unless all payments due under the Indenture and the
Notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligations are no longer secured by a Lien, except
Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to:
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(1) pay dividends or make any other distributions on its Capital Stock to
the Company or any of the Company's Restricted Subsidiaries; or with
respect to any other interest or participation in, or measured by, its
profits, or pay any Indebtedness owed to the Company or any of the
Company's Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of:
(a) the Indenture and the Notes;
(b) applicable law;
(c) any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except
to the extent such Indebtedness was incurred in connection with
or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or
assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred;
(d) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(e) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so
acquired of the nature described in clause (3) above;
(f) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being
refinanced;
(g) the requirements of any Securitization, Warehouse Facility or
Residual Funding Facility that are exclusively applicable to any
bankruptcy remote Securitization Trust, Warehouse Trust or
special purpose Subsidiary of the Company formed in connection
therewith;
(h) the requirements of any Credit Enhancement Agreement; or
(i) in the case of clause (3) above, Liens otherwise permitted to be
incurred under the Indenture.
Merger, Consolidation, or Sale of Assets
The Company may not; (1) consolidate or merge with or into another Person
(whether or not the Company is the surviving corporation); or (2) sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions, to another Person
unless:
(1) either (a) the Company is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the entity or Person to which such sale,
assignment, transfer, lease, conveyance or other disposition shall
have been made assumes all the obligations of the Company under the
Notes and the Indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee;
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(3) immediately before and after such transaction no Default or Event
of Default exists; and
(4) the Company or Person formed by or surviving any such consolidation
or merger (if other than the Company), or the Company or Person to
which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made will, at the time of such
transaction and after giving pro forma effect thereto as if such
transaction had occurred at the end of the applicable fiscal
quarter, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Consolidated Leverage Ratio test set
forth in the first paragraph of the covenant described above under
the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock." This "Merger, Consolidation, or Sale of Assets" covenant
will not apply to a sale, assignment, transfer, lease, conveyance
or other disposition of assets between or among the Company and any
of its Wholly-Owned Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each an "Affiliate Transaction"), unless;
(1) such Affiliate Transaction is on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the
Company or such Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, a resolution of the Board of Directors
of the Company set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of
Directors of the Company; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $10.0 million, an opinion as to the fairness to the
Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment
banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted
Subsidiary;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries; and
(3) Restricted Payments that are permitted by the provisions of the
Indenture described above under the caption "--Restricted
Payments."
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Limitation on Issuances and Sales of Capital Stock of Wholly-Owned
Restricted Subsidiaries
The Company will not, and will not permit any Wholly-Owned Restricted
Subsidiary of the Company to:
(1) transfer, convey, sell, lease or otherwise dispose of any Capital
Stock of any Wholly-Owned Restricted Subsidiary of the Company to
any Person (other than the Company or a Wholly-Owned Restricted
Subsidiary of the Company that is a Guarantor), unless:
(a) such transfer, conveyance, sale, lease or other disposition is
of all the Capital Stock of such Wholly-Owned Restricted
Subsidiary and
(b) the cash Net Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the
covenant described above under the caption "Repurchase at the
Option of Holders--Asset Sales," and
(2) will not permit any Wholly-Owned Restricted Subsidiary of the
Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors'
qualifying shares) to any Person other than to the Company or a
Wholly-Owned Restricted Subsidiary of the Company.
Additional Subsidiary Guarantees
If the Company or any of its Subsidiaries acquires or creates another
Subsidiary after the date of the Indenture, then that newly acquired or created
Subsidiary must become a Guarantor and execute a Subsidiary Guarantee and
deliver an opinion of counsel, in accordance with the terms of the Indenture.
This covenant shall not apply to Subsidiaries that (1) have properly been
designated as Unrestricted Subsidiaries in accordance with the Indenture for so
long as they continue to constitute Unrestricted Subsidiaries; or (2) qualify as
Securitization Trusts or Warehouse Trusts for so long as they continue to
constitute Securitization Trusts or Warehouse Trusts.
Business Activities
The Company will not permit any Restricted Subsidiary to engage in any
business other than Permitted Businesses, except to such extent as would not be
material to the Company and its Subsidiaries taken as a whole.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, to or for the
benefit of to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the Notes that consent, waive or agree to amend in the time frame set forth
in the solicitation documents relating to such consent, waiver or agreement.
Reports
Whether or not required by the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms
10-Q and 10-K if the Company were required to file such Forms,
including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the
annual information only, a report on the annual financial
statements by the Company's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such
reports.
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In addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Guarantors will furnish the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to the Holders, securities analysts and prospective investors
upon request so long as any Notes remain outstanding.
Limitation on Investment Company Status
The Company will not, and its Subsidiaries will not, take any action, or
otherwise permit to exist any circumstance, that would require the Company to
register as an "investment company" under the Investment Company Act of 1940, as
amended.
Events of Default and Remedies
Each of the following constitutes an Event of Default:
(1) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes;
(2) default in payment when due of the principal of or premium, if any,
on the Notes;
(3) failure by the Company or any of its Subsidiaries to comply with
its obligations in the covenants or other agreements described
under the captions "--Repurchase at the Option of Holders,"
"--Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," or "--Dividend and Other Payment Restrictions
Affecting Subsidiaries;"
(4) failure by the Company or any of its Subsidiaries for 30 days after
written notice from the Trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding Notes to comply
with any of the other covenants or agreements in the Indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its
Subsidiaries (or the payment of which is guaranteed by the Company
or any of its Subsidiaries) whether such Indebtedness or Guarantee
now exists, or is created after the date of the Indenture, if that
default:
(a) is caused by a failure to pay principal of or premium, if any,
or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such
default (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more;
(6) failure by the Company or any of its Subsidiaries to pay final
judgments aggregating in excess of $2.0 million, which judgments
are not paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the Indenture, any Subsidiary Guarantee
shall be held in a judicial proceeding to be unenforceable or
invalid or shall cease for any reason to be in full force and
effect or any Guarantor, or any Person acting in behalf of any
Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and
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(8) certain events of bankruptcy or insolvency with respect to the
Company or any of its Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become due and
payable without further action or notice. If any other Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare all the Notes to be due and
payable immediately.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the Notes. If an Event of Default occurs prior to May 1, 2006 by
reason of any willful action (or inaction) taken (or not taken) by or on behalf
of the Company with the intention of avoiding the prohibition on redemption of
the Notes prior to May 1, 2006, then the premium specified in the Indenture
shall also become immediately due and payable to the extent permitted by law
upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture, except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the Trustee a statement
specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, the Indenture or the Registration Rights Agreement or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Notes. The waiver may not be effective to waive liabilities under the
federal securities laws, and it is the view of the Commission that such a waiver
is against public policy.
Legal Defeasance and Covenant Defeasance
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, premium, if any, and interest and
Liquidated Damages on such Notes when such payments are due from
the trust referred to below;
(2) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or
agency for payment and money for security payments held in trust;
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(3) the rights, powers, trusts, duties and immunities of the Trustee,
and the Company's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company released with respect to certain covenants
that are described in the Indenture ("Covenant Defeasance") and thereafter any
omission to comply with those obligations shall not constitute a Default or
Event of Default with respect to the Notes. In the event Covenant Defeasance
occurs, certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest and Liquidated Damages
on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company
must specify whether the Notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that:
(a) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm
that, the Holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance
had not occurred;
(3) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel reasonably
acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing either:
(a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to
such deposit); or
(b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the
Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound;
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(6) the Company must have delivered to the Trustee an opinion of
counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) the Company must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the
intent of preferring the Holders of Notes over the other creditors
of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and
(8) the Company must deliver to the Trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions
precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
The Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer or exchange offer for, Notes), and any
existing default or compliance with any provision of the Indenture or the Notes
may be waived with the consent of the Holders of a majority in principal amount
of the then outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for Notes).
However, without the consent of each Holder affected, an amendment or
waiver may not (with respect to any Notes held by a non-consenting Holder):
(1) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any Note or
alter the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any Note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission
of acceleration of the Notes by the Holders of at least a majority
in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration),
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on
the Notes;
(7) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the
caption "--Repurchase at the Option of Holders"); or
(8) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any Holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of
certificated Notes;
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(3) to provide for the assumption of the Company's obligations to
Holders of Notes in the case of a merger or consolidation;
(4) to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect
the legal rights under the Indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the Indenture under the Trust
Indenture Act.
Concerning the Trustee
If the Trustee becomes a creditor of the Company, the Indenture limits
its rights to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
Holder of Notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
The New Notes will initially be issued as one or more Notes in registered
global form without interest coupons (the "Global Notes") but, as described
below, may be exchanged for "Certified Securities". The Depository Trust Company
(the "Depository") or its nominee will initially be the registered holder of the
Notes for all purposes under the Indenture.
Notes that were issued as described below under "Certificated
Securities," will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer to a qualified institutional
buyer of Certificated Securities initially issued to a Non-Global Purchaser,
such Certificated Securities may, unless the Global Notes have previously been
exchanged for Certificated Securities, be exchanged for an interest in the
Global Note representing the principal amount of Notes being transferred.
The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depository's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository:
(1) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Notes; and
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(2) ownership of the Notes evidenced by the Global Notes will be shown
on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the
interests of the Depository's Participants), the Depository's
Participants and the Depository's Indirect Participants.
Investors in the Global Notes in the United States who are Participants
in DTC's system may hold their interests therein directly through DTC. Investors
in the Global Notes in the United States who are not Participants may hold their
interests therein indirectly through organizations (including Euroclear and
Clearstream) which are Participants in such system. Investors in the Global
Notes outside the United States may hold their interests therein through
Euroclear or Clearstream, if they are participants in such systems, or
indirectly through organizations that are Participants in the DTC system other
than Euroclear and Clearstream. Euroclear and Clearstream will hold interests in
any Global Note on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and
Citibank, N.A., as operator of Clearstream. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and requirements of such
systems.
Prospective purchasers are advised that the laws of some states require
that certain Persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Notes evidenced by any
Global Note will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes,
the Global Note Holder will be considered the sole Holder under the Indenture of
any Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by
the Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depository or for maintaining, supervising or reviewing
any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the Persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depository to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depository. Payments by the Depository's Participants and the Depository's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depository's Participants or the Depository's Indirect Participants.
Certificated Securities
Subject to certain conditions, any Person having a beneficial interest in
any Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such Person or Persons (or
the nominee of any thereof). In addition, if
(1) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depositary and the Company is
unable to locate a qualified successor within 90 days or
(2) the Company, at its option, notifies the Trustee in writing that it
elects to cause the issuance of Notes in the form of Certificated
Securities under the Indenture,
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then, upon surrender by the Global Note Holder of its Global Note, Notes in such
form will be issued to each Person that the Global Note Holder and the
Depository identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively relying on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Same Day Settlement and Payment
The Indenture will require that payments in respect of the Notes
represented by the Global Note (including principal, premium, if any, interest
and Liquidated Damages, if any) be made by wire transfer of immediately
available (same day) funds to the accounts specified by the Global Note Holder.
With respect to Certificated Securities, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available (same day) funds to the accounts specified by
the Holders thereof or, if no such account is specified, by mailing a check to
each such Holder's registered address. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global Note from a
Participant in the Depository will be credited, and any such crediting will be
reported to the relevant Euroclear or Clearstream participant, during the
securities settlement processing day (which must be a business day for Euroclear
and Clearstream) immediately following the settlement date of the Depository.
The Depository has advised the Company that cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note by or through a
Euroclear or Clearstream participant to a Participant in the Depository will be
received with value on the settlement date of THE DEPOSITORY but will be
available in the relevant Euroclear or Clearstream cash account only as of the
business day for Euroclear or Clearstream following the Depository's settlement
date.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"1999 Guarantees" means each of the Guarantees of the 1999 Notes by the
Guarantors pursuant to the 1999 Indenture.
"1999 Indenture" means the indenture, dated as of April 20, 1999, among
the Company, Bank One, NA, as trustee, and the Guarantors, with respect to the
1999 Notes and the 1999 Guarantees.
"1999 Notes" means the $200,000,000 in aggregate principal amount of the
Company's 9.875% Senior Notes due 2006, issued pursuant to the 1999 Indenture on
April 20, 1999.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Acquisition Fees" means, with respect to any Eligible Receivables as of
any date, the discount or cash payments received by the Company from dealers and
other Persons with respect to the Eligible Receivables purchased from such
dealer or other Person and owned by the Company or its Restricted Subsidiaries
as of such date.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as
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used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
voting securities of a Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than pledges or sales of Receivables or residual interests in
connection with Securitizations, Warehouse Facilities, a Residual Funding
Facility or Credit Facilities in the ordinary course of business consistent with
past practices (provided that the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the Company and its Subsidiaries
taken as a whole will be governed by the provisions of the Indenture described
above under the caption "--Change of Control" and/or the provisions described
above under the caption "--Merger, Consolidation or Sale of Assets" and not by
the provisions of the Asset Sale covenant), and (ii) the issue or sale by the
Company or any of its Subsidiaries of Equity Interests of any of the Company's
Subsidiaries, in the case of either clause (i) or (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $500,000 or (b) for net proceeds in excess of $500,000.
Notwithstanding the foregoing: (i) a transfer of assets by the Company to a
Wholly-Owned Restricted Subsidiary or by a Wholly-Owned Restricted Subsidiary to
the Company or to another Wholly-Owned Restricted Subsidiary, (ii) an issuance
of Equity Interests by a Wholly-Owned Restricted Subsidiary to the Company or to
another Wholly-Owned Restricted Subsidiary, and (iii) a Restricted Payment that
is permitted by the covenant described above under the caption "--Restricted
Payments" will not be deemed to be Asset Sales.
"Board of Directors" means the Board of Directors or other governing body
charged with the ultimate management of any Person, or any duly authorized
committee thereof.
"Borrowing Base" means, as of any date, an amount equal to the sum of (i)
80% of the aggregate amount of Receivables (other than loans secured by
residential mortgages) owned by the Company and its Wholly-Owned Restricted
Subsidiaries as of such date that are not in default, excluding (A) any
Receivables that were acquired or originated with Permitted Warehouse Debt, (B)
any Receivables that are held by a Securitization Trust, and (C) any Receivables
that are subject to Liens other than Liens securing Obligations under Credit
Facilities; and (ii) 60% of the book value (determined on a consolidated basis
in accordance with GAAP) of interests in portfolios of securitized Receivables
that are owned by the Company, a Wholly-Owned Restricted Subsidiary or a
Securitization Trust as of such date and that are not subject to any Liens other
than Liens to secure Obligations under Credit Facilities.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) certificates of deposit
and Eurodollar time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not exceeding six months
and overnight bank deposits, in each case with any domestic commercial bank
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) above entered into with any financial institution meeting the
qualifications specified in clause (iii) above and (v) commercial paper having
the highest rating obtainable from Moody's Investors Service, Inc. or Standard &
Poor's Corporation and in each case maturing within six months after the date of
acquisition.
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"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than in the ordinary course of business; (ii) the
adoption of a plan relating to the liquidation or dissolution of the Company;
(iii) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as defined
above), becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares); (iv) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors; or (v) the
Company consolidates with, or merges with or into, any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which any of the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any such transaction where the Voting Stock of the Company
outstanding immediately prior to such transaction is converted into or exchanged
for Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance); provided, however, that this clause (v) shall not apply to any such
consolidation or merger if, immediately after the consummation of such
transaction and after giving effect thereto, the ratings assigned to the Notes
by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group are equal
to or higher than Baa3 (or the equivalent) and BBB- (or the equivalent),
respectively.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (iii) the aggregate liquidation value of all Disqualified
Stock of such Person and all preferred stock of Restricted Subsidiaries of such
Person, in each case, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Leverage Ratio" means, with respect to any Person, as of
any date of determination, the ratio of (i) the Consolidated Indebtedness of
such Person as of such date, excluding, however, all (A) borrowings under Credit
Facilities that constitute Permitted Debt, (B) Permitted Warehouse Debt and (C)
Hedging Obligations that constitute Permitted Debt to (ii) the Consolidated Net
Worth of such Person as of such date.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries (for such period, on a consolidated basis, determined in accordance
with GAAP) provided that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly-Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going
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concern business made within 12 months after the acquisition of such business
and write-ups of residual interests in Securitization Trusts) subsequent to the
date of the Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except, in
each case, Permitted Investments), and (z) all unamortized debt discount and
expense and unamortized deferred charges as of such date, all of the foregoing
determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who: (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Credit Enhancement Agreements" means, collectively, any documents,
instruments, guarantees or agreements entered into by the Company, any of its
Restricted Subsidiaries or any of the Securitization Trusts for the purpose of
providing credit support for the Securitization Trusts or any of their
respective Indebtedness or asset-backed securities.
"Credit Facilities" means, with respect to the Company or any of its
Restricted Subsidiaries, one or more debt facilities with banks or other
institutional lenders providing for revolving credit loans; provided that in no
event will any such facility that constitutes a Warehouse Facility or a Residual
Funding Facility be deemed to qualify as a Credit Facility.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
"Eligible Receivables" means, at any time, all Receivables owned by the
Company or any of its Restricted Subsidiaries that meet the sale or loan
eligibility criteria set forth in a Warehouse Facility pursuant to which the
applicable Receivables were financed; excluding, however, any Receivables that
are pledged to secure borrowings under a Credit Facility and excluding any such
Receivables held by a Securitization Trust.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $130.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Credit Facilities, the Warehouse Facilities, the Original
Notes, the Secondary Notes, the 1999 Notes and the Original Guarantees, the
Secondary Guarantees and the 1999 Guarantees) in existence on April 30, 2002,
until such amounts are repaid.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time and consistently applied.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) AmeriCredit Financial Services, Inc., a
Delaware corporation, ACF Investment Corp., a Delaware corporation, Americredit
Corporation of California, a California corporation,
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AmeriCredit Management Company, a Delaware corporation, AmeriCredit Consumer
Discount Company, a Pennsylvania corporation, AmeriCredit Service Center Ltd., a
Canadian corporation chartered in the Province of Ontario, AmeriCredit Flight
Operations, LLC, a Texas limited liability company, AmeriCredit NS I Co., a
Canadian corporation chartered in the Province of Nova Scotia AmeriCredit NS II
Co., a Canadian corporation chartered in the Province of Nova Scotia and
AmeriCredit Financial Services of Canada Ltd., a Canadian corporation chartered
in the Province of Ontario and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest or
currency exchange rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all indebtedness of others
secured by a Lien on any asset of such Person (whether or not such indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person. The amount of
any Indebtedness outstanding as of any date shall be (i) the accreted value
thereof, in the case of any Indebtedness that does not require current payments
of interest, and (ii) the principal amount thereof, together with any interest
thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Subsidiary of the Company sells or otherwise disposes of
any Equity Interests of any direct or indirect Subsidiary of the Company such
that, after giving effect to any such sale or disposition, such Person is no
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset
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Sale (including, without limitation, legal, accounting and investment banking
fees, and sales commissions) and any relocation expenses incurred as a result
thereof, taxes paid or payable as a result thereof (after taking into account
any available tax credits or deductions and any tax sharing arrangements),
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Original Guarantees" means each of the Guarantees of the Original Notes
by the Guarantors pursuant to the Original Indenture.
"Original Indenture" means the Indenture, dated as of February 4, 1997,
among the Company, Bank One, Columbus, NA, as trustee, and the Guarantors, with
respect to the Original Notes and the Original Guarantees.
"Original Notes" means the $125,000,000 in aggregate principal amount of
the Company's 9 1/4% Senior Notes due 2004, issued pursuant to the Original
Indenture on February 4, 1997.
"Permitted Business" means the business of purchasing, originating,
brokering and marketing, pooling and selling, securitizing and servicing
Receivables, and entering into agreements and engaging in transactions involving
consumer lending or otherwise incidental to the foregoing.
"Permitted Investments" means (a) any Investment in the Company or in a
Wholly-Owned Restricted Subsidiary of the Company that is a Guarantor; (b) any
Investment in Cash Equivalents; (c) any Investment by the Company or any
Subsidiary of the Company in a Person, if as a result of such Investment (i)
such Person becomes a Wholly-Owned Restricted Subsidiary of the Company and a
Guarantor that is engaged in a Permitted Business or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly-Owned
Restricted Subsidiary of the Company that is a Guarantor and that is engaged in
a Permitted Business; (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales;" (e) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company; (f) Investments by the Company or any of its
Subsidiaries in Securitization Trusts in the ordinary course of business in
connection with or arising out of Securitizations; (g) purchases of all
remaining outstanding asset-backed securities of any Securitization Trust for
the purpose of relieving the Company or a Subsidiary of the Company of the
administrative expense of servicing such Securitization Trust, but only if 75%
or more of the aggregate principal amount of the original asset-backed
securities of such Securitization Trust have previously been retired; and (h)
Investments in Receivables in the ordinary course of business; and (i) other
Investments by the Company or any of its Subsidiaries in any Person (other than
an Affiliate of the Company that is not also a Subsidiary of the Company) that
do not exceed $15.0 million in the aggregate at any one time outstanding
(measured as of the date made and without giving effect to subsequent changes in
value).
"Permitted Liens" means (i) Liens existing on the date of the Indenture;
(ii) Liens on Eligible Receivables and the proceeds thereof to secure Permitted
Warehouse Debt or permitted Guarantees thereof; (iii) Liens to secure borrowings
under a Residual Funding Facility or permitted Guarantees thereof; (iv) Liens to
secure revolving credit
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borrowings under Credit Facilities, provided that such borrowings were permitted
by the Indenture to be incurred; (v) Liens on Receivables and the proceeds
thereof incurred in connection with Securitizations or permitted Guarantees
thereof; (vi) Liens on spread accounts and credit enhancement assets, Liens on
the stock of Restricted Subsidiaries of the Company substantially all of the
assets of which are spread accounts and credit enhancement assets and Liens on
interests in Securitization Trusts, in each case incurred in connection with
Credit Enhancement Agreements; (vii) Liens on property of a Person existing at
the time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not extend to
any assets other than those of the Person merged into or consolidated with the
Company; (viii) Liens on property existing at the time of acquisition thereof by
the Company or any Restricted Subsidiary of the Company, provided that such
Liens were in existence prior to the contemplation of such acquisition; (ix)
Liens securing Indebtedness incurred to finance the construction or purchase of
property of the Company or any of its Wholly-Owned Restricted Subsidiaries (but
excluding Capital Stock of another Person); provided, however, that any such
Lien may not extend to any other property owned by the Company or any of its
Restricted Subsidiaries at the time the Lien is incurred, and the Indebtedness
secured by the Lien may not be incurred more than 180 days after the latter of
the acquisition or completion of construction of the property subject to the
Lien; provided, further, that the Amount of Indebtedness secured by such Liens
do not exceed the fair market value (as evidenced by a resolution of the Board
of Directors of the Company set forth in an Officers' Certificate delivered to
the Trustee) of the property purchased or constructed with the proceeds of such
Indebtedness; (x) Liens to secure any Permitted Refinancing Indebtedness
incurred to refinance any Indebtedness secured by any Lien referred to in the
foregoing clauses (i) through (ix), provided, however, that such new Lien shall
be limited to all or part of the same property that secured the original Lien
and the Indebtedness secured by such Lien at such time is not increased to any
amount greater than the outstanding principal amount or, if greater, committed
amount of the Indebtedness described under clauses (i) through (ix), as the case
may be, at the time the original Lien became a permitted Lien; (xi) Liens in
favor of the Company; (xii) Liens incurred in the ordinary course of business of
the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $1.0 million in the aggregate at any one time
outstanding; (xiii) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business (including, without limitation,
landlord Liens on leased properties); (xiv) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded, provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (xv)
Liens on assets of Guarantors to secure Senior Guarantor Debt of such Guarantors
that, was permitted by the Indenture to be incurred; and (xvi) Liens on assets
of Unrestricted Subsidiaries that secure Non-Recourse Debt of Unrestricted
Subsidiaries.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than Permitted Warehouse Debt or intercompany Indebtedness); provided
that: (i) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final maturity
date of, and has a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and (iv) such Indebtedness is incurred either by the
Company or by the Restricted Subsidiary who is the obligor on the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"Permitted Warehouse Debt" means Indebtedness of the Company or a
Restricted Subsidiary of the Company outstanding under one or more Warehouse
Facilities.
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"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust, joint venture, or a governmental
agency or political subdivision thereof.
"Receivables" means (i) consumer installment sale contracts and loans
evidenced by promissory notes secured by new and used automobiles and light
trucks, (ii) other consumer installment sale contracts, lease contracts, credit,
debit or charge card receivables and (iii) loans secured by residential
mortgages, in the case of each of the clauses (i), (ii) and (iii), that are
purchased or originated in the ordinary course of business by the Company or any
Restricted Subsidiary of the Company; provided, however, that for purposes of
determining the amount of a Receivable at any time, such amount shall be
determined in accordance with GAAP, consistently applied, as of the most recent
practicable date.
"Residual Funding Facility" means any funding arrangement with a
financial institution or other lender or purchaser under which advances are made
to the Company or any Subsidiary based upon residual or subordinated interests
in Securitization Trusts and/or Warehouse Trusts.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Secondary Guarantees" means each of the Guarantees of the Secondary
Notes by the Guarantors pursuant to the Secondary Indenture.
"Secondary Indenture" means the Indenture, dated as of January 29, 1998,
among the Company, Bank One, NA, as trustee, and the Guarantors, with respect to
the Secondary Notes and the Secondary Guarantees.
"Secondary Notes" means the $50,000,000 in aggregate principal amount of
the Company's 9 1/4% Senior Notes due 2004, issued pursuant to the Secondary
Indenture on January 29, 1998.
"Securitization" means a public or private transfer of Receivables in the
ordinary course of business and by which the Company or any of its Restricted
Subsidiaries directly or indirectly securitizes a pool of specified Receivables
including any such transaction involving the sale of specified Receivables to a
Securitization Trust.
"Securitization Trust" means any Person (whether or not a Subsidiary of
the Company) (i) established for the purpose of issuing asset-backed securities
and (ii) any special purpose Subsidiary of the Company formed exclusively for
the purpose of satisfying the requirements of Credit Enhancement Agreements and
regardless of whether such Subsidiary is an issuer of securities, provided that
such Person is not an obligor with respect to any Indebtedness of the Company or
any Guarantor other than under Credit Enhancement Agreements. As of the date of
the Indenture, AFS Funding Corp., AFS SenSub Corp., the various business trusts
formed to issue asset-backed securities and AmeriCredit Canada 2002A-Corp. shall
be deemed to satisfy the requirements of the foregoing definition.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Specified Senior Indebtedness" means (i) the Indebtedness of any Person,
whether outstanding on the date of the Indenture or thereafter incurred and (ii)
accrued and unpaid interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to such Person to
the extent post filing interest is allowed in such proceeding) in respect of (A)
Indebtedness of such Person for money borrowed and (B) Indebtedness evidenced by
notes, debentures, bonds or other similar instruments for the payment of which
such Person is responsible or liable unless, in the case of either clause (i) or
(ii), in the instrument creating or evidencing the same pursuant to which the
same is outstanding, it is provided that such obligations are subordinate in
right of payment to the Notes; provided, however that Specified Senior
Indebtedness shall not include (1) any obligation of such Person to any
Subsidiary of such Person, (2) any liability for Federal, state, local or other
taxes owed or owing
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by such Person, (3) any accounts payable or other liability to trade creditors
arising in the ordinary course of business (including Guarantees thereof or
instruments evidencing such liabilities), (4) any obligations in respect of
Capital Stock of such Person or (5) that portion of any Indebtedness which at
the time of incurrence is incurred in violation of the Indenture.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any business trust in respect to which the Company or any
other Subsidiary is the beneficial owner of the residual interest, and (iii)
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or of one or more Subsidiaries of such Person
(or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary: (a) has no
Indebtedness other than Non-Recourse Debt; (b) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company; (c) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; (d) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries; and (e) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the caption "Certain Covenants--Restricted Payments." If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," the Company shall
be in default of such covenant). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under Consolidated Leverage
Ratio test set forth in the first paragraph of the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred at
the end of the applicable fiscal quarter, and (ii) no Default or Event of
Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Warehouse Facility" means any funding arrangement, other than a Credit
Facility, a Securitization or a Residual Funding Facility, with a financial
institution or other lender or purchaser under which advances are made to a
Warehouse Trust to the extent (and only to the extent) funding thereunder is
used exclusively by the
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Warehouse Trust to purchase Receivables from the Company or a Restricted
Subsidiary and to pay the related expenses with respect to the Warehouse Trust.
"Warehouse Trust" means any Person (whether or not a Subsidiary of the
Company) established for the purpose of issuing notes or other securities in
connection with a Warehouse Facility, which notes and securities are backed by
specified Receivables purchased by such Person from the Company or any other
Restricted Subsidiary. As of the date of this Indenture, AmeriCredit BOA Trust,
AmeriCredit Canada Funding Trust I, AmeriCredit Manhattan Trust, AmeriCredit
Master Trust and AmeriCredit ML Trust shall be deemed to satisfy the
requirements of the foregoing definition.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
DESCRIPTION OF OTHER DEBT
We have four separate funding agreements with administrative agents on
behalf of institutionally managed commercial paper conduits and bank groups,
three in the United States and one in Canada, with aggregate structured
warehouse financing availability of approximately $3.3 billion in the United
States and Cdn. $100.0 million in Canada. Certain of the commercial paper
facilities are renewable annually and provide for available structured warehouse
financing of $250.0 million through September 2003 and Cdn. $100.0 million
through May 2003. Another facility provides for multi-year structured warehouse
financing with availability of $500.0 million through November 2003. Another
facility provides for available structured warehouse financing of $2.5 billion,
of which $380.0 million matures in March 2003 and the remaining $2.1 billion
matures in March 2005.
Under these funding agreements, we transfer auto receivables to our
special purpose finance subsidiaries, and these subsidiaries, in turn, issue
notes, collateralized by these auto receivables, to the agents. The agents
provide funding under the notes to the subsidiaries pursuant to an advance
formula and the subsidiaries forward the funds to us in consideration for the
transfer of auto receivables. While these subsidiaries are included in our
consolidated financial statements, these subsidiaries are separate legal
entities and the auto receivables and other assets held by the subsidiaries are
legally owned by these subsidiaries and are not available to our creditors or
the creditors of our other subsidiaries. Advances under the funding agreements
bear interest at commercial paper, LIBOR or prime rates plus specified fees
depending upon the source of funds provided by the agents. The funding
agreements contain various covenants requiring certain minimum financial ratios
and results. The funding agreements also require certain funds to be held in
restricted cash accounts to provide additional collateral for borrowings under
the facilities.
In addition to the warehouse and credit facilities discussed above, we
also have three funding agreements with administrative agents on behalf of
institutionally managed medium term note conduits under which $500.0 million,
$750.0 million and $500.0 million, respectively, of proceeds are available
through the terms of the agreements. Under these arrangements, the conduits sold
medium term notes and delivered the proceeds to our special purpose finance
subsidiaries. These subsidiaries, in turn, issued notes, collateralized by auto
receivables and cash, to the agents. The funding agreements allow for the
substitution of auto receivables, subject to an overcollateralization formula,
for cash, and vice versa, during the term of the agreements, allowing us to use
the medium term note proceeds to finance auto receivables on a revolving basis.
The agreements mature in December 2003, June 2004 and February 2005,
respectively. While the special purpose finance subsidiaries are included in our
consolidated financial statements, the subsidiaries are separate legal entities
and the auto receivables and other assets held by the subsidiaries are legally
owned by the subsidiaries and are not available to our creditors or the
creditors of
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our other subsidiaries. The notes issued by the subsidiaries under the funding
agreements bear interest at LIBOR plus specified fees. The funding agreements
contain various covenants requiring certain minimum financial ratios and
results. The funding agreements also require certain funds to be held in
restricted cash accounts to provide additional collateral under the notes.
The $250 Million Warehouse Facility
We have a $250.0 million warehouse facility which expires in September
2003. Under the $250.0 million warehouse facility, AmeriCredit Funding Corp. V
and AmeriCredit Financial Services, Inc., two of our subsidiaries, sell
receivables to AmeriCredit Manhattan Trust, a special purpose subsidiary which
is treated as a warehouse trust under the indenture. AmeriCredit Financial
Services, Inc., in turn, agrees to manage, service, administer and make
collections on these auto receivables. AmeriCredit Manhattan Trust finances the
purchase of the auto receivables with borrowings under the $250.0 million
warehouse facility.
The amount of financing available under the $250.0 million warehouse
facility is governed by an advance formula subject to downward adjustment upon
certain defined financial performance, or trigger events. As of June 30, 2002,
there were no borrowings outstanding. All financings under the $250.0 million
warehouse facility are secured by a first priority security lien on the
receivables and related assets held by AmeriCredit Manhattan Trust and bear
interest at rates based on the funding source plus specified fees. While
AmeriCredit Manhattan Trust is a consolidated subsidiary of ours, AmeriCredit
Manhattan Trust is a separate legal entity and is not a guarantor of the notes.
The auto receivables sold to AmeriCredit Manhattan Trust and other assets of
AmeriCredit Manhattan Trust are legally owned by AmeriCredit Manhattan Trust and
are not available to satisfy the claims of our creditors or the creditors of our
other subsidiaries.
The $500 Million Warehouse Facility
We have a $500.0 million warehouse facility which expires in November
2003. Under the $500.0 million warehouse facility, AmeriCredit Funding Corp.
VIII and AmeriCredit Financial Services, Inc. sell receivables to AmeriCredit ML
Trust, a special purpose subsidiary. AmeriCredit Financial Services, Inc. will
manage, service, administer and make collections on these auto receivables.
AmeriCredit ML Trust finances the purchase of the auto receivables with
borrowings under the $500.0 million warehouse facility.
The amount of financing available under the $500.0 million warehouse
facility is governed by an advance formula subject to trigger events. As of June
30, 2002, there were no outstanding borrowings under the $500.0 million
warehouse facility. All financings under the $500.0 million warehouse facility
are secured by a first priority security interest in the receivables and related
assets held by AmeriCredit ML Trust and bear interest at rates based on the
funding source plus specified fees. While AmeriCredit ML Trust is our
subsidiary, AmeriCredit ML Trust is a separate legal entity and is not a
guarantor of the notes. The receivables sold to AmeriCredit ML Trust and other
assets of AmeriCredit ML Trust are legally owned by AmeriCredit ML Trust and are
not available to satisfy the claims of our creditors or the creditors of our
other subsidiaries.
The $2.5 Billion Warehouse Facility
We have a $2.5 billion warehouse facility, $380.0 million of which
expires in March 2003 and $2.1 billion of which expires in March 2005. Under the
$2.5 billion warehouse facility, AmeriCredit Funding Corp. VII and AmeriCredit
Financial Services, Inc. sell receivables to AmeriCredit Master Trust, a special
purpose subsidiary. AmeriCredit Financial Services, Inc. will manage, service,
administer and make collections on these auto receivables. AmeriCredit Master
Trust finances the purchase of the auto receivables with borrowings under the
$2.5 billion warehouse facility.
The amount of financing available under the $2.5 billion warehouse
facility is governed by an advance formula subject to trigger events. As of June
30, 2002, there were no outstanding borrowings under the $2.5 billion warehouse
facility. All financings under the $2.5 billion warehouse facility are secured
by a first priority security interest in the receivables and related assets held
by AmeriCredit Master Trust and bear interest at rates based on the funding
source plus specified fees. While AmeriCredit Master Trust is our subsidiary,
AmeriCredit Master Trust is a separate legal entity and is not a guarantor of
the notes. The receivables sold to AmeriCredit Master Trust and
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other assets of AmeriCredit Master Trust are legally owned by AmeriCredit Master
Trust and are not available to satisfy the claims of our creditors or the
creditors of our other subsidiaries.
The Medium Term Note Facilities
We have three funding agreements with administrative agents on behalf
of institutionally managed medium term note conduits which in the aggregate
provide $1.75 billion of receivables financing. Under one facility, the conduit
sold $500.0 million of medium term notes and the proceeds were delivered to our
special purpose subsidiary, AmeriCredit MTN Receivables Trust. We sold auto
receivables to AmeriCredit MTN Receivables Trust which issued notes,
collateralized by automobile receivables and cash, to the agent for the conduit
and used the proceeds of the notes to purchase the auto receivables from us. The
funding agreement allows for the substitution of auto receivables, subject to an
overcollateralization formula, for cash, and vice versa, during the term of the
agreement, allowing us to use the medium term note proceeds to finance auto
receivables on a revolving basis. This first agreement matures in December 2003.
Under a second facility, the conduit sold $750.0 million of medium term
notes and the proceeds were delivered to our special purpose subsidiary,
AmeriCredit MTN Receivables Trust II. We sold auto receivables to Americredit
MTN Receivables Trust II, which issued notes, collateralized by automobile
receivables, and cash, to the agent for the conduit and used the proceeds of the
notes to purchase the auto receivables from us. The funding agreement allows for
the substitution of auto receivables (subject to an overcollateralization
formula) for cash, and vice versa, during the term of the agreement, thus
allowing us to use the medium term note proceeds to finance auto receivables on
a revolving basis. This second agreement matures in June 2004.
Under a third facility, the conduit sold $500.0 million of medium term
notes and the proceeds were delivered to our special purpose subsidiary,
AmeriCredit MTN Receivables Trust III. We sold auto receivables to AmeriCredit
MTN Receivables Trust III, which issued notes, collateralized by automobile
receivables and cash, to the agent for the conduit and used the proceeds of the
notes to purchase the auto receivables from us. The funding agreement allows for
the substitution of auto receivables, subject to an overcollateralization
formula, for cash, and vice versa, during the term of the agreement, allowing us
to use the medium term note proceeds to finance auto receivables on a revolving
basis. This third agreement matures in February 2005.
Under each of the three medium term note facilities, while the special
purpose finance subsidiaries are included in our consolidated financial
statements, the subsidiaries are separate legal entities and the auto
receivables and other assets held by the subsidiaries are legally owned by the
subsidiaries and are not available to our creditors or the creditors of our
other subsidiaries. The notes issued by the subsidiaries under the funding
agreements bear interest at LIBOR plus specified fees. The funding agreements
contain various covenants requiring certain minimum financial ratios and
results. The funding agreements also require certain funds to be held in
restricted cash accounts to provide additional collateral under the notes.
The $100 Million Canadian Warehouse Facility
We have a Cdn. $100.0 million warehouse facility which expires in May
2003. Under the Cdn. $100.0 million warehouse facility, AmeriCredit Financial
Services of Canada Ltd. sells Canadian receivables to AmeriCredit Canada Funding
Trust I, a special purpose trust. AmeriCredit Financial Services of Canada Ltd.
will manage, service, administer and make collections on these auto receivables.
AmeriCredit Canada Funding Trust I finances the purchase of the auto receivables
with borrowings under the Cdn. $100 million warehouse facility.
The amount of financing available under the Cdn. $100.0 million
warehouse facility is governed by an advance formula subject to trigger events.
Currently, there are no outstanding borrowings under the Cdn. $100.0 million
warehouse facility. All financings under the Cdn. $100.0 million warehouse
facility are secured by a first priority security interest in the receivables
and related assets held by AmeriCredit Canada Funding Trust I and bear interest
at the Canadian Bankers Acceptance Rate plus specified fees. AmeriCredit Canada
Funding Trust I is a separate entity and is not a guarantor of the notes. The
receivables sold to AmeriCredit Canada Funding Trust I and other assets of
AmeriCredit Canada Funding Trust I are legally owned by AmeriCredit Canada
Funding Trust I and are not available to satisfy the claims of our creditors or
the creditors of our other subsidiaries. We have guaranteed the obligations of
AmeriCredit Financial Services of Canada Ltd. to the limited extent of the
performance by
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AmeriCredit Financial Services of Canada Ltd. of its obligations as servicer of
the receivables and concerning its obligation to re-purchase any receivables
which at the time of sale to AmeriCredit Canada Funding Trust I were ineligible
to sell.
The $150 Million Canadian Credit Facility
Our subsidiary, AmeriCredit Financial Services of Canada Ltd., has a
revolving credit agreement, under which it may borrow up to Cdn. $150.0 million,
subject to a defined borrowing base. Borrowings under this facility are
collateralized by a certain Canadian auto receivables and bear interest at the
Canadian Bankers Acceptance Rate plus specified fees. As of June 30, 2002, a
total of US $2.0 million was outstanding under the Canadian facility. The
facility matures in August 2003. We have guaranteed the obligations of
AmeriCredit Financial Services of Canada Ltd. under this Canadian credit
facility.
The Credit Enhancement Facilities
Until June 7, 2002, AFS Funding Corp. had a $225.0 million credit
facility available for the limited purpose of providing credit enhancement in
connection with securitization transactions insured by Financial Security
Assurance. As of March 31, 2002, there was $167.0 million in outstanding
borrowings, the proceeds of which were limited to funding Series 2001-B and
2001-D securitization spread account requirements and which were secured by the
residuals of these two securitizations. The obligations of AFS Funding Corp.
were guaranteed by us in an amount not to exceed $100.0 million. On June 7,
2002, this $225.0 million credit facility was terminated by the mutual agreement
of the parties. At the time of termination, outstanding borrowings under this
credit facility were approximately $130.0 million. Such borrowings have been
repaid.
Also on June 7, 2002, the Company and AmeriCredit Financial Services,
Inc. entered into a letter of credit arrangement with Deutsche Bank AG, New York
Branch, under which Deutsche Bank has issued a letter of credit in favor of
Financial Security Assurance as partial security for our spread account
obligations for our Series 2002-B and 2001-D securitizations. We have agreed to
indemnify and hold Deutsche Bank harmless, for amounts not to exceed $100.0
million in the aggregate, for certain losses it may incur in connection with the
line of credit, including any amounts drawn against the letter of credit by
Financial Security Assurance. Termination of the $225.0 million credit facility
was a condition precedent to the letter of credit arrangement, which serves to
refinance the borrowings under that credit facility and to provide credit
enhancement for the Series 2001-B and 2001-D securitizations. As of June 30,
2002, outstandings under this letter of credit arrangement were approximately
$108.3 million.
Financial Guaranty Insurance Policies
We have procured financial guaranty insurance policies from Financial
Security Assurance for the benefit of the holders of the asset-backed securities
issued in certain Company-sponsored securitizations in order to reduce the cost
of such securitizations by enhancing their credit ratings. The Company has
agreed to reimburse Financial Security Assurance, on a limited recourse basis,
for amounts paid by Financial Security Assurance under the financial guaranty
insurance policies. In order to secure these reimbursement obligations, we have
granted to Financial Security Assurance a lien on the capital stock of, and
certain assets of, AFS Funding Corp., most notably the spread accounts and the
restricted cash required to be deposited therein. Our obligations to Financial
Security Assurance with respect to securitization transactions covered by a
Financial Security Assurance financial guaranty insurance policy are
cross-collateralized to all of the collateral pledged to Financial Security
Assurance. As a result, the restricted cash in the spread accounts from the
Company-sponsored securitization transactions covered by a Financial Security
Assurance financial guaranty insurance policy, as well as the capital stock of
AFS Funding Corp. (which owns all of the spread accounts and all of the credit
enhancement assets associated with all such securitizations) is available to
reimburse Financial Security Assurance in connection with any individual
Company-sponsored securitization transactions covered by a Financial Security
Assurance financial guaranty insurance policy.
In addition, AFS Funding Corp. is a limited purpose corporation we
established to facilitate certain Company-sponsored securitization transactions
and the credit enhancement thereof and its ability to pay dividends is
effectively restricted to a substantial degree by the terms of the
Company-sponsored securitizations and the Financial Security Assurance financial
guaranty arrangements. Specifically, AFS Funding Corp. has agreed to be last in
the order of payment priority with respect to cash distributions from
Company-sponsored securitizations
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involving AFS Funding Corp. and is not entitled to receive any cash from
Company-sponsored securitizations or access restricted cash in the spread
accounts until the asset-backed security holders, Financial Security Assurance
and others have received all amounts due to them and the spread accounts have
the requisite amounts of restricted cash deposited therein. Financial Security
Assurance will have claims that are prior to the claims of the holders of the
notes with respect to the assets securing its reimbursement rights and the notes
will be effectively subordinated to all such reimbursement rights. As of June
30, 2002, restricted cash was approximately $343.6 million ($317.7 million of
which were held in spread accounts owned by AFS Funding Corp.) and AFS Funding
Corp.'s other principal assets, investment in trust receivables and
interest-only receivables from trusts, were $543.1 million and $431.9 million,
respectively, valued on a new present value basis. See "Risk Factors--Because of
our holding company structure and the security interests our subsidiaries have
granted in their assets, the repayment of the Notes will be effectively
subordinated to substantially all of our other debt."
Existing Notes
On February 4, 1997, we issued $125.0 million in aggregate principal
amount of 9 1/4% Senior Notes, due 2004, pursuant to an indenture, among the
AmeriCredit Corp., the guarantors and Bank One, Columbus, NA, as trustee. On
January 29, 1998, we issued an additional $50.0 million in aggregate principal
amount of 9 1/4% Senior Notes, due 2004, on substantially the same terms as the
9 1/4% Senior Notes issued on February 4, 1997. All of these 9 1/4% Senior Notes
are guaranteed on a senior unsecured basis by each of the guarantors. All of
these 9 1/4% Senior Notes were tendered and/or redeemed using the proceeds of
the Original Offering.
On April 20, 1999, we issued $200.0 million in aggregate principal
amount of 9.875% Senior Notes, due 2006, pursuant to an indenture, among
AmeriCredit Corp., the guarantors and Bank One, Columbus, NA, as trustee. The
9.875% Senior Notes are guaranteed on a senior unsecured basis by each of the
guarantors.
Capitalized Equipment Leases
We have, from time to time, financed the acquisition of data processing
and telecommunications equipment with capitalized equipment leases. As of June
30, 2002, these leases totaled $66.8 million.
Arlington Servicing Facility Debt
In March 2002 we opened a 250,000 square foot facility in Arlington,
Texas, which is used as a loan service center. The construction of this facility
and short-term permanent financing was accomplished under a loan provided by
Wells Fargo Bank in the amount of $24.8 million. We have granted Wells Fargo a
first priority security interest in the realty and improvements, under a deed to
secure debt.
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REGISTRATION RIGHTS
THE SUMMARY SET FORTH BELOW OF CERTAIN PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT DOES NOT PURPORT TO BE COMPLETE AND IS SUBJECT TO, AND IS
QUALIFIED IN ITS ENTIRETY BY, ALL THE PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT, A COPY OF WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT.
The Company, the Guarantors and the Initial Purchasers entered into the
Registration Rights Agreement on June 19, 2002 (the "Issue Date") pursuant to
which each of the Company and the Guarantors agreed that they will, at their
expense, for the benefit of holders of the Old Notes (the "Holders"), (i) within
90 days after the Issue Date (the "Filing Date"), file a registration statement
on an appropriate registration form (the "Exchange Offer Registration
Statement") with respect to a registered offer (the "Exchange Offer") to
exchange the Old Notes for these New Notes, guaranteed on a senior subordinated
basis by the Guarantors, which New Notes will have terms substantially identical
in all material respects to the Old Notes (except that the New Notes will not
contain terms with respect to transfer restrictions) and (ii) cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the Issue Date. Upon the Exchange Offer Registration
Statement being declared effective, the Company will offer these New Notes (and
related securities) in exchange for surrender of the Old Notes. The Company will
keep the Exchange Offer open for not less than 30 days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
Holders. For each of the Old Notes surrendered to the Company pursuant to the
Exchange Offer, the Holder who surrendered such Old Note will receive a New Note
having a principal amount equal to that of the surrendered Old Note. Interest on
each New Note will accrue (a) from the later of (i) the last interest payment
date on which interest was paid on the Old Note surrendered in exchange
therefor, or (ii) if the Old Note is surrendered for exchange on a date in a
period which includes the record date for an interest payment date to occur on
or after the date of such exchange and as to which interest will be paid, the
date of such interest payment date or (b) if no interest has been paid on such
Old Note, from the Issue Date.
Based on an interpretation by the Commission's staff set forth in
no-action letters issued to third parties unrelated to the Company, the Company
believes that, with the exceptions set forth below, New Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by Holders thereof (other than any holder which is an
"affiliate" of the Company within the meaning of Rule 405 promulgated under the
Securities Act, or a broker-dealer who purchased Old Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of business of the Holder and the
Holder does not have an arrangement or understanding with any person to
participate in the distribution of such New Notes. Any holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on this interpretation by the Commission's staff and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution." Broker-dealers who acquired Old Notes directly from us
and not as a result of market-making activities or other trading activities may
not rely on the staff's interpretations discussed above or participate in the
Exchange Offer and must comply with the prospectus delivery requirements of the
Securities Act in order to sell the Old Notes.
Because the registration statement was not filed on or before September
17, 2002, we are required to pay an amount equal to $0.05 per week per $1,000 of
Old Notes as liquidated damages for the first 90-day period that we have not
complied with our registration ands exchange obligations under the Registration
Rights Agreement. This amount will increase by $0.05 per week per $1,000 of Old
Notes for each successive 90-day period up to a maximum of $0.50 per week per
$1,000 of Old Notes, until the exchange offer has been completed pursuant to the
terms of the Registration Rights Agreement.
If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the Commission, the Company is not permitted to
effect an exchange offer, (ii) the Exchange Offer is not consummated within 150
days of the Issue Date or (iii) in certain circumstances, certain holders of
unregistered Old Notes so request, or (iv)
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in the case of any Holder that participates in the Exchange Offer, such Holder
does not receive New Notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such Holder as an affiliate of the Company within the meaning of
the Securities Act), then in each case, the Company will (x) promptly deliver to
the Holders and the Trustee written notice thereof and (y) at its sole expense,
(a) as promptly as practicable, file a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration Statement"); and (b) use their
best efforts to keep effective the Shelf Registration Statement until the
earlier of two years after its effective date or such time as all of the
applicable Old Notes have been sold thereunder. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each Holder copies of
the prospectus that is a part of the Shelf Registration Statement, notify each
such Holder when the Shelf Registration Statement for the Old Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Old Notes. A Holder that sells Old Notes pursuant to the Shelf
Registration Statement will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a Holder (including
certain indemnification rights and obligations).
If the Company fails to comply with the above provisions or if the
Exchange Offer Registration Statement or the Shelf Registration Statement fails
to become effective, then, as liquidated damages, additional interest (the
"Additional Interest") shall become payable in respect of the Old Notes as
follows:
(i) if (a) neither the Exchange Offer Registration Statement or Shelf
Registration Statement is filed with the Commission on or prior to the
applicable filing date or (b) notwithstanding that the Company has consummated
or will consummate an exchange offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not filed on or
prior to the date required by the Registration Rights Agreement, then commencing
on the day after either such required filing date, Additional Interest shall
accrue on the principal amount of the Old Notes at a rate of 0.50% per annum for
the first 90 days immediately following each such filing date, such Additional
Interest rate increasing an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(ii) if (a) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior to 90
days after the applicable filing deadline set for such filing in the
Registration Rights Agreement or (b) notwithstanding that the Company has
consummated or will consummate an exchange offer, the Company is required to
file a Shelf Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the 90th day following the
filing date deadline set for such filing in the Registration Rights Agreement,
then, commencing on the day after such 90th day following the filing deadline
set for such filing in the Registration Rights Agreement, Additional Interest
shall accrue on the principal amount of the Old Notes at a rate of 0.50% per
annum for the first 90 days immediately following such date, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning of
each subsequent 90-day period; or
(iii) if (a) the Company has not exchanged New Notes for all Old Notes
validly tendered in accordance with the terms of the Exchange Offer on or prior
to the 150th day after the Issue Date or (b) if applicable, the Shelf
Registration Statement ceases to be effective at any time prior to the second
anniversary of the Issue Date (other than after such time as all Old Notes have
been disposed of thereunder), then Additional Interest shall accrue on the
principal amount of the Old Notes at a rate of 0.50% per annum for the first 90
days commencing on (x) the 150th day after the Issue Date, in the case of (a)
above, or (y) the day such Shelf Registration Statement ceases to be effective
in the case of (b) above, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old Notes may not
accrue under more than one of the foregoing clauses (i)-(iii) at any one time
and at no time shall the aggregate amount of Additional Interest accruing exceed
in the aggregate 1.0% per annum; provided, further, however, that (1) upon the
filing of the Exchange Offer Registration Statement or a Shelf Registration
Statement (in the case of clause (i) above), (2) upon the effectiveness of the
Exchange Offer Registration Statement or a Shelf Registration Statement (in the
case of clause (ii) above), or (3) upon the exchange of New Notes for all Old
Notes tendered (in the case of clause (iii)(a) above), or upon the
-107-
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(b) above), Additional Interest on the Old
Notes as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or
(iii) above will be payable in cash on the original interest payment dates for
the Old Notes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following general discussion summarizes the material United States
federal income tax aspects of the exchange offer to holders of the Old Notes.
This discussion is for general information only and does not consider all
aspects of exchange offer that might impact owners of the Old Notes in light of
such holder's personal circumstances. This discussion deals only with Old Notes
held as "capital assets" within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code") (generally property held for
investment and not for sale to customers in the ordinary course of a trade or
business). This discussion also does not address the U.S. federal income tax
consequences to holders subject to special treatment under the U.S. federal
income tax laws, such as dealers in securities, or foreign currency, tax-exempt
entities, banks, thrifts, insurance companies, persons that hold the Old Notes
as part of a "straddle", a "hedge" against currency risk or a "conversion
transaction"; persons that have a "functional currency" other than the U.S.
dollar, and investors in pass-through entities. In addition, this discussion
does not address any of the United States federal income tax consequences of
owning or disposing of New Notes, nor does it address any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction.
This discussion is based upon the Internal Revenue Code of 1986, as
amended, existing and proposed regulations thereunder, Internal Revenue Service
("IRS") rulings and pronouncements, reports of congressional committees,
judicial decisions and current administrative rulings and practice, all as in
effect on the date hereof, all of which are subject to change at any time, and
any such change may be applied retroactively in a manner that could adversely
affect the tax consequences described below. The Company has not and will not
seek any rulings or opinions from the IRS or counsel with respect to the matters
discussed below. There can be no assurance that the IRS will not take positions
concerning the tax consequences of the exchange offer which are different from
those discussed herein.
The exchange of Old Notes for New Notes pursuant to the exchange offer
should not constitute a taxable exchange. As a result, a holder (1) should not
recognize taxable gain or loss as a result of exchanging Old Notes for New Notes
pursuant to the exchange offer, (2) the holding period of the New Notes should
include the holding period of the Old Notes exchanged therefor and (3) the
adjusted tax basis of the New Notes should be the same as the adjusted tax basis
of the Old Notes exchanged therefore immediately before the exchange.
THE FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS OF OLD NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED ABOVE IN LIGHT OF
THEIR PARTICULAR SITUATIONS AS WELL AS THE APPLICATION OF ANY STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS, INCLUDING THE EFFECTS OF CHANGES IN SUCH LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. We have agreed that, starting on the expiration date and
ending on the close of business one year after the expiration date, we will make
this prospectus, as amended or supplemented, available to
-108-
any broker-dealer for use in connection with any such resale. In addition, until
____________, 2002, all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sales of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit of any such resale of New Notes and any
commissions or concessions received by such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the securities act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the Registration Rights Agreement and will indemnify the
holders of Old Notes (including any broker-dealers), and certain parties related
to such holders, against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the
Company and the Guarantors by Jenkens & Gilchrist, a Professional Corporation,
Dallas, Texas.
EXPERTS
The consolidated balance sheets as of June 30, 2002 and 2001 and the
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 2002 included in this
registration statement have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
-109-
AMERICREDIT CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants ................................................................ F-2
Consolidated Balance Sheets as of June 30, 2002 and 2001 ......................................... F-3
Consolidated Statements of Income and Comprehensive Income for the years ended
June 30, 2002, 2001 and 2000. .................................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended June 30,
2002, 2001, and 2000 ........................................................................... F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001
and 2000 ....................................................................................... F-6
Notes to Consolidated Financial Statements ....................................................... F-7
Guarantor Consolidating Financial Statements ..................................................... F-25
Report of Independent Accountants on Financial Statement Schedules ............................... F-26
Consolidating Balance Sheets as of June 30, 2002 and 2001 ........................................ F-27
Consolidating Statements of Income for the years ended June 30, 2002, 2001, and
2000 .......................................................................................... F-29
Consolidating Statements of Cash Flows for the years ended June 30, 2002, 2001,
and 2000 ...................................................................................... F-32
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
AmeriCredit Corp.
We have audited the accompanying consolidated balance sheets of
AmeriCredit Corp. as of June 30, 2002 and 2001, and the related consolidated
statements of income and comprehensive income, shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 2002. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. U.S. standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AmeriCredit
Corp. as of June 30, 2002 and 2001, and the results of its operations and its
cash flows for the three years in the period ended June 30, 2002, in conformity
with accounting principles generally accepted in the United States of America.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 6, 2002
F-2
AMERICREDIT CORP.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, June 30,
2002 2001
------------------ ---------------
ASSETS
Cash and cash equivalents ...................................................... $ 119,445 $ 77,053
Receivables held for sale, net ................................................. 2,198,391 1,921,465
Interest-only receivables from Trusts .......................................... 514,497 387,895
Investments in Trust receivables ............................................... 691,065 493,022
Restricted cash ................................................................ 343,570 270,358
Property and equipment, net .................................................... 120,505 67,828
Other assets ................................................................... 237,458 167,286
------------------ ---------------
Total assets .......................................................... $ 4,224,931 $ 3,384,907
================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Warehouse credit facilities ................................................ $ 1,751,974 $ 1,502,879
Credit enhancement facility ................................................ 36,319
Senior notes ............................................................... 418,074 375,000
Other notes payable ........................................................ 66,811 23,077
Funding payable ............................................................ 126,893 60,460
Accrued taxes and expenses ................................................. 194,260 114,041
Derivative financial instruments ........................................... 85,922 82,796
Deferred income taxes ...................................................... 148,681 130,139
------------------ ---------------
Total liabilities ..................................................... 2,792,615 2,324,711
------------------ ---------------
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock, $.01 par value per share,
20,000,000 shares authorized; none issued ..................................
Common stock, $.01 par value per share,
230,000,000 and 120,000,000 shares authorized
91,716,416 and 89,853,792 shares issued .................................... 917 899
Additional paid-in capital ..................................................... 573,956 520,077
Accumulated other comprehensive income ......................................... 42,797 73,689
Retained earnings .............................................................. 832,446 484,963
------------------ ---------------
1,450,116 1,079,628
Treasury stock, at cost (5,899,241 and
6,439,737 shares) .......................................................... (17,800) (19,432)
------------------ ---------------
Total shareholders' equity ............................................ 1,432,316 1,060,196
------------------ ---------------
Total liabilities and shareholders' equity ............................ $ 4,224,931 $ 3,384,907
================== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(dollars in thousands, except per share data)
Years Ended June 30,
--------------------------------------------------
2002 2001 2000
------------------ -------------- ---------------
Revenue:
Finance charge income ......................................... $ 339,430 $ 225,210 $ 124,150
Gain on sale of receivables ................................... 448,544 301,768 209,070
Servicing fee income .......................................... 389,371 281,239 170,251
Other income .................................................. 12,887 10,007 6,209
------------------ -------------- ---------------
1,190,232 818,224 509,680
------------------ -------------- ---------------
Costs and expenses:
Operating expenses ............................................ 424,131 308,453 223,219
Provision for loan losses ..................................... 65,161 31,387 16,359
Interest expense .............................................. 135,928 116,024 69,310
Charge for closing mortgage operations ........................ 10,500
------------------ -------------- ---------------
625,220 455,864 319,388
------------------ -------------- ---------------
Income before income taxes ........................................ 565,012 362,360 190,292
Income tax provision .............................................. 217,529 139,508 75,791
------------------ -------------- ---------------
Net income .................................................... 347,483 222,852 114,501
------------------ -------------- ---------------
Other comprehensive income (loss)
Unrealized (losses) gains on
Credit enhancement assets ..................................... (50,805) 111,125 37,995
Unrealized losses on
Cash flow hedges .............................................. (2,712) (64,156)
Foreign currency translation adjustment ........................... 2,022
Income tax benefit (provision) .................................... 20,603 (18,083) (14,602)
------------------ -------------- ------------
Other comprehensive income ........................................ (30,892) 28,886 23,393
------------------ -------------- ---------------
Comprehensive income .............................................. $ 316,591 $ 251,738 $ 137,894
================== ============== ===============
Earnings per share:
Basic ......................................................... $ 4.10 $ 2.80 $ 1.57
================== ============== ===============
Diluted ....................................................... $ 3.87 $ 2.60 $ 1.48
================== ============== ===============
Weighted average shares outstanding ............................... 84,748,033 79,562,495 73,038,005
================== ============== ===============
Weighted average shares and
assumed incremental shares ...................................... 89,800,621 85,852,086 77,613,652
================== ============== ===============
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(dollars in thousands)
Accumulated
Common Stock Additional Other Treasury Stock
------------ Paid - in Comprehensive Retained --------------
Shares Amount Capital Income Earnings Shares Amount
------ ------ ----------- ------------- -------- ------ ------
Balance at June 30, 1999 ............. 71,498,474 $ 715 $ 252,194 $ 21,410 $ 147,610 7,357,030 $ (22,199)
Common stock issued on
exercise of options .............. 3,028,060 30 23,825
Income tax benefit from
exercise of options ............. 11,583
Common stock issued in
public offering.................. 9,200,000 92 111,455
Other comprehensive income,
net of income taxes of
$14,602 ......................... 23,393
Common stock issued for
employee benefit plans .......... 2,922 (348,171) 1,048
Net income ........................... 114,501
---------- ------- ---------- ---------- --------- ----------- -----------
Balance at June 30, 2000 ............. 83,726,534 837 401,979 44,803 262,111 7,008,859 (21,151)
Common stock issued on
exercise of options ............. 6,075,558 61 49,313 (200,000) 604
Income tax benefit from
exercise of options ............. 63,293
Other comprehensive income,
net of income taxes of
$18,083 ......................... 28,886
Common stock issued for
employee benefit plans .......... 51,700 1 5,492 (369,122) 1,115
Net income ........................... 222,852
---------- ------- ---------- ---------- --------- ----------- -----------
Balance at June 30, 2001 ............. 89,853,792 899 520,077 73,689 484,963 6,439,737 (19,432)
Common stock issued on
exercise of options ............. 1,710,451 17 20,800
Income tax benefit from
exercise of options ............. 22,304
Other comprehensive loss, net
of income taxes of
$20,603 ......................... (30,892)
Common stock issued for
employee benefit plans .......... 152,173 1 10,775 (540,496) 1,632
Net income ........................... 347,483
---------- ------ ---------- ---------- --------- ------------ -----------
Balance at June 30, 2002 ............. 91,716,416 $ 917 $ 573,956 $ 42,797 $ 832,446 5,899,241 $ (17,800)
========== ====== ========== ========== ========= ============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
AMERICREDIT CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Years Ended June 30,
-----------------------------------------------
2002 2001 2000
--------------- ------------- --------------
Cash flows from operating activities:
Net income ...................................................... $ 347,483 $ 222,852 $ 114,501
Adjustments to reconcile net income to net cash used by
operating activities:
Non-cash charge for closing mortgage operations ................. 6,566
Depreciation and amortization ................................... 38,372 19,740 19,357
Provision for loan losses ....................................... 65,161 38,372 16,359
Deferred income taxes ........................................... 61,373 82,947 15,388
Accretion of present value discount and other ................... (111,880) (93,449) (44,083)
Non-cash gain on sale of auto receivables ....................... (424,771) (243,991) (186,176)
Loss on retirement of senior notes .............................. 4,153
Distributions from Trusts ........................................... 243,596 214,629 125,104
Initial deposits to credit enhancement assets ....................... (368,495) (180,008) (192,000)
Discount on issuance of senior notes ................................ (2,135)
Changes in assets and liabilities:
Other assets .................................................... (41,979) (5,377) (23,841)
Accrued taxes and expenses ...................................... 88,017 43,414 27,699
Purchases of receivables ............................................ (9,055,028) (6,367,796) (4,535,524)
Principal collections and recoveries on receivables ................. 235,323 110,812 43,756
Net proceeds from sale of receivables ............................... 8,546,229 5,174,439 4,082,270
--------------- ------------- --------------
Net cash used by operating activities ......................... (374,581) (990,401) (530,624)
--------------- ------------- --------------
Cash flows from investing activities:
Net purchases of property and equipment ......................... (11,559) (34,278) (9,751)
Change in other assets .......................................... (15,099) (64,580) (11,232)
--------------- ------------- --------------
Net cash used by investing activities ....................... (26,658) (98,858) (20,983)
--------------- ------------- --------------
Cash flows from financing activities:
Net change in warehouse credit facilities ....................... 248,073 1,015,179 373,041
Net proceeds from issuance of senior notes ...................... 175,000
Retirement of senior notes ...................................... (139,522)
Borrowings under credit enhancement facility .................... 182,500 57,000 72,000
Debt issuance costs ............................................. (22,518)
Net change in notes payable ..................................... (21,484) (5,369) (11,079)
Proceeds from issuance of common stock .......................... 20,818 56,586 139,372
--------------- ------------- --------------
Net cash provided by financing activities ................... 442,867 1,123,396 573,334
Effect of exchange rate changes on cash
and cash equivalents ............................................ 764
--------------- ------------- --------------
Net increase in cash and cash equivalents ........................... 42,392 34,137 21,727
Cash and cash equivalents at beginning of year ...................... 77,053 42,916 21,189
--------------- ------------- --------------
Cash and cash equivalents at end of year ............................ $ 119,445 $ 77,053 $ 42,916
=============== ============= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
History and Operations
AmeriCredit Corp. ("Company") was formed on August 1, 1986, and, since
September 1992, has been in the business of purchasing and servicing automobile
sales finance contracts. The Company operated 251 auto lending branch offices in
42 states and five Canadian provinces as of June 30, 2002. The Company acquired
a subsidiary in November 1996 that originated and sold mortgage loans. During
October 1999, the Company ceased the operations of this subsidiary and has
liquidated its assets.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company's investment in DealerTrack
Holdings, Inc. ("DealerTrack"), a company that provides an auto finance
transaction processing channel, is accounted for using the cost method since the
Company owns less than a 20% voting interest in DealerTrack and does not
otherwise exercise significant influence over DealerTrack. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Certain prior year amounts, including initial deposits to credit enhancement
assets and purchases, sales, and principal collections and recoveries on
receivables in the consolidated statements of cash flows, have been reclassified
to conform to the current year presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions which affect the reported amounts
of assets and liabilities and the disclosures of contingent assets and
liabilities as of the date of the financial statements and the amount of revenue
and costs and expenses during the reporting periods. Actual results could differ
from those estimates and those differences may be material. These estimates
include, among other things, assumptions for cumulative credit losses, timing of
cash flows and discount rates on receivables sold in securitization transactions
and the determination of the allowance for loan losses on receivables held for
sale.
Cash Equivalents
Investments in highly liquid securities with original maturities of 90
days or less are included in cash and cash equivalents.
Receivables Held for Sale
Receivables held for sale are carried at the lower of cost or fair value.
Fair value is measured on an aggregate basis since the receivables have
relatively homogenous obligors, collateral, loan size and structure
characteristics and are subject to similar risks. Finance charge income related
to receivables held for sale is recognized using the interest method. Accrual of
finance charge income is suspended on accounts that are more than 60 days
delinquent. Fees and commissions received (other than acquisition fees described
below) and direct costs of originating loans are deferred and amortized over the
term of the related receivables using the interest method and are removed from
the consolidated balance sheets when related finance contracts sold, charged-off
or paid in full.
Finance contracts are generally purchased by the Company from auto dealers
without recourse, and accordingly, the dealer usually has no liability to the
Company if the consumer defaults on the contract. To mitigate the risk from
potential credit losses, the Company may charge dealers a non-refundable
acquisition fee when purchasing individual finance contracts. The Company
records such acquisition fees as a nonaccretable reduction in the carrying value
of the related finance contract. Nonaccretable acquisition fees are removed from
the consolidated balance sheets when the related finance contract is sold or
charged-off.
F-7
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Provisions for loan losses are charged to operations in amounts sufficient
to maintain the allowance for loan losses at a level considered adequate to
cover probable credit losses on receivables that are either currently ineligible
for sale or may in the future become ineligible for sale and thus may be held
indefinitely by the Company. Receivables are ineligible for sale if they do not
meet certain criteria established in connection with securitization
transactions, the most significant of which is that receivables must be less
than 31 days delinquent at the time of sale. The Company reviews charge-off
experience factors, delinquency reports, historical collection rates, estimates
of the value of the underlying collateral, economic trends and other information
in order to make the necessary judgments as to probable credit losses on
receivables that may be held indefinitely by the Company and the appropriateness
of the related provision and allowance for loan losses. Receivables, including
accrued interest, are charged-off to the allowance for loan losses when the
Company repossesses and disposes of the collateral or the account is otherwise
deemed uncollectable.
Credit Enhancement Assets
The Company periodically sells receivables to certain special purpose
financing trusts ("Trusts"), and the Trusts in turn issue asset-backed
securities to investors in securitization transactions. The Company retains an
interest in the receivables sold in the form of a residual or interest-only
receivables from Trusts and may also retain other subordinated interests in the
receivables sold to the Trusts. The residual or interest-only receivables from
Trusts represents the present value of future excess cash flows resulting from
the difference between the finance charge income received from the obligors on
the receivables and the interest paid to the investors in the asset-backed
securities, net of credit losses, servicing fees and other expenses.
Upon the transfer of receivables to the Trusts, the Company removes the
net book value of the receivables sold from its consolidated balance sheet and
allocates such carrying value between the assets transferred and the interests
retained, based upon their relative fair values at the settlement date. The
difference between the sales proceeds, net of transaction costs, and the
allocated basis of the assets transferred is recognized as a gain on sale of
receivables.
The allocated basis of the interests retained is classified as either
interest-only receivables from Trusts, investments in Trust receivables or
restricted cash in the Company's consolidated balance sheets depending upon the
form of interest retained by the Company. These interests are collectively
referred to as credit enhancement assets.
Since auto receivables held by the Trusts can be contractually prepaid or
otherwise settled in such a way that the Company would not recover all of its
recorded investment in the retained interests, credit enhancement assets are
classified as available for sale and are measured at fair value. Unrealized
holding gains or temporary holding losses are reported net of income tax effects
as accumulated other comprehensive income that is a separate component of
shareholders' equity until realized. If a decline in fair value is deemed other
than temporary, the assets are written down through an impairment charge to
operations.
The fair value of credit enhancement assets is estimated by calculating
the present value of the excess cash flows from the Trusts using discount rates
commensurate with the risks involved. Such calculations include estimates of
cumulative credit losses for the remaining term of the receivables transferred
to the Trusts since this factor most impacts the amount and timing of future
excess cash flows. If cumulative credit losses exceed the Company's original
estimates, the credit enhancement assets could be written down through a charge
to operations as an other than temporary impairment. Favorable credit loss
experience compared to the Company's original estimates could result in
additional earnings when realized. The discount used to estimate the present
value of future excess cash flows is accreted into income using the interest
method over the expected life of the securitization and is recorded as part of
servicing fee income.
In connection with securitization transactions, the Company is required to
provide credit enhancement in order to attain specific credit ratings for the
asset-backed securities issued by the Trusts. The Company typically makes a
deposit to a restricted cash account and may also retain a subordinated interest
in the receivables sold to the Trusts to establish initial credit enhancement
levels. Monthly cash collections from the pools of receivables in excess of
F-8
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
required principal and interest payments on the asset-backed securities and
servicing fees and other expenses are either added to the restricted cash
accounts or used to repay the outstanding asset-backed securities on an
accelerated basis, thus creating additional credit enhancement through
overcollateralization in the Trusts. This overcollateralization, as well as any
initial retained interest in the receivables sold to the Trusts, is recorded as
investments in Trust receivables in the Company's consolidated balance sheets.
When the credit enhancement levels reach specified percentages of the pools of
receivables, excess cash flows are distributed to the Company. In the event that
monthly cash collections are insufficient to make required principal and
interest payments to the investors and pay servicing fees and other expenses,
any shortfall would be first drawn from the restricted cash accounts.
A financial guaranty insurance company ("Insurer") has provided a
financial guaranty insurance policy for the benefit of investors in certain of
the Company's securities transactions. The agreements with the Insurer provide
that if delinquency, default and net loss ratios in the pools of receivables
supporting the asset-backed securities exceed certain targets, the specified
levels of credit enhancement would be increased and, in certain cases, the
Company would be removed as servicer of the receivables.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation.
Depreciation is generally provided on a straight-line basis over the estimated
useful lives of the assets. The cost of assets sold or retired and the related
accumulated depreciation are removed from the accounts at the time of
disposition and any resulting gain or loss is included in operations.
Maintenance, repairs and minor replacements are charged to operations as
incurred; major replacements and betterments are capitalized.
Derivative Financial Instruments
The Company adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133," and Statement of
Financial Accounting Standards No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133" ("SFAS 133"), on July 1, 2000. Unrealized gains and losses on derivatives
that arose prior to the initial application of SFAS 133 and that were previously
deferred as adjustments of the carrying amount of hedged items were not
adjusted. Accordingly, the Company did not record a transition adjustment from
the adoption of SFAS 133.
The Company sells fixed rate auto receivables to Trusts that, in turn,
sell either fixed rate or floating rate securities to investors. The interest
rates on the floating rate securities issued by the Trusts are indexed to
various London Interbank Offered Rates ("LIBOR"). The Company utilizes interest
rate swap agreements to convert floating rate exposures on securities issued by
the Trusts to fixed rates, hedging the variability in future excess cash flows
to be received by the Company over the life of the securitization attributable
to interest rate risk. These interest rate swap agreements are designated as
cash flow hedges of the credit enhancement assets.
The Company's interest rate swap agreements qualify for hedge accounting
treatment. Since the underlying credit enhancement asset being hedged by the
interest rate swap agreements expose the Company to interest rate risk, the
interest rate swap agreements reduce the Company's sensitivity to interest rate
risk. The interest rate swap agreements are designated and deemed effective in
hedging the Company's exposure to interest rate risk.
The fair value of the interest rate swap agreements is included in the
Company's consolidated balance sheets, and the related unrealized gains or
losses on these agreements are deferred and included in shareholders' equity as
a component of other comprehensive income. These deferred gains or losses are
recognized as an adjustment to income over the same period in which cash flows
from the related credit enhancement assets affect earnings. However, to the
extent that any of these contracts are not considered to be perfectly effective
in offsetting the change in the value of the cash flows being hedged, any
changes in fair value relating to the ineffective portion of these contracts are
recognized in income.
F-9
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company also utilized an interest rate swap agreement to hedge the
change in fair value of certain of its fixed rate senior notes. The change in
fair value of the interest rate swap agreement and the senior notes are
recognized in income. If the interest rate swap agreement terminates prior to
maturity, previous adjustments to the carrying value of the senior notes will be
recognized in income over the life of the senior notes on an effective yield
basis.
The Company formally documents all relationships between interest rate
swap agreements and the underlying asset and liability being hedged, as well as
its risk management objective and strategy for undertaking the hedge
transactions. At hedge inception and at least quarterly, the Company also
formally assesses whether the interest rate swap agreements that are used in
hedging transactions have been highly effective in offsetting changes in the
cash flows or fair value of the hedged items and whether those interest rate
swap agreements may be expected to remain highly effective in future periods.
The Company will discontinue hedge accounting prospectively when it is
determined that an interest rate swap agreement has ceased to be highly
effective as a hedge.
The Company also utilizes interest rate cap agreements as part of its
interest rate risk management strategy for securitization transactions as well
as for warehouse credit facilities. The Trusts and the Company's wholly owned
special purpose finance subsidiaries typically purchase interest rate cap
agreements to limit variability in excess cash flows from receivables sold to
the Trusts or financed under warehouse credit facilities due to potential
increases in interest rates. The purchaser of the interest rate cap agreement
pays a premium in return for the right to receive the difference in the interest
cost at any time a specified index of market interest rates rises above the
stipulated "cap" rate. The interest rate cap agreement purchaser bears no
obligation or liability if interest rates fall below the "cap" rate. The
Company's special purpose finance subsidiaries are contractually required to
purchase interest rate cap agreements as credit enhancement in connection with
securitization transactions and warehouse credit facilities. The Company
simultaneously sells a corresponding interest rate cap agreement in order to
offset the cash used to purchase the interest rate cap agreement. The fair value
of the interest rate cap agreements purchased and sold by the Company is
included in other assets and liabilities on the Company's consolidated balance
sheets. The fair value of the interest rate cap agreements purchased by the
Trusts is reflected in the valuation of the credit enhancement assets.
The Company does not hold any interest rate cap or swap agreements for
trading purposes.
Interest rate risk management contracts are generally expressed in
notional principal or contract amounts that are much larger than the amounts
potentially at risk for nonpayment by counterparties. Therefore, in the event of
nonperformance by the counterparties, the Company's credit exposure is limited
to the uncollected interest and contract market value related to the contracts
that have become favorable to the Company. The Company manages the credit risk
of such contracts by using highly rated counterparties, established risk limits
and monitoring of the credit ratings of the counterparties.
Income Taxes
Deferred income taxes are provided in accordance with the asset and
liability method of accounting for income taxes to recognize the tax effects of
temporary differences between financial statement and income tax accounting.
Valuation allowances for deferred tax assets are provided when realization of
such assets are not likely.
2. Receivables Held for Sale
Receivables held for sale consist of the following (in thousands):
June 30, June 30,
2002 2001
---------------- --------------
Auto receivables ................................................ $2,261,718 $1,973,828
Less nonaccretable acquisition fees ............................. (40,618) (42,280)
Less allowance for loan losses .................................. (22,709) (10,083)
---------------- -------------
$2,198,391 $1,921,465
================ =============
F-10
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Auto receivables are collateralized by vehicle titles and the Company has
the right to repossess the vehicle in the event the consumer defaults on the
payment terms of the contract.
The accrual of finance charge income has been suspended on approximately
$79.1 million and $40.9 million of delinquent auto receivables as of June 30,
2002 and 2001, respectively.
As of June 30, 2002 and 2001, $120.0 million and $74.8 million,
respectively, of receivables held for sale were ineligible for sale.
A summary of the nonaccretable acquisition fees and allowance for loan
losses is as follows (in thousands):
Years Ended June 30,
------------------------------------------------
2002 2001 2000
-------------- -------------- -----------
Balance at beginning of year .............................. $ 52,363 $ 24,374 $ 11,841
Purchases of receivables .................................. 171,537 144,403 97,659
Receivables sold .......................................... (171,314) (130,467) (91,862)
Provision for loan losses ................................. 65,161 31,387 16,359
Net charge-offs ........................................... (54,420) (17,334) (9,623)
-----------------------------------------------
Balance at end of year .................................. $ 63,327 $ 52,363 $ 24,374
===============================================
3. Securitizations
A summary of the Company's securitization activity and cash inflows and
outflows from the Trusts is as follows (in thousands):
Years Ended June 30,
------------------------------------------
2002 2001 2000
----------- ----------- ----------
Receivables sold .......................................... $8,608,909 $5,300,004 $3,999,999
Net proceeds from sale of receivables ..................... 8,546,229 5,174,763 3,955,404
Gain on sale of receivables ............................... 448,544 301,768 207,559
Servicing fees ............................................ 277,491 187,790 126,168
Distributions from Trusts ................................. 243,596 214,629 125,104
The Company retains interests in the receivables sold in the form of
credit enhancement assets and servicing responsibilities for receivables sold.
As of June 30, 2002 and 2001, the Company was servicing $12,500.7 million and
$8,229.9 million, respectively, of auto receivables that have been sold to the
Trusts. The Company earns a monthly base servicing fee of 2.25% per annum on the
outstanding principal balance of its domestic serviced receivables and any
supplemental fee collections (such as late charges) for servicing the
receivables sold. The Company believes that servicing fees received on its
domestic securitization pools would fairly compensate a substitute servicer
should one be required, and, accordingly, the Company records neither a
servicing asset nor a servicing liability. The Company recorded a servicing
liability related to the servicing of its Canadian securitization pool because
it does not receive a monthly servicing fee for its servicing obligations. The
servicing liability is included in accrued taxes and expenses on the Company's
consolidated balance sheet.
The Trusts and the investors in the asset-backed securities sold by the
Trusts have no recourse to the Company's assets other than the credit
enhancement assets. The credit enhancement assets are subordinate to the
interests of the investors in the Trusts and the value of such assets is subject
to the credit risks related to the receivables sold to the Trusts.
F-11
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Credit enhancement assets consist of the following (in thousands):
June 30, June 30,
2002 2001
----------- -----------
Interest-only receivables from Trusts ............. $ 514,497 $ 387,895
Investments in Trust receivables .................. 691,065 493,022
Restricted cash ................................... 343,570 270,358
----------- -----------
$ 1,549,132 $ 1,151,275
=========== ===========
A summary of activity in the credit enhancement assets is as follows (in
thousands):
Years Ended June 30,
-------------------------------------
2002 2001 2000
---------- ---------- ---------
Balance at beginning of year ...................... $1,151,275 $ 824,618 $ 494,862
Initial deposits to credit enhancement assets ..... 368,495 180,008 192,000
Non-cash gain on sale of auto receivables ......... 430,243 243,991 186,176
Payments on credit enhancement facility ........... (218,819) (87,287) (5,394)
Distributions from Trusts ......................... (243,596) (214,629) (125,104)
Accretion of present value discount and other ..... 111,880 93,449 44,083
Change in unrealized (loss) gain .................. (50,805) 111,125 37,995
Foreign currency translation adjustment ........... 459
---------- ---------- ---------
Balance at end of year ............................ $1,549,132 $1,151,275 $ 824,618
========== ========== =========
Credit enhancement assets consist of interest-only receivables from
Trusts, investments in Trust receivables and restricted cash. At the time of
sale of receivables, the Company is required to pledge assets equal to a
specified percentage of the securitization pool to support the securitization
transaction. Typically, the assets pledged are cash deposited to a restricted
account or additional receivables delivered to the Trust creating
overcollateralization. These assets represent initial deposits to credit
enhancement assets. Also at the time of sale of receivables, a non-cash gain on
sale of receivables is recognized consisting of interest-only receivables from
Trust and a present value discount related to the assets pledged as initial
deposits to credit enhancement assets. The interest-only receivables from Trust
represent the present value of the estimated future excess cash flows to be
received by the Company over the life of the securitization.
The securitization transactions require the percentage of assets pledged
to support the transaction to increase thereafter until a specified level is
attained. Excess cash flows generated by the Trusts are added to the restricted
cash account or used to pay down outstanding debt in the Trusts creating
overcollateralization until the required percentage level of assets has been
reached. Collections of excess cash flows reduce the interest-only receivables
from Trusts and the additional assets pledged represent increases in restricted
cash and investments in Trust receivables. Once the targeted percentage of
assets is reached, additional excess cash flows generated by the Trusts are
released to the Company as distributions from Trusts. Additionally, as the
balance of the securitization pool declines, the amount of pledged assets needed
to maintain the required percentage level becomes smaller. Assets in excess of
the required percentage are released to the Company as distributions from
Trusts.
Accretion of present value discount represents accretion of the discount
used to estimate the present value of future distributions from Trusts using the
interest method over the expected life of the securitization.
Unrealized gains (losses) generally represent changes in the fair value of
credit enhancement assets as a result of differences between actual
securitization pool performance and the original assumptions for such
performance or changes in the assumptions as to future securitization pool
performance.
F-12
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Significant assumptions used in determining the gain on sale of auto
receivables were as follows:
Years Ended June 30,
------------------------------------------
2002 2001 2000
--------------- ------------- -----------
Cumulative credit losses (including
unrealized gains at time of sale) ............................ 12.5% 11.3% 10.9%
Discount rate used to estimate present value:
Interest-only receivables from Trusts ........................ 14.0% 14.0% 12.3%
Investments in Trust receivables ............................. 9.8% 9.8% 8.1%
Restricted cash .............................................. 9.8% 9.8% 8.1%
Significant assumptions used in measuring the fair value of credit
enhancement assets at the balance sheet dates are as follows:
Years Ended June 30,
-----------------------------------------
2002 2001
------------------- -------------------
Cumulative credit losses (including remaining
Unrealized gains at time of sale) .................... 10.4% - 12.7% 8.7% - 11.7%
Discount rate used to estimate present value:
Interest-only receivables from Trusts ................ 14.0% 14.0%
Investments in Trust receivables ..................... 9.8% 9.8%
Restricted cash ...................................... 9.8% 9.8%
The Company has not presented the expected weighted average life and
prepayment assumptions used in determining the gain on sale and in measuring the
fair value of credit enhancement assets due to the stability of these two
attributes over time. A significant portion of the Company's prepayment
experience relates to defaults that are considered in the cumulative credit loss
assumption. The Company's voluntary prepayment experience on its receivables
portfolio typically has not fluctuated with changes in market interest rates or
other economic or market factors.
The sensitivity to an immediate 10% and 20% unfavorable change in the
assumptions used to measure the fair value of the credit enhancement assets as
of June 30, 2002, is as follows (in thousands):
Expected
Cumulative
Credit Losses Discount Rate
-------------- -------------
Impact on fair value of
10% adverse change ................. $(135,698) $(31,663)
20% adverse change ................. (277,317) (61,387)
The impact on fair value of these hypothetical adverse changes (net of
related income tax benefits) would generally first reduce accumulated other
comprehensive income in the consolidated balance sheets prior to resulting in a
charge to income.
The adverse changes to the key assumptions and estimates are hypothetical.
The change in fair value based on a 10% variation in assumptions cannot be
extrapolated because the relationship of the change in assumption to the change
in fair value may not be linear. Also, in this table, the effect of a variation
in a particular assumption on fair value is calculated independently from any
change in another assumption. In reality, changes in one factor may contribute
to changes in another, which might magnify or counteract the sensitivities.
Furthermore, due to potential changes in current economic conditions, the
estimated fair values as disclosed should not be considered indicative of
F-13
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
the future performance of these assets. The sensitivities do not reflect actions
management might take to offset the impact of any adverse change.
Expected future cumulative static pool credit losses on receivables that
have been sold to the Trusts are shown below:
Securitizations Completed in
Years Ended June 30,
----------------------------
2002 2001 2000
-------- -------- --------
Estimated cumulative credit losses as of: (a)
June 30, 2002 ......................................... 11.6% 11.4% 11.1%
June 30, 2001 ......................................... 10.3% 8.8%
June 30, 2000 ......................................... 9.6%
(a) Cumulative credit losses are calculated by adding the actual and projected
future credit losses and dividing them by the original balance of each pool
of assets. The amount shown for each year is a weighted average for all
securitizations during the period.
4. Warehouse Credit Facilities
Warehouse credit facilities consist of the following (in thousands):
June 30, June 30,
2002 2001
---------- -----------
Commercial paper facilities ................... $ 228,794
Medium term notes ............................. $1,750,000 1,250,000
Canadian facilities ........................... 1,974 24,085
---------- -----------
$1,751,974 $ 1,502,879
========== ===========
The Company has four separate funding agreements with administrative
agents on behalf of institutionally managed commercial paper conduits and bank
groups with aggregate structured warehouse financing availability of
approximately $3,845.0 million. Two of the commercial paper facilities are
renewable annually and provide for available structured warehouse financing of
$550.0 million and $250.0 million, respectively, through September 2002. Another
facility provides for multi-year structured warehouse financing with
availability of $500.0 million through November 2003. A third facility provides
for available structured warehouse financing of $2,545.0 million, of which
$380.0 million matures in March 2003 and the remaining $2,165.0 million matures
in March 2005.
Under these funding agreements, the Company transfers auto receivables to
special purpose finance subsidiaries of the Company, and these subsidiaries in
turn issue notes, collateralized by such auto receivables, to the agents. The
agents provide funding under the notes to the subsidiaries pursuant to an
advance formula and the subsidiaries forward the funds to the Company in
consideration for the transfer of auto receivables. While these subsidiaries are
included in the Company's consolidated financial statements, these subsidiaries
are separate legal entities and the auto receivables and other assets held by
the subsidiaries are legally owned by these subsidiaries and are not available
to creditors of AmeriCredit Corp. or its other subsidiaries. Advances under the
funding agreements bear interest at commercial paper, LIBOR or prime rates plus
specified fees depending upon the source of funds provided by the agents. The
funding agreements contain various covenants requiring certain minimum financial
ratios and results. The funding agreements also require certain funds to be held
in restricted cash accounts to provide additional collateral for borrowings
under the facilities. As of June 30, 2002 and 2001, these restricted cash
accounts totaled $1.6 million and $6.0 million, respectively, and are included
in other assets in the consolidated balance sheets. As of June 30, 2001, $254.7
million of auto receivables held for sale were pledged under these funding
agreements.
F-14
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company also has three funding agreements with administrative agents
on behalf of institutionally managed medium term note conduits under which
$500.0 million, $750.0 million and $500.0 million, respectively, of proceeds are
available through the terms of the agreements. Under these arrangements, the
conduits sold medium term notes and delivered the proceeds to special purpose
finance subsidiaries of the Company. These subsidiaries in turn issued notes,
collateralized by auto receivables and cash, to the agents. The funding
agreements allow for the substitution of auto receivables (subject to an
overcollateralization formula) for cash, and vice versa, during the term of the
agreements, thus allowing the Company to use the medium term note proceeds to
finance auto receivables on a revolving basis. The agreements mature in December
2003, June 2004 and February 2005, respectively. While the special purpose
finance subsidiaries are included in the Company's consolidated financial
statements, the subsidiaries are separate legal entities and the auto
receivables and other assets held by the subsidiaries are legally owned by the
subsidiaries and are not available to creditors of AmeriCredit Corp. or its
other subsidiaries. The notes issued by the subsidiaries under the funding
agreements bear interest at LIBOR plus specified fees. The funding agreements
contain various covenants requiring certain minimum financial ratios and
results. The funding agreements also require certain funds to be held in
restricted cash accounts to provide additional collateral under the notes. As of
June 30, 2002 and 2001, these restricted cash accounts totaled $27.8 million and
$28.3 million, respectively, and are included in other assets in the
consolidated balance sheets. As of June 30, 2002 and 2001, $1,831.8 million and
$1,293.8 million, respectively, of auto receivables held for sale were pledged
under these funding agreements.
The Company's Canadian subsidiary has a revolving credit agreement, under
which the subsidiary may borrow up to $200.0 million Cdn., subject to a defined
borrowing base. Borrowings under the credit agreement are collateralized by
certain Canadian auto receivables and bear interest at the Canadian Bankers
Acceptance Rate plus specified fees. In August 2002, the Company renewed this
revolving credit agreement providing for borrowings of up to $150.0 million Cdn.
through August 2003. Additionally, the Company's Canadian subsidiary has a
warehouse credit facility with availability of $100.0 million Cdn. subject to a
defined borrowing base. The warehouse credit facility expires in May 2003. The
Canadian facilities contain various covenants requiring certain minimum
financial ratios and results. As of June 30, 2002, $4.0 million Cdn. of auto
receivables held for sale were pledged under the credit agreement.
5. Credit Enhancement Facility
The Company had a credit enhancement facility with a financial institution
that was used to fund a portion of the initial restricted cash deposit required
in certain of its securitization transactions. Borrowings under the credit
enhancement facility were available on a revolving basis through October 2001
after which time outstanding borrowings were payable over time based on future
excess cash flows from certain of the Trusts. In June 2002, the Company replaced
this facility with a letter of credit from a financial institution. The
remaining balance on the credit enhancement facility was paid off with a
corresponding release of restricted cash.
6. Senior Notes
In June 2002, the Company issued $175.0 million of senior notes that are
due in May 2009. Interest on the notes is payable semiannually at a rate of
9.25% per annum. The notes, which are uncollateralized, may be redeemed at the
option of the Company after May 2006 at a premium declining to par in May 2008.
The proceeds from the senior note issuance were used to redeem the $175.0
million 9.25% senior notes that were due in May 2004. As of June 30, 2002,
$135.4 million of the senior notes due in May 2004 were tendered and redeemed.
The remainder of the senior notes due in May 2004 was redeemed subsequent to
year end.
Additionally, the Company has outstanding $200.0 million of senior notes
that are due in April 2006. Interest on the notes is payable semiannually at a
rate of 9.875% per annum. In April 2002, the Company entered into an interest
rate swap agreement to hedge the fair value of these senior notes. At June 30,
2002, the carrying value of the senior notes was adjusted by $5.5 million to
reflect the effective use of the fair value hedge. On August 2, 2002, the
Company terminated the interest rate swap agreement. The fair value of the
interest rate swap was $9.7 million at termination date. This amount will be
reflected in the carrying value of the senior notes and will be amortized into
F-15
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
interest expense over the expected term of the senior notes. The notes, which
are uncollateralized, may be redeemed at the option of the Company after April
2003 at a premium declining to par in April 2005.
The Indentures pursuant to which the senior notes were issued contain
restrictions including limitations on the Company's ability to incur additional
indebtedness other than certain collateralized indebtedness, pay cash dividends
and repurchase common stock. Debt issuance costs and original issue discounts
are being amortized over the expected term of the notes, and unamortized costs
of $6.3 million and $6.7 million as of June 30, 2002 and 2001, respectively, are
included in other assets in the consolidated balance sheets.
7. Commitments and Contingencies Leases
Leases
Branch lending offices are generally leased for terms of up to five years
with certain rights to extend for additional periods. The Company also leases
space for its administrative offices and loan servicing activities under leases
with terms up to twelve years with renewal options. Certain leases contain lease
escalation clauses for real estate taxes and other operating expenses and
renewal option clauses calling for increased rents. Lease expense was $24.4
million, $17.3 million and $13.6 million for the years ended June 30, 2002, 2001
and 2000, respectively.
The financing arrangement for one of the Company's loan servicing centers
is structured as a synthetic lease pursuant to which the Company is considered
to lease the property for accounting purposes but is considered to own the
property, subject to the indebtedness incurred to acquire and construct the
property, for federal income tax and other purposes. This arrangement provides
for rental payments to be made through the scheduled termination date in
September 2003, at which time the Company may be required to purchase the
property from the lessor for a purchase price equal to the amount of the
outstanding debt. The lessor may accelerate the Company's purchase obligation in
the event of certain defaults specified in the lease financing documents. The
Company may also elect to purchase the property and terminate the lease
financing arrangement prior to the scheduled termination date. As of June 30,
2002, the amount of outstanding debt under this lease financing arrangement was
$33.2 million. Neither the property nor the outstanding debt incurred to acquire
and construct the property is recorded on the Company's consolidated balance
sheets.
Operating lease commitments for years ending June 30 are as follows (in
thousands):
2003 ............................................................. $ 80,605
2004 ............................................................. 15,380
2005 ............................................................. 13,192
2006 ............................................................. 11,668
2007 ............................................................. 9,612
Thereafter ....................................................... 33,002
---------
$ 163,459
=========
Other Notes Payable
Maturities of other notes payable for years ending June 30 are as follows
(in thousands):
2003 ............................................................ $ 37,291
2004 ............................................................ 11,645
2005 ............................................................ 6,331
2006 ............................................................ 4,769
2007 ............................................................ 2,905
Thereafter ...................................................... 3,870
---------
$ 66,811
=========
F-16
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash equivalents, restricted cash,
derivative financial instruments and managed auto receivables, which include
auto receivables held for sale and auto receivables serviced by the Company on
behalf of the Trusts. The Company's cash equivalents and restricted cash
represent investments in highly rated securities placed through various major
financial institutions. The counterparties to the Company's derivative financial
instruments are various major financial institutions. Managed auto receivables
represent contracts with consumers residing throughout the United States and, to
a limited extent, in Canada, with borrowers located in California and Texas each
accounting for 13% of the managed auto receivables portfolio as of June 30,
2002. No other state accounted for more than 10% of managed auto receivables.
Guarantees of Indebtedness
The Company has guaranteed certain subordinated asset-backed securities
issued in its securitization transactions. The total outstanding balance of the
subordinated asset-backed securities guaranteed by the Company was $78.3 million
and $78.8 million at June 30, 2002 and 2001, respectively. Subordinated
asset-backed securities guaranteed by the Company are expected to mature by the
end of calendar 2003. Because the Company does not expect the guarantees to be
funded prior to expiration, the guaranteed amount does not reflect estimates of
future cash flows for settlement of the guarantees.
Legal Proceedings
As a consumer finance company, the Company is subject to various consumer
claims and litigation seeking damages and statutory penalties, based upon, among
other things, usury, disclosure inaccuracies, wrongful repossession, violations
of bankruptcy stay provisions, certificate of title disputes, fraud and breach
of contract. Some litigation against the Company could take the form of class
action complaints by consumers. As the assignee of finance contracts originated
by dealers, the Company may also be named as a co-defendant in lawsuits filed by
consumers principally against dealers. The damages and penalties claimed by
consumers in these types of matters can be substantial. The relief requested by
the plaintiffs varies but includes requests for compensatory, statutory and
punitive damages.
The Company believes that it has taken prudent steps to address the
litigation risks associated with its business activities. As of June 30, 2002,
there were no lawsuits pending or, to the best knowledge of the Company,
threatened against it, the outcome of which will have a material effect on the
Company's financial condition, results of operations or cash flows.
8. Stock Options
General
The Company has certain stock-based compensation plans for employees,
non-employee directors and key executive officers.
A total of 21,500,000 shares have been authorized for grants of options
and other stock-based awards under the employee plans, of which 2,000,000 shares
are available for grants to non-employee directors as well as employees. As of
June 30, 2002, 1,397,567 shares remain available for future grants. The exercise
price of each option must equal the market price of the Company's stock on the
date of grant, and the maximum term of each option is ten years. The vesting
period is typically four years, although certain options granted to non-officers
vest over a two-year period. A committee of the Company's Board of Directors
establishes policies and procedures for option grants, vesting periods and the
term of each option.
A total of 1,500,000 shares have been authorized for grants of options
under the non-employee director plans. These plans have expired and no shares
remain available for future grants as of June 30, 2001. The exercise price of
F-17
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
each option must equal the market price of the Company's stock on the date of
grant and the maximum term of each option is ten years. Option grants, vesting
periods and the term of each option are established by the terms of the plans.
A total of 6,300,000 shares have been authorized for grants of options
under the key executive officer plans, none of which remain available for future
grants as of June 30, 2001. Option grants, vesting periods and the exercise
price and term of each option are established by the terms of the plans.
The Company has elected not to adopt the fair value-based method of
accounting for stock-based awards and, accordingly, no compensation expense has
been recognized for options granted under the plans described above. Had
compensation expense for the Company's plans been determined using the fair
value-based method, pro forma net income would have been $323.2 million, $206.5
million and $101.7 million, pro forma basic earnings per share would have been
$3.81, $2.60 and $1.39 and pro forma diluted earnings per share would have been
$3.60, $2.41 and $1.31 for the years ended June 30, 2002, 2001 and 2000,
respectively.
The following tables present information related to the Company's
stock-based compensation plans. The fair value of each option grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:
Years Ended June 30,
-----------------------------------------------
2002 2001 2000
--------------- ------------ --------------
Expected dividends .................................... 0 0 0
Expected volatility ................................... 101% 51% 45%
Risk-free interest rate ............................... 4.28% 5.31% 6.10%
Expected life ......................................... 5 years 5 years 5 years
Employee Plans
A summary of stock option activity under the Company's employee plans is
as follows (shares in thousands):
Years Ended June 30,
---------------------------------------------------------------------------
2002 2001 2000
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- -------- ------- -------- ------ --------
Outstanding at beginning of year ........... 8,303 $ 19.40 10,582 $ 12.22 10,856 $ 9.92
Granted .................................... 3,906 24.18 2,319 32.54 3,009 16.67
Exercised .................................. (1,290) 15.25 (4,411) 9.14 (2,665) 7.70
Canceled ................................... (600) 24.96 (187) 17.60 (618) 14.31
------ ------- ------- ------- ------ -------
Outstanding at end of year ................. 1,319 $ 21.40 8,303 $ 19.40 10,582 $ 12.22
====== ======= ======= ======= ====== =======
Options exercisable at end of year ......... 4,695 $ 17.57 3,823 $ 15.69 6,229 $ 10.05
====== ======= ======= ======= ====== =======
Weighted average fair value of options
granted during year .................... $ 18.58 $ 16.50 $ 7.93
======= ======= =======
F-18
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A summary of options outstanding under employee plans as of June 30, 2002,
is as follows (shares in thousands):
Options Outstanding Options Exercisable
---------------------------------------------- ----------------------------
Weighted Weighted Weighted
Average Years Average Average
Range of Number of Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Outstanding Price
--------------- ----------- ---------------- ----- ----------- -----
$2.75 to 5.00 ............................. 5 2.33 $ 3.55 5 $ 3.55
$5.01 to 10.00 ............................. 451 4.47 7.41 451 7.41
$10.01 to 15.00 ............................ 1,859 6.03 12.67 1,406 12.31
$15.01 to 20.00 ............................ 5,383 7.60 16.67 2,081 16.95
$20.01 to 25.00 ............................ 450 8.11 21.13 119 21.16
$25.01 to 30.00 ............................ 491 7.99 27.79 212 27.94
$30.01 to 35.00 ............................ 79 9.15 34.74 18 34.61
$35.01 to 40.00 ............................ 251 8.42 35.79 90 35.78
$40.01 to 45.00 ............................ 110 5.99 42.16 3 42.49
$45.01 to 55.00 ............................ 802 8.78 45.91 310 45.60
$55.01 to 65.00 ............................ 438 2.08 63.63 63.63
------ ------
10,319 4,695
====== ======
Restricted stock with an approximate aggregate market value of $2.4
million and $2.3 million at the time of grant was also issued under the employee
plans during the years ended June 30, 2002 and 2001, respectively. The market
value of these restricted shares at the date of grant is being amortized into
expense over a period that approximates the restriction period. As of June 30,
2002 and 2001, unamortized compensation expense related to the restricted stock
awards was $3.3 million and $2.2 million, respectively.
Non-Employee Director Plans
A summary of stock option activity under the Company's non-employee
director plans is as follows (shares in thousands):
Years Ended June 30,
--------------------------------------------------------------------
2002 2001 2000
----------------- --------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at beginning of year ............... 480 $ 9.75 1,380 $ 4.33 1,385 $ 3.37
Granted ........................................ 80 17.81
Exercised ...................................... (120) 3.18 (900) 1.44 (85) 1.40
---- ------- ----- ------ ----- ------
Outstanding at end of year ..................... 360 $ 11.94 480 $ 9.75 1,380 $ 4.33
==== ======= ===== ====== ===== ======
Options exercisable at end of year ............. 360 $ 11.94 480 $ 9.75 1,380 $ 4.33
==== ======= ===== ====== ===== ======
Weighted average fair value of
options granted during year ................ $ 8.55
======
F-19
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A summary of options outstanding under non-employee director plans as of
June 30, 2002, is as follows (shares in thousands):
Options Outstanding and Exercisable
-----------------------------------------------
Weighted Weighted
Average Years Average
Range of Exercise Prices Number of Remaining Exercise
- ------------------------ Outstanding Contractual Life Price
----------- ---------------- -----
$1.40 to 3.75 ................ 60 1.37 $ 2.85
$3.76 to 10.00 ............... 80 3.92 7.92
$10.01 to 15.00 .............. 140 5.92 14.77
$15.01 to 20.00 .............. 80 7.35 17.81
---
360
===
Key Executive Officer Plans
A summary of stock option activity under the Company's key executive
officer plans is as follows (shares in thousands):
Years Ended June 30,
-------------------------------------------------------------
2002 2001 2000
-------------- -------------- --------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
Outstanding at beginning of year ...... 5,300 $11.25 6,200 $10.90 6,300 $10.92
Exercised ............................. (300) 8.00 (900) 8.89 (100) 12.00
------ ------ ------ ------ ------ ------
Outstanding at end of year ............ 5,000 $11.44 5,300 $11.25 6,200 $10.90
====== ====== ====== ====== ====== ======
Options exercisable at end of year .... 3,850 $11.27 3,000 $10.67 2,750 $ 9.53
====== ====== ====== ====== ====== ======
A summary of options outstanding under key executive officer plans as of
June 30, 2002, is as follows (shares in thousands):
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Weighted Weighted Weighted
Average Years Average Average
Range of Number of Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Outstanding Price
- --------------- ----------- ---------------- ----- ----------- -----
$ 8.00 ............ 700 3.81 $ 8.00 700 $ 8.00
$ 12.00 ............ 4,300 5.58 12.00 3,150 12.00
------ ------
5,000 3,850
====== ======
9. Employee Benefit Plans
The Company has a defined contribution retirement plan covering
substantially all employees. The Company's contributions to the plan were $5.0
million, $2.4 million and $2.2 million for the years ended June 30, 2002, 2001
and 2000, respectively.
F-20
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The Company also has an employee stock purchase plan that allows
participating employees to purchase, through payroll deductions, shares of the
Company's common stock at 85% of the market value at specified dates. A total of
3,000,000 shares have been reserved for issuance under the plan. Shares
purchased under the plan were 359,485, 322,015 and 250,495 for the years ended
June 30, 2002, 2001 and 2000, respectively.
10. Related Party Transactions
The Company has provided interest-bearing loans to certain executive
officers and directors. These loans in the aggregate were $5.7 million and $1.8
million at June 30, 2002 and 2001, respectively. All loans are due and payable
to the Company by December 31, 2003.
11. Income Taxes
The income tax provision consists of the following (in thousands):
Years Ended June 30,
---------------------------------------------
2002 2001 2000
------------- ------------- -------------
Current .............. $156,156 $ 56,561 $60,403
Deferred ............. 61,373 82,947 15,388
-------- -------- -------
$217,529 $139,508 $75,791
======== ======== =======
The Company's effective income tax rate on income before income taxes
differs from the U.S. statutory tax rate as follows:
Years Ended June 30,
-----------------------------------------
2002 2001 2000
-------- ---------- ----------
U.S. statutory tax rate ... 35.0% 35.0% 35.0%
Other ..................... 3.5 3.5 4.8
----- ------ -----
38.5% 38.5% 39.8%
===== ====== =====
The tax effects of temporary differences that give rise to deferred tax
liabilities and assets are as follows (in thousands):
June 30, June 30,
Deferred tax liabilities: 2002 2001
-------------- ----------------
Gain on sale of receivables ...................... $ (123,847) $ (85,556)
Unrealized gain on credit enhancement assets ..... (25,529) (46,132)
Other ............................................ (17,422) (6,595)
---------- ----------
(166,798) (138,283)
---------- ----------
Deferred tax assets:
Net operating loss carry forward - domestic ...... 1,204
Net operating loss carry forward - Canadian ...... 1,869 2,066
Other ............................................ 16,248 4,874
---------- ----------
18,117 8,144
---------- ----------
Net deferred tax liability .......................... $ (148,681) $ (130,139)
========== ==========
As of June 30, 2002, the Company has a net operating loss carryforward of
approximately $4.8 million for Canadian income tax reporting purposes that
expires between June 30, 2006 and June 30, 2008.
F-21
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
12. Earnings Per Share
The computation of basic and diluted earnings per share is as follows
(dollars in thousands, except per share data):
Year Ended June 30,
------------------------------------------
2002 2001 2000
------ ------ ------
Net income $ 347,483 $ 222,852 $ 114,501
=========== =========== ===========
Weighted average shares outstanding from assumed exercise of
stock options .................................................. 84,748,033 79,562,495 73,038,005
Incremental shares resulting from assumed exercise of stock ......... 5,052,588 6,289,591 4,575,647
----------- ----------- -----------
Weighted average shares and assumed incremental shares .............. 89,800,621 85,852,086 77,613,652
=========== =========== ===========
Earnings per share:
Basic .......................................................... $ 4.10 $ 2.80 $ 1.57
=========== =========== ===========
Diluted ........................................................ $ 3.87 $ 2.60 $ 1.48
=========== =========== ===========
Basic earnings per share have been computed by dividing net income by
weighted average shares outstanding.
Diluted earnings per share have been computed by dividing net income by
the weighted average shares and assumed incremental shares. Assumed incremental
shares were computed using the treasury stock method. The average common stock
market prices for the period were used to determine the number of incremental
shares.
13. Supplemental Cash Flow Information
Cash payments for interest costs and income taxes consist of the following
(in thousands):
Year Ended June 30,
--------------------------------
2002 2001 2000
------ ------ ------
Interest costs ($345 capitalized in 2002) ..... $152,031 $113,923 $69,630
Income taxes .................................. 122,682 59,733 62,714
During the years ended June 30, 2002, 2001 and 2000, the Company entered
into capital lease agreements for property and equipment of $65.1 million, $8.8
million and $12.9 million, respectively.
F-22
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
14. Supplemental Disclosure for Accumulated Other Comprehensive Income
A summary of changes in accumulated other comprehensive income is as
follows (in thousands):
Year Ended June 30,
---------------------------------------------
2002 2001 2000
------ ------ ------
Net unrealized gains on credit enhancement assets:
Balance at beginning of year ........................................... $113,145 $ 44,803 $ 21,410
Unrealized holding (losses) gain, net of taxes of $(16,503),
$45,688 and $15,511, respectively ...................................... (26,363) 72,983 24,845
Reclassification into earnings, net of taxes of $(3,056), $(2,905)
and $(909), respectively ............................................. (4,883) (4,641) (1,452)
-------- -------- --------
Balance at end of year ................................................. 81,899 113,145 44,803
-------- -------- --------
Unrealized losses on cash flow hedges:
Balance at beginning of year ........................................... (39,456)
Change in fair value associated with current period hedging
activities, net of taxes of $(4,544) and $(24,700), respectively ....... (7,260) (39,456)
Reclassification into earnings, net of taxes of $3,500 ................... 5,592
-------- -------- --------
Balance at end of year ................................................. (41,124) (39,456)
-------- -------- --------
Accumulated foreign currency translation adjustment:
Balance at beginning of year ...........................................
Translation gain ....................................................... 2,022
-------- -------- --------
Balance at end of year ................................................. 2,022
-------- -------- --------
Total accumulated other comprehensive
income ................................................................ $ 42,797 $ 73,689 $ 44,803
======== ======== ========
15. Derivative Financial Instruments and Hedging Activities
As of June 30, 2002 and 2001, the Company had interest rate swap
agreements with underlying notional amounts of $1,595.7 million and $1,719.2
million, respectively. These agreements had unrealized losses of approximately
$66.9 million and $64.2 million as of June 30, 2002 and 2001, respectively. The
ineffectiveness related to the interest rate swap agreements was not material
for the year ended June 30, 2002. The Company estimates approximately $30.2
million of unrealized losses included in other comprehensive income will be
reclassified into earnings within the next twelve months. The Company maintains
a policy of requiring that all derivative contracts be governed by an
International Swaps and Derivatives Association Master Agreement. When the
Company is engaged in more than one outstanding derivative transaction with the
same counterparty and also has a legally enforceable master netting agreement
with that counterparty, the net mark-to-market exposure represents the netting
of the positive and negative exposures with that counterparty. When there is a
net negative exposure, the Company regards its credit exposure to the
counterparty as being zero. The net mark-to-market position with a particular
counterparty represents a reasonable measure of credit risk when there is a
legally enforceable master netting agreement (i.e. a legal right of a setoff of
receivable and payable derivative contracts) between the Company and the
counterparty. Under the terms of the interest rate swap and cap agreements, the
Company is required to pledge certain funds to be held in restricted cash
accounts if the market value of the interest rate swap and cap agreements exceed
an agreed upon amount. As of June 30, 2002 and 2001, these restricted cash
accounts totaled $56.5 million and $41.9 million, respectively, and are included
in other assets in the consolidated balance sheets.
16. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of fair
value information about financial instruments, whether
F-23
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recognized or not in the Company's consolidated balance sheets. Fair values are
based on estimates using present value or other valuation techniques in cases
where quoted market prices are not available. Those techniques are significantly
affected by the assumptions used, including the discount rate and the estimated
timing and amount of future cash flows. Therefore, the estimates of fair value
may differ substantially from amounts that ultimately may be realized or paid at
settlement or maturity of the financial instruments and those differences may be
material. SFAS 107 excludes certain financial instruments and all non-financial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments are set forth below (in
thousands):
June 30,
2002 2001
---------------------------- ------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
----- ---------- ----- ----------
Financial assets:
Cash and cash equivalents .................. (a) $ 119,445 $ 119,445 $ 77,053 $ 77,053
Receivables held for sale, net ............. (b) 2,198,391 2,315,010 1,921,465 2,032,603
Interest-only receivables from Trusts ...... (c) 514,497 514,497 387,895 387,895
Investments in Trust receivables ........... (c) 691,065 691,065 493,022 493,022
Restricted cash ............................ (c) 343,570 343,570 270,358 270,358
Interest rate swap agreements .............. (e) 5,548 5,548
Interest rate cap agreements purchased ..... (e) 16,741 16,741 18,640 18,640
Financial liabilities:
Warehouse credit facilities ................ (d) 1,751,974 1,751,974 1,502,879 1,502,879
Credit enhancement facility ................ (d) 36,319 36,319
Senior notes ............................... (e) 418,074 403,798 375,000 374,125
Interest rate swap agreements .............. (e) 66,869 66,869 64,156 64,156
Interest rate cap agreements sold .......... (e) 19,053 19,053 18,640 18,640
Other notes payable ........................ (f) 66,811 66,811 23,077 23,077
(a) The carrying value of cash and cash equivalents is considered to be a
reasonable estimate of fair value since these investments bear interest at
market rates and have maturities of less than 90 days.
(b) Since the Company periodically sells its receivables in securitization
transactions, fair value is estimated by discounting future net cash flows
expected to be realized from the sale of the receivables using discount
rate, prepayment and credit loss assumptions similar to the Company's
historical experience.
(c) The fair value of interest-only receivables from Trusts, investments in
Trust receivables and restricted cash is estimated by discounting the
associated future net cash flows using discount rate, prepayment and credit
loss assumptions similar to the Company's historical experience.
(d) The warehouse credit facilities and credit enhancement facility have
variable rates of interest and maturities of three years or less.
Therefore, carrying value is considered to be a reasonable estimate of fair
value.
(e) The fair values of the senior notes and interest rate cap and swap
agreements are based on quoted market prices.
(f) The fair value of other notes payable is estimated based on rates currently
available for debt with similar terms and remaining maturities.
F-24
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Guarantor Consolidating Financial Statements
The payment of principal, premium, if any, and interest on the Company's
senior notes is guaranteed by certain of the Company's subsidiaries (the
"Subsidiary Guarantors"). The following consolidating financial statement
schedules present consolidating financial data for (i) AmeriCredit Corp. (on a
parent only basis), (ii) the combined Subsidiary Guarantors, (iii) the combined
Non-Guarantor Subsidiaries, (iv) an elimination column for adjustments to arrive
at the information for the Company and its subsidiaries on a consolidated basis
and (v) the Company and its subsidiaries on a consolidated basis.
Investments in subsidiaries are accounted for by the parent company using
the equity method for purposes of this presentation. Earnings of subsidiaries
are therefore reflected in the parent company's investment accounts and
earnings. The principal elimination entries set forth below eliminate
investments in subsidiaries and intercompany balances and transactions.
F-25
AMERICREDIT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Shareholders
AmeriCredit Corp.
Our audits of the consolidated financial statements referred to in our
report dated August 6, 2002 appearing on page F-2 also included audits of the
financial statement schedules listed on pages F-27 to F-34. In our opinion,
these financial statement schedules present fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Fort Worth, Texas
August 6, 2002
F-26
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING BALANCE SHEET
June 30, 2002
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------- ----------- ------------ ------------ ------------
ASSETS
Cash and cash equivalents....................... $ 90,806 $ 28,639 $ 119,445
Receivables held for sale, net.................. 430,573 1,767,818 2,198,391
Interest-only receivables from Trusts........... 7,828 506,669 514,497
Investments in Trust receivables................ 15,609 675,456 691,065
Restricted cash................................. 2,906 340,664 343,570
Property and equipment, net..................... $ 349 120,156 120,505
Other assets.................................... 16,748 173,383 47,327 237,458
Due (to) from affiliates........................ 985,354 (2,751,456) 1,766,102
Investment in affiliates........................ 966,339 3,181,643 21,269 $(4,169,251)
---------- ----------- ----------- ----------- ----------
Total assets.......................... $1,968,790 $ 1,271,448 $ 5,153,944 $(4,169,251) $4,224,931
========== =========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Warehouse credit facilities................. $ 1,751,974 $1,751,974
Senior notes................................ $ 418,074 418,074
Other notes payable......................... 63,569 $ 3,242 66,811
Funding payable............................. 126,091 802 126,893
Accrued taxes and expenses.................. 39,925 151,106 3,229 194,260
Derivative financial instruments............ 85,922 85,922
Deferred income taxes....................... 14,906 20,062 113,713 148,681
---------- ----------- ----------- ----------- ----------
Total liabilities..................... 536,474 386,423 1,869,718 2,792,615
---------- ----------- ----------- ----------- ----------
Shareholders' equity:
Common stock................................ 917 32,779 83,408 $ (116,187) 917
Additional paid-in capital.................. 573,956 26,237 2,126,942 (2,153,179) 573,956
Accumulated other comprehensive
income................................... 42,797 (40,501) 84,864 (44,363) 42,797
Retained earnings........................... 832,446 866,510 989,012 (1,855,522) 832,446
---------- ----------- ----------- ----------- ----------
1,450,116 885,025 3,284,226 (4,169,251) 1,450,116
Treasury stock.............................. (17,800) (17,800)
---------- ----------- ----------- ----------- ----------
Total shareholders' equity............ 1,432,316 885,025 3,284,226 (4,169,251) 1,432,316
---------- ----------- ----------- ----------- ----------
Total liabilities and shareholders'
equity............................ $1,968,790 $ 1,271,448 $ 5,153,944 $(4,169,251) $4,224,931
========== =========== =========== =========== ==========
F-27
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING BALANCE SHEET
June 30, 2001
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
----------- ---------- ---------- ------------ ------------
ASSETS
Cash and cash equivalents....................... $ 58,954 $ 18,099 $ 77,053
Receivables held for sale, net.................. 390,264 1,531,201 1,921,465
Interest-only receivables from Trusts........... 13,686 374,209 387,895
Investments in Trust receivables................ 493,022 493,022
Restricted cash................................. 270,358 270,358
Property and equipment, net..................... $ 349 67,479 67,828
Other assets.................................... 9,606 117,058 40,622 167,286
Due (to) from affiliates........................ 867,418 (2,171,157) 1,303,739
Investment in affiliates........................ 605,397 2,286,788 16,995 $(2,909,180)
---------- ----------- ---------- ----------- ----------
Total assets........................ $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907
========== =========== ========== =========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities:
Warehouse credit facilities............... $ 24,085 $1,478,794 $1,502,879
Credit enhancement facility............... 36,319 36,319
Senior notes.............................. $ 375,000 375,000
Other notes payable....................... 23,077 23,077
Funding payable........................... 60,018 442 60,460
Accrued taxes and expenses................ 15,316 90,271 8,454 114,041
Derivative financial instruments.......... 82,796 82,796
Deferred income taxes..................... 9,181 (8,209) 129,167 130,139
---------- ----------- ---------- ----------- ----------
Total liabilities................... 422,574 248,961 1,653,176 2,324,711
---------- ----------- ---------- ----------- ----------
Shareholders' equity:
Common stock.............................. 899 899
Additional paid-in capital................ 520,077 51,768 1,699,642 $(1,751,410) 520,077
Accumulated other comprehensive
income................................. 73,689 (39,456) 113,145 (73,689) 73,689
Retained earnings......................... 484,963 501,799 582,282 (1,084,081) 484,963
---------- ----------- ---------- ----------- ----------
1,079,628 514,111 2,395,069 (2,909,180) 1,079,628
Treasury stock............................ (19,432) (19,432)
---------- ----------- ---------- ----------- ----------
Total shareholders' equity.......... 1,060,196 514,111 2,395,069 (2,909,180) 1,060,196
---------- ----------- ---------- ----------- ----------
Total liabilities and shareholders'
equity.......................... $1,482,770 $ 763,072 $4,048,245 $(2,909,180) $3,384,907
========== =========== ========== =========== ==========
F-28
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 2002
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---- ---------- ---------- ------------ ------------
Revenue
Finance charge income....................... $ 84,622 $ 254,808 $ 339,430
Gain on sale of receivables................. 23,182 425,362 448,544
Servicing fee income........................ 301,486 87,885 389,371
Other income................................ $ 51,148 766,688 1,542,660 $(2,347,609) 12,887
Equity in income of affiliates.............. 368,265 421,831 (790,096)
----------- ----------- ----------- ----------- -----------
419,413 1,597,809 2,310,715 (3,137,705) 1,190,232
----------- ----------- ----------- ----------- -----------
Costs and expenses
Operating expenses.......................... 38,505 352,378 33,248 424,131
Provision for loan losses................... 9,738 55,423 65,161
Interest expense............................ 46,435 900,961 1,536,141 (2,347,609) 135,928
----------- ----------- ----------- ----------- -----------
84,940 1,263,077 1,624,812 (2,347,609) 625,220
----------- ----------- ----------- ----------- -----------
Income before income taxes.................. 334,473 334,732 685,903 (790,096) 565,012
Income tax (benefit) provision.............. (13,010) (33,533) 264,072 217,529
----------- ----------- ----------- ----------- -----------
Net income............................ $ 347,483 $ 368,265 $ 421,831 $ (790,096) $ 347,483
=========== =========== =========== =========== ===========
F-29
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 2001
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---- ---------- ---------- ------------ ------------
Revenue
Finance charge income ....................... $ 87,901 $ 137,309 $ 225,210
Gain on sale of receivables ................. $ (58) 46,542 255,284 301,768
Servicing fee income ........................ 195,545 85,694 281,239
Other income ................................ 27,839 105,880 740,728 $ (864,440) 10,007
Equity in income of affiliates .............. 251,580 257,989 (509,569)
----------- ---------- ------------ ------------ ----------
279,361 693,857 1,219,015 (1,374,009) 818,224
----------- ---------- ------------ ------------ ----------
Costs and expenses
Operating expenses .......................... 34,989 217,556 55,908 308,453
Provision for loan losses ................... 8,618 22,769 31,387
Interest expense ............................ 39,503 220,117 720,844 (864,440) 116,024
----------- ---------- ------------ ------------ ----------
74,492 446,291 799,521 (864,440) 455,864
----------- ---------- ------------ ------------ ----------
Income before income taxes .................. 204,869 247,566 419,494 (509,569) 362,360
Income tax (benefit) provision .............. (17,983) (4,014) 161,505 139,508
----------- ---------- ------------ ------------ ----------
Net income ............................ $ 222,852 $ 251,580 $ 257,989 $ (509,569) $ 222,852
=========== ========== ============ ============ ==========
F-30
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF INCOME
Year Ended June 30, 2000
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---- ---------- ---------- ------------ ------------
Revenue
Finance charge income ......................... $ 74,467 $ 49,683 $ 124,150
Gain on sale of receivables ................... $ (284) 15,344 194,010 209,070
Servicing fee income .......................... 128,589 41,662 170,251
Other income .................................. 45,064 306,556 540,627 $ (886,038) 6,209
Equity in income of affiliates ................ 117,148 131,764 (248,912)
----------- --------- ---------- ------------ ----------
161,928 656,720 825,982 (1,134,950) 509,680
----------- --------- ---------- ------------ ----------
Costs and expenses
Operating expenses ............................ 9,724 178,935 34,560 223,219
Provision for loan losses ..................... 8,072 8,287 16,359
Interest expense .............................. 39,360 347,103 568,885 (886,038) 69,310
Charge for closing mortgage operations ........ 10,500 10,500
----------- --------- ---------- ------------ ----------
49,084 544,610 611,732 (886,038) 319,388
----------- --------- ---------- ------------ ----------
Income before income taxes .................... 112,844 112,110 214,250 (248,912) 190,292
Income tax (benefit) provision ................ (1,657) (5,038) 82,486 75,791
----------- --------- ---------- ------------ ----------
Net income .............................. $ 114,501 $ 117,148 $ 131,764 $ (248,912) $ 114,501
=========== ========= ========== ============ ==========
F-31
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 2002
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Eliminations Consolidated
---- ---------- ---------- ------------ ------------
Cash flows from operating activities:
Net income ............................................. $ 347,483 $ 368,265 $ 421,831 $ (790,096) $ 347,483
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ....................... 4,673 25,368 8,331 38,372
Provision for loan losses ........................... 9,738 55,423 65,161
Deferred income taxes ............................... 28,029 28,933 4,411 61,373
Accretion of present value discount and other ....... (111,880) (111,880)
Non-cash gain on sale of auto receivables ........... (2,196) (422,575) (424,771)
Loss on retirement of senior notes .................. 4,153 4,153
Distributions from Trusts .............................. 243,596 243,596
Initial deposits to credit enhancement assets .......... (17,032) (351,463) (368,495)
Discount on issuance of senior notes ................... (2,135) (2,135)
Equity in income of affiliates ......................... (368,265) (421,831) 790,096
Changes in assets and liabilities: .....................
Other assets ........................................ (2,040) (38,919) (1,020) (41,979)
Accrued taxes and expenses .......................... 24,609 68,641 (5,233) 88,017
Purchases of receivables ............................... (9,055,028) (9,053,139) 9,053,139 (9,055,028)
Principal collections and recoveries on receivables .... 18,635 216,688 235,323
Net proceeds from sale of receivables .................. 9,053,139 8,546,229 (9,053,139) 8,546,229
---------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating activities .... 36,507 37,713 (448,801) (374,581)
---------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Net purchases of property and equipment ................ (11,559) (11,559)
Change in other assets ................................. (19,407) 4,308 (15,099)
Net change in investment in affiliates ................. (14,729) (473,028) (19,375) 507,132
---------- ----------- ----------- ----------- -----------
Net cash used by investing activities ............... (14,729) (503,994) (15,067) 507,132 (26,658)
---------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net change in warehouse credit facilities .............. (23,698) 271,771 248,073
Proceeds from issuance of senior notes ................. 175,000 175,000
Retirement of senior notes ............................. (139,522) (139,522)
Borrowings under credit enhancement facility ........... 182,500 182,500
Debt issuance costs .................................... (4,197) (18,321) (22,518)
Net change in notes payable ............................ (24,580) 3,096 (21,484)
Proceeds from issuance of common stock ................. 20,818 (3,577) 510,709 (507,132) 20,818
Net change in due (to) from affiliates ................. (49,858) 522,163 (472,305)
---------- ----------- ----------- ----------- -----------
Net cash (used) provided by financing activities .... (22,339) 497,984 474,354 (507,132) 442,867
Foreign currency translation .............................. 561 149 54 764
---------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents ................. 42,392 31,852 10,540 42,392
Cash and cash equivalents at beginning of year ............ 58,954 18,099 77,053
---------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year .................. $ $ 90,806 $ 28,639 $ $ 119,445
========== =========== =========== =========== ===========
F-32
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 2001
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Elimination Consolidated
----- ---------- ---------- ----------- ------------
Cash flows from operating activities:
Net income ............................................. $ 222,852 $ 251,580 $ 257,989 $ (509,569) $ 222,852
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization ....................... 19,740 19,740
Provision for loan losses ........................... 8,618 22,769 31,387
Deferred income taxes ............................... 162,817 76,814 (156,684) 82,947
Accretion of present value discount and other ....... (93,449) (93,449)
Non-cash gain on sale of auto receivables ........... (243,991) (243,991)
Distributions from Trusts .............................. 214,629 214,629
Initial deposits to credit enhancement assets .......... (180,008) (180,008)
Equity in income of affiliates ......................... (251,580) (257,989) 509,569
Changes in assets and liabilities: .....................
Other assets ........................................ 1,923 (9,960) 2,660 (5,377)
Accrued taxes and expenses .......................... 1,258 40,434 1,722 43,414
Purchases of auto receivables .......................... (6,367,796) (6,260,175) 6,260,175 (6,367,796)
Principal collections and recoveries on receivables .... (8,587) 119,399 110,812
Net proceeds from sale of receivables .................. 6,260,851 5,173,763 (6,260,175) 5,174,439
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating activities .... 137,270 13,705 (1,141,376) (990,401)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Net purchases of property and equipment ................ (34,278) (34,278)
Change in other assets ................................. (47,677) (16,903) (64,580)
Net change in investment in affiliates ................. (6,182) (1,381,810) (55,674) 1,443,666
----------- ----------- ----------- ----------- -----------
Net cash used by investing activities ............... (6,182) (1,463,765) (72,577) 1,443,666 (98,858)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net change in warehouse credit facilities .............. 19,424 995,755 1,015,179
Borrowings under credit enhancement facility ........... 57,000 57,000
Net change in notes payable ............................ (5,369) (5,369)
Proceeds from issuance of common stock ................. 56,586 11,642 1,432,024 (1,443,666) 56,586
Net change in due (to) from affiliates ................. (182,305) 1,447,243 (1,264,938)
----------- ----------- ----------- ----------- -----------
Net cash (used) provided by financing activities .... (131,088) 1,478,309 1,219,84 (1,443,666) 1,123,396
----------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents ................. 28,249 5,888 34,137
Cash and cash equivalents at beginning of year ............ 30,705 12,211 42,916
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year .................. $ $ 58,954 $ 18,099 $ $ 77,053
=========== =========== =========== =========== ===========
F-33
AMERICREDIT CORP.
FINANCIAL STATEMENT SCHEDULE
CONSOLIDATING STATEMENT OF CASH FLOWS
Year Ended June 30, 2000
(in thousands)
AmeriCredit Non-
Corp. Guarantors Guarantors Elimination Consolidated
----- ---------- ---------- ----------- ------------
Cash flows from operating activities:
Net income ............................................... $ 114,501 $ 117,148 $ 131,764 $ (248,912) $ 114,501
Adjustments to reconcile net income to net cash
used by operating activities:
Non-cash charge for closing mortgage operations ....... 6,566 6,566
Depreciation and amortization ......................... 19,357 19,357
Provision for loan losses ............................. 8,072 8,287 16,359
Deferred income taxes ................................. (48,997) (18,307) 82,692 15,388
Accretion of present value discount and other ......... (44,083) (44,083)
Non-cash gain on sale of auto receivables ............. (186,176) (186,176)
Distributions from Trusts ................................ 125,104 125,104
Initial deposits to credit enhancement assets ............ (192,000) (192,000)
Equity in income of affiliates ........................... (117,148) (131,764) 248,912
Changes in assets and liabilities: .......................
Other assets .......................................... (19) (15,756) (8,066) (23,841)
Accrued taxes and expenses ............................ (2,004) 23,236 6,467 27,699
Purchases of receivables ................................. (4,535,524) (4,405,708) 4,405,708 (4,535,524)
Principal collections and recoveries on receivables ...... (10,984) 54,740 43,756
Net proceeds from sale of auto receivables ............... 4,532,57 3,955,404 (4,405,708) 4,082,270
----------- ----------- ----------- ----------- -----------
Net cash used by operating activities ................. (53,667) (5,382) (471,575) (530,624)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Net purchases of property and equipment .................. (9,751) (9,751)
Change in other assets ................................... (1,521) (9,711) (11,232)
Net change in investment in affiliates ................... 20,131 (170,007) (1,486) 151,362
----------- ----------- ----------- ----------- -----------
Net cash provided (used) by investing activities ...... 20,131 (181,279) (11,197) 151,362 (20,983)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net change in warehouse credit facilities ................ (15,629) 388,670 373,041
Borrowings under credit enhancement facility ............. 72,000 72,000
Net change in notes payable .............................. (11,079) (11,079)
Proceeds from issuance of common stock ................... 139,372 2,692 148,670 (151,362) 139,372
Net change in due (to) from affiliates ................... (94,757) 210,057 (115,300)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities ............. 33,536 197,120 494,040 (151,362) 573,334
----------- ----------- ----------- ----------- -----------
Net increase in cash and cash equivalents ................... 10,459 11,268 21,727
Cash and cash equivalents at beginning of year .............. 20,246 943 21,189
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of year .................... $ $ 30,705 $ 12,211 $ $ 42,916
=========== =========== =========== =========== ===========
F-34
All tendered Old Notes, executed letters of transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies transmittal and other related
documents should be addressed to the Exchange Agent as follows:
BY REGISTERED OR CERTIFIED MAIL:
Bank One, NA
1111 Polaris Parkway
Mail Code OH1-0184
Columbus, Ohio 43240
Attention: Exchanges
BY HAND OR OVERNIGHT COURIER:
Bank One, NA
55 Water Street, 1/st/ Floor
Geannette Park Entrance
New York, New York 10041
By Facsimile:
(614) 248-9987 (OH)
Confirm by Telephone: (614) 248-4856 (OH)
(Originals of all documents submitted to facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail) We have not authorized
anyone to give you any information or to make any representations about the
transactions we discussed in this prospectus other than those contained herein
or in the documents we incorporate herein by reference. If you are given any
information or representations about these matters that is not discussed or
incorporated in this prospectus, you must not rely on that information. This
prospectus is not an offer to sell or a solicitation of an offer to buy
securities anywhere or to anyone where or to whom we are not permitted to offer
or sell securities under applicable law. The delivery of this prospectus offered
hereby does not, under any circumstances, mean that there has not been a change
in our affairs since the date hereof. It also does not mean that the information
in this prospectus or in the documents we incorporate herein by reference is
correct after this date.
OFFER TO EXCHANGE ALL
OUTSTANDING 9 1/4% SENIOR NOTES DUE 2009
($175,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR REGISTERED 9 1/4% SENIOR NOTES DUE 2009
AMERICREDIT CORP.
----------------
PROSPECTUS
----------------
____________, 2002
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS; LIMITATION OF LIABILITY FOR
MONETARY DAMAGES
(a) The Articles of Incorporation, as amended to date (the "Articles of
Incorporation"), of AmeriCredit Corp. (the "Company"), together with its Bylaws,
provide that the Company shall indemnify officers and directors, and may
indemnify its other employees and agents, to the fullest extent permitted by
law. The laws of the State of Texas permit, and in some cases require,
corporations to indemnify officers, directors, agents and employees who are or
have been a party to or are threatened to be made a party to litigation against
judgements, fines, settlements and reasonable expenses under certain
circumstances.
(b) The Company has also adopted provisions in its Articles of
Incorporation that limit the liability of its directors to the fullest extent
permitted by the laws of the State of Texas. Under the Company's Articles of
Incorporation, and as permitted by the laws of the State of Texas, a director is
not liable to the Company or its shareholders for breach of fiduciary duty. Such
limitation does not affect liability for: (i) a breach of the director's duty of
loyalty to the Company or its shareholders or members; (ii) an act or omission
not in good faith that constitutes a breach of duty of the director to the
Company or an act or omission that involves intentional misconduct or a knowing
violation of the law; (iii) a transaction from which the director received an
improper benefit, whether or not the benefit resulted from an action taken with
the scope of the directors office; or (iv) an act or omission for which the
liability of a director is expressly provided by an applicable statute.
II-1
ITEM 21. EXHIBITS.
Exhibit No. Description
- ---------- -----------
3.1 (1) Articles of Incorporation of the Company, filed May 18, 1988,
and Articles of Amendment to Articles of Incorporation, filed
August 24, 1988 (Exhibit 3.1)
3.2 (1) Amendment to Articles of Incorporation, filed October 18, 1989
(Exhibit 3.2)
3.3 (4) Articles of Amendment to Articles of Incorporation of the
Company, filed November 12, 1992 (Exhibit 3.3)
3.4 (7) Bylaws of the Company, as amended (Exhibit 3.4)
3.5 (33) Amendment to Articles of Incorporation (Exhibit 3.5)
4.1 (3) Specimen stock certificate evidencing the Common Stock
(Exhibit 4.1)
4.2 (9) Rights Agreement, dated August 28, 1997, between the Company
and ChaseMellon Shareholder Services, L.L.C. (Exhibit 4.1)
4.2.1 (15) Amendment No. 1 to Rights Agreement, dated September 9, 1999,
between the Company and ChaseMellon Shareholder Services,
L.L.C. (Exhibit 4.1)
4.3 (14) Indenture, dated as of April 20, 1999, between AmeriCredit
Corp. and subsidiaries and Bank One, Columbus, NA, with form
of 9.875% Senior Notes due 2006 (Exhibit 4.3)
5.1 * Opinion of Jenkens & Gilchrist, a Professional Corporation
4.4 (33) Purchase Agreement, dated June 13, 2002, among AmeriCredit
Corp. and subsidiaries and the Initial Purchasers with respect
to 9 1/4 Senior Notes due 2009 (Exhibit 10.72)
10.1 (2) 1990 Stock Option Plan for Non-Employee Directors of the
Company (Exhibit 10.14)
10.2 (3) 1991 Key Employee Stock Option Plan of the Company (Exhibit
10.10)
10.3 (21) 2000 Limited Omnibus and Incentive Plan for AmeriCredit Corp.
10.4 (3) Executive Employment Agreement, dated January 30, 1991,
between the Company and Clifton H. Morris, Jr. (Exhibit 10.18)
10.4.1 (7) Amendment No. 1 to Executive Employment Agreement, dated May
1, 1997, between the Company and Clifton H. Morris, Jr.
(Exhibit 10.7.1)
10.4.2 (17) Amendment No. 2 to Executive Employment Agreement, dated June
15, 2000, between the Company and Clifton H. Morris, Jr.
(Exhibit 10.6.2)
10.5 (3) Executive Employment Agreement, dated January 30, 1991,
between the Company and Michael R. Barrington (Exhibit 10.19)
10.5.1 (7) Amendment No. 1 to Executive Employment Agreement, dated May
1, 1997, between the Company and Michael R. Barrington
(Exhibit 10.8.1)
10.6 (3) Executive Employment Agreement, dated January 30, 1991 between
the Company and Daniel E. Berce (Exhibit 10.20)
10.6.1 (7) Amendment No. 1 to Executive Employment Agreement, dated May
1, 1997, between the Company and Daniel E. Berce (Exhibit
10.9.1)
10.7 (7) Amended and Restated Employment Agreement, dated October 15,
1996, between the Company and Edward H. Esstman (Exhibit
10.10)
10.7.1 (7) Amendment No. 1 to Amended and Restated Employment Agreement,
dated May 1, 1997, between the Company and Edward H. Esstman
(Exhibit 10.10.1)
10.7.2 (22) Amendment No. 2 to Amended and Restated Employment Agreement,
dated August 7, 2001, between the Company and Edward H.
Esstman
10.8 (7) Amended and Restated Employment Agreement, dated July 1, 1997,
between the Company and Michael T. Miller (Exhibit 10.11)
10.8.1 (12) Amendment No. 1 to Amended and Restated Employment Agreement,
dated as of August 1, 1998, between the Company and Michael T.
Miller (Exhibit 10.10.1)
10.8.2 (17) Amendment No. 2 to Amended and Restated Employment Agreement,
dated as of October 1, 1999, between the Company and Michael
T. Miller (Exhibit 10.10.2)
10.9 (16) Security Agreement, dated as of September 30, 1999, among
Kitty Hawk Funding Corporation, AmeriCredit BOA Trust,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. II and Bank of America, N.A. (Exhibit 10.1)
10.9.1 (16) Note Purchase Agreement, dated as of September 30, 1999, among
AmeriCredit BOA Trust, Kitty Hawk Funding Corporation and Bank
of America, N.A. (Exhibit 10.2)
10.10 (33) Employment Agreement, dated July 1, 1997, between the Company
and Preston A. Miller (Exhibit 10.10)
10.10.1 (33) Amendment No. 1 to Employment Agreement, dated July 1, 1998,
between the Company and
II-2
Preston A. Miller (Exhibit 10.10.1)
10.11 (20) Marketing Representative Stock Option Plan of AmeriCredit
Corp.
10.12 (10) Indenture, dated February 4, 1997, between AmeriCredit Corp.
and subsidiaries and Bank One, Columbus, NA, with respect to
Series A and Series B 9 1/4% Senior Notes due 2004 (Exhibit
10.2)
10.13 (5) 1995 Omnibus Stock and Incentive Plan for AmeriCredit Corp.
10.13.1 (8) Amendment No. 1 to 1995 Omnibus Stock and Incentive Plan for
AmeriCredit Corp.
10.14 (6) 1996 Limited Stock Option Plan for AmeriCredit Corp.
10.14.1 (22) Amendment No. 1 to 1996 Limited Stock Option Plan for
AmeriCredit Corp. (Exhibit 10.14.1)
10.15 (11) Indenture, dated January 29, 1998, between AmeriCredit Corp.
and subsidiaries and Bank One, N.A., with respect to Series C
and Series D 9 1/4% Senior Notes due 2004 (Exhibit 10.24)
10.16 (13) 1998 Limited Stock Option Plan for AmeriCredit Corp.
10.16.1 (22) Amendment No. 1 to 1998 Limited Stock Option Plan for
AmeriCredit Corp. (Exhibit 10.16.1)
10.17 (26) 1999 Stock Option Plan of AmeriCredit Corp.
10.18 (17) Amended and Restated Servicing and Custodian Agreement, dated
as of August 31, 2000, between AmeriCredit Financial Services,
Inc., AmeriCredit Barclays Trust, Bank One, N.A., and Barclays
Bank, PLC (Exhibit 10.22)
10.18.1 (17) Amended and Restated Security Agreement, dated as of August
31, 2000, between AmeriCredit Financial Services, Inc.,
AmeriCredit Funding Corp. III, AmeriCredit Barclays Trust,
Sheffield Receivables Corporation, Barclays Bank, PLC, and
Bank One, N.A. (Exhibit 10.22.1)
10.18.2 (17) Note Purchase Agreement, dated as of June 30, 2000, between
the AmeriCredit Barclays Trust, AmeriCredit Financial
Services, Inc., Sheffield Receivables Corporation, and
Barclays Bank, PLC (Exhibit 10.22.2)
10.19 (27) FY 2000 Stock Option Plan of AmeriCredit Corp.
10.20 (18) Second Amendment to Security Agreement and Note Purchase
Agreement, dated as of September 27, 2000, by and among
AmeriCredit BOA Trust, AmeriCredit Financial Services, Inc.,
AmeriCredit Funding Corp. II, Kitty Hawk Funding Corporation,
and Bank of America, N.A. (Exhibit 10.1)
10.21 (28) i4 Gold Stock Option Program
10.22 (18) Sale and Servicing Agreement, dated as of September 14, 2000,
among AmeriCredit Manhattan Trust, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. V, and The Chase
Manhattan Bank (Exhibit 10.3)
10.23 (18) Security and Funding Agreement, dated as of September 14,
2000, by and among AmeriCredit Manhattan Trust, The Chase
Manhattan Bank, and the several Secured Parties and Funding
Agents party thereto (Exhibit 10.4)
10.24 (19) Servicing and Custodian Agreement, dated as of December 18,
2000, by and among AmeriCredit MTN Receivables Trust,
AmeriCredit Financial Services, Inc., AmeriCredit MTN Corp.,
and The Chase Manhattan Bank (Exhibit 10.1)
10.25 (19) Security Agreement, dated as of December 18, 2000, by and
among AmeriCredit MTN Receivables Trust, AmeriCredit Financial
Services, Inc., AmeriCredit MTN Corp., and The Chase Manhattan
Bank (Exhibit 10.2)
10.26 (19) Master Receivables Purchase Agreement, dated as of December
18, 2000, by and among AmeriCredit MTN Receivables Trust,
AmeriCredit Financial Services, Inc., AmeriCredit MTN Corp.,
and The Chase Manhattan Bank (Exhibit 10.3)
10.27 (29) Management Stock Option Plan of AmeriCredit Corp.
10.28 (22) Amendment No. 1, dated as of March 30, 2001, to the Sale and
Servicing Agreement, by and among AmeriCredit Manhattan Trust,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. V, and The Chase Manhattan Bank (Exhibit 10.28)
10.29 (22) Amended and Restated Security and Funding Agreement, dated as
of March 30, 2001, by and among AmeriCredit Manhattan Trust,
The Chase Manhattan Bank and the several secured parties and
funding agents party thereto (Exhibit 10.29)
10.30 (22) Amendment No. 2, dated as of April 27, 2001, to the Sale and
Servicing Agreement, by and among AmeriCredit Manhattan Trust,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. V and The Chase Manhattan Bank (Exhibit 10.30)
10.31 (22) Second Amended and Restated Security and Funding Agreement,
dated as of April 27, 2001, by and among AmeriCredit Manhattan
Trust, The Chase Manhattan Bank and the several secured
II-3
parties and funding agents party thereto (Exhibit 10.31)
10.32 (22) Third Amendment to Security Agreement and Termination
Agreement, dated as of May 15, 2001, by and among AmeriCredit
BOA Trust, AmeriCredit Financial Services, Inc., AmeriCredit
Funding Corp. II, Kitty Hawk Funding Corporation, and Bank of
America, N.A. (Exhibit 10.32)
10.33 (22) Sale and Servicing Agreement, dated as of May 31, 2001 among
AmeriCredit One Trust, AmeriCredit Financial Services, Inc.,
AmeriCredit Funding Corp. VI, and Bank One, N.A. (Exhibit
10.33)
10.34 (22) Security and Funding Agreement, dated as of May 31, 2001, by
and among AmeriCredit One Trust, Bank One, N.A. and the
several secured parties party thereto (Exhibit 10.34)
10.35 (30) AmeriCredit Corp. Employee Stock Purchase Plan
10.35.1 (31) Amendment No. 1 to AmeriCredit Corp. Employee Stock Purchase
Plan
10.35.2 (32) Amendment No. 2 to AmeriCredit Corp. Employee Stock Purchase
Plan
10.36 (22) Master Receivables Purchase Agreement, dated as of June 12,
2001, among AmeriCredit MTN Receivables Trust II, The Chase
Manhattan Bank, and AmeriCredit Financial Services, Inc.
(Exhibit 10.36)
10.37 (22) Servicing and Custodian Agreement, dated as of June 12, 2001,
by and among AmeriCredit MTN Receivables Trust II, AmeriCredit
Financial Services, Inc., and The Chase Manhattan Bank
(Exhibit 10.37)
10.38 (22) Security Agreement, dated as of June 12, 2001, by and among
AmeriCredit MTN Receivables Trust II, AmeriCredit Financial
Services, Inc., AmeriCredit MTN Corp. II, and The Chase
Manhattan Bank (Exhibit 10.38)
10.39 (33) Termination Agreement, dated as of May 10, 2002, concerning
the Security and Funding Agreement, dated as of May 31, 2001,
by and among AmeriCredit One Trust, Bank One, NA (Main Office
Chicago), Bank One, NA (Main Office Columbus), and Securities
Intermediary, and the several secured parties party thereto
(Exhibit 10.39)
10.40 (22) Amendment No. 1, dated as of June 27, 2001, to the Amended and
Restated Security Agreement, by and among AmeriCredit Barclays
Trust, AmeriCredit Financial Services, Inc., AmeriCredit
Funding Corp. III, Sheffield Receivables Corporation, and Bank
One, N.A. (Exhibit 10.40)
10.41 (22) Construction Loan Agreement, dated as of June 29, 2001,
between ACF Investment Corp. and Wells Fargo Bank, National
Association (Exhibit 10.41)
10.42 (23) Amendment No. 3, dated as of September 28, 2001, to the Sale
and Servicing Agreement, dated as of September 14, 2000, by
and among AmeriCredit Manhattan Trust, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. V, and The Chase
Manhattan Bank (Exhibit 10.1)
10.43 (23) Amendment No. 1, dated as of September 28, 2001, to the Second
Amended and Restated Security and Funding Agreement, dated as
of April 27, 2001, by and among AmeriCredit Manhattan Trust,
The Chase Manhattan Bank and the several secured parties and
funding agents party thereto from time to time (Exhibit 10.2)
10.44 (23) Fourth Amendment to Security Agreement and Note Purchase
Agreement, dated as of September 26, 2001, to the Security
Agreement and Note Purchase Agreement, dated as of September
30, 1999, by and among AmeriCredit BOA Trust, AmeriCredit
Financial Services, Inc., AmeriCredit Funding Corp. II, Kitty
Hawk Funding Corporation, and Bank of America, N.A. (Exhibit
10.3)
10.45 (23) Credit Agreement, dated as of August 23, 2001, between
AmeriCredit Financial Services of Canada Ltd., AmeriCredit
Financial Services, Inc., and Merrill Lynch Capital Canada
Inc. (Exhibit 10.4)
10.46 (23) Security Agreement, dated as of August 23, 2001, between
AmeriCredit Financial Services of Canada Ltd. and Merrill
Lynch Capital Canada Inc. (Exhibit 10.5)
10.47 (33) Agreement dated May 22, 2002 to extend maturity date of that
Construction Loan Agreement dated June 29, 2001, between ACF
Investment Corp. and Wells Fargo Bank, N.A. (Exhibit 10.47)
10.48 (24) Credit Agreement, dated as of November 1, 2001, between
AmeriCredit ML Trust, AmeriCredit Financial Services, Inc.,
and Merrill Lynch Mortgage Capital Inc., AmeriCredit Funding
Corp. VIII, Bank One, NA, and AmeriCredit Corp. (Exhibit 10.1)
10.49 (24) Security Agreement, dated as of November 1, 2001, between
AmeriCredit ML Trust and Merrill Lynch Mortgage Capital Inc.
(Exhibit 10.2)
II-4
10.50 (24) Amendment No. 1, dated as of November 12, 2001, to the Credit
Agreement, dated as of August 23, 2001, by and among
AmeriCredit Financial Services of Canada Ltd., AmeriCredit
Financial Services, Inc., and Merrill Lynch Capital Canada
Inc. (Exhibit 10.3)
10.51 (25) Amendment No. 2, dated as of February 1, 2002, to the Credit
Agreement, dated as of August 23, 2001, between AmeriCredit
Financial Services of Canada Ltd., AmeriCredit Financial
Services, Inc., and Merrill Lynch Capital Canada Inc. (Exhibit
10.1)
10.52 (25) Amended and Restated Sale and Servicing Agreement, dated as of
February 22, 2002, among AmeriCredit Master Trust, AmeriCredit
Funding Corp. VII, AmeriCredit Financial Services, Inc., and
Bank One, NA (Exhibit 10.2)
10.53 (25) Annex A to the Amended and Restated Sale and Servicing
Agreement, dated as of February 22, 2002, among AmeriCredit
Master Trust, AmeriCredit Funding Corp. VII, AmeriCredit
Financial Services, Inc., and Bank One, NA (Exhibit 10.3)
10.54 (25) Amended and Restated Indenture, dated as of February 22, 2002,
among AmeriCredit Master Trust, Bank One, NA, and Bankers
Trust Company (Exhibit 10.4)
10.55 (25) Master Receivables Purchase Agreement, dated as of February
25, 2002, among AmeriCredit MTN Receivables Trust III,
JPMorgan Chase Bank, AmeriCredit MTN Corp. III, and
AmeriCredit Financial Services, Inc. (Exhibit 10.5)
10.56 (25) Servicing and Custodian Agreement, dated as of February 25,
2002, between AmeriCredit Financial Services, Inc.,
AmeriCredit MTN Receivables Trust III, and JPMorgan Chase Bank
(Exhibit 10.6)
10.57 (25) Security Agreement, dated as of February 25, 2002, by and
among AmeriCredit MTN Receivables Trust III, AmeriCredit
Financial Services, Inc., AmeriCredit MTN Corp. III, and
JPMorgan Chase Bank (Exhibit 10.7)
10.58 (25) Amendment No. 3, dated as of March 8, 2002, to the Amended and
Restated Security Agreement, dated as of August 31, 2000, by
and among AmeriCredit Barclays Trust, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. III, Sheffield
Receivables Corporation, and Bank One, NA (Exhibit 10.8)
10.59 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class A-1 Note Purchase Agreement dated as of
February 22, 2002, among Bank One, NA, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. VII, AmeriCredit
Master Trust, and Deutsche Bank Trust Company Americas,
formerly known as Bankers Trust Company (Exhibit 10.59)
10.60 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class A-1 Note Purchase Agreement dated as of
February 22, 2002, among Jupiter Securitization Corporation,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. VII, AmeriCredit Master Trust, Bank One, NA, and
Deutsche Bank Trust Company Americas, formerly known as
Bankers Trust Company (Exhibit 10.60)
10.61 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class A-2 Note Purchase Agreement dated as of
February 22, 2002, among Bank One, NA, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. VII, AmeriCredit
Master Trust, and Deutsche Bank Trust Company Americas,
formerly known as Bankers Trust Company (Exhibit 10.61)
10.62 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class A-2 Note Purchase Agreement dated as of
February 22, 2002, among Jupiter Securitization Corporation,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. VII, AmeriCredit Master Trust, Bank One, NA, and
Deutsche Bank Trust Company Americas, formerly known as
Bankers Trust Company (Exhibit 10.62)
10.63 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class B Note Purchase Agreement dated as of
February 22, 2002, among Bank One, NA, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. VII, AmeriCredit
Master Trust, and Deutsche Bank Trust Company Americas,
formerly known as Bankers Trust Company (Exhibit 10.63)
10.64 (33) Joinder Supplement, dated as of May 10, 2002, to the Amended
and Restated Class B Note Purchase Agreement dated as of
February 22, 2002, among Jupiter Securitization Corporation,
AmeriCredit Financial Services, Inc., AmeriCredit Funding
Corp. VII, AmeriCredit Master Trust, Bank One, NA, and
Deutsche Bank Trust Company Americas, formerly known as
II-5
Bankers Trust Company (Exhibit 10.64)
10.65 (33) Loan Agreement, dated as of April 30, 2002, among Congress
Financial Corporation (Canada), AmeriCredit Canada Funding
Trust I, CIBC Mellon Trust Company and AmeriCredit Financial
Services of Canada Ltd. (Exhibit 10.65)
10.66 (33) Security Agreement, dated as of April 30, 2002, among Congress
Financial Corporation (Canada), AmeriCredit Canada Funding
Trust I, CIBC Mellon Trust Company and AmeriCredit Financial
Services of Canada Ltd. (Exhibit 10.66)
10.67 (33) Servicing and Custodian Agreement, dated as of April 30, 2002,
among Congress Financial Corporation (Canada), AmeriCredit
Canada Funding Trust I, CIBC Mellon Trust Company, AmeriCredit
Financial Services of Canada Ltd. and AmeriCredit Financial
Services, Inc. (Exhibit 10.67)
10.68 (33) Pooling and Servicing Agreement, dated as of May 17, 2002,
between AmeriCredit Canada 2002-A Corp., Merrill Lynch
Financial Assets Inc., AmeriCredit Financial Services of
Canada Ltd., Bank One, NA, and The Trust Company of Bank of
Montreal (Exhibit 10.68)
10.69 (33) Seller's Representation and Indemnity Covenant, dated as of
May 10, 2002, among AmeriCredit Financial Services of Canada
Ltd., AmeriCredit Corp., Merrill Lynch Financial Assets Inc.
and Merrill Lynch Canada Inc. (Exhibit 10.69)
10.70 (33) Letter of Credit Reimbursement Agreement, dated as of June 7,
2002, by and among AmeriCredit Corp., AmeriCredit Financial
Services, Inc. and Deutsche Bank, AG (Exhibit 10.70)
10.71 (33) Indenture, dated June 19, 2002, between AmeriCredit Corp. and
subsidiaries and Bank One, NA, with respect to 9 1/4% Senior
Notes due 2009 (Exhibit 10.71)
10.72 (33) Registration Rights Agreement, dated June 19, 2002, among
AmeriCredit Corp. and subsidiaries and the Initial Purchasers
with respect to 9 1/4 Senior Notes due 2009 (Exhibit 10.73)
10.73 (33) Letter Agreement, dated September 14, 2002, between
AmeriCredit Corp. and Financial Security Assurance Inc. with
forbearance concerning certain delinquency ratios (Exhibit
10.74)
10.74 * Credit Agreement, dated August 15, 2002, among AFS Funding
Corp. and AFS SenSub Corp., as Borrowers, AmeriCredit Corp.
and AmeriCredit Financial Services, Inc., as Contingent
Obligors, the Financial Institutions from time to time party
thereto, as Lenders, Deutsche Bank AG, New York Branch, as an
Agent, the Other Agents from time to time party thereto, and
Deutsche Bank Trust Company Americas, as Lender Collateral
Agent and as Administrative Agent.
10.75 * Master Collateral and Intercreditor Agreement, dated August
15, 2002, among Deutsche Bank Trust Company Americas, as
Revolver Collateral Agent and as Revolver Administrative Agent
and as Master Collateral Agent, the Facility Representatives
from time to time party thereto, AFS Funding Corp. and AFS
SenSub Corp., as Borrowers, and AmeriCredit Financial
Services, Inc.
10.76 * Revolver Security and Collateral Agreement, dated August 15,
2002, among Deutsche Bank Trust Company Americas, as
Administrative Agent and as Lender Collateral Agent,
AmeriCredit Financial Services, Inc., and AFS Funding Corp.
and AFS SenSub Corp., as Borrowers.
10.77 * Amendment No. 4, dated as of September 27, 2002, to the Sale
and Servicing Agreement, dated as of September 14, 2000, by
and among AmeriCredit Manhattan Trust, AmeriCredit Financial
Services, Inc., AmeriCredit Funding Corp. V, and The Chase
Manhattan Bank.
10.78 * Amendment No. 2, dated as of September 27, 2002, to the Second
Amended and Restated Security and Funding Agreement, dated as
of April 27, 2001, by and among AmeriCredit Manhattan Trust,
The Chase Manhattan Bank and the several secured parties and
funding agents party thereto from time to time.
10.79 * Agreement, dated September 23, 2002, to extend maturity date
of that certain Construction Loan Agreement dated June 29,
2001, between ACF Investment Corp. and Wells Fargo Bank, N.A.
10.80 * Letter Agreement, dated July 22, 2002, to extend maturity date
of that certain Credit Agreement, dated as of August 2, 2001,
between AmeriCredit Financial Services of Canada Ltd.,
AmeriCredit Financial Services, Inc., and Merrill Lynch
Capital Canada Inc.
11.1 (33) Statement Re Computation of Per Share Earnings (Exhibit 13.1)
12.1 (33) Statement Re Computation of Ratios (Exhibit 12.1)
II-6
13.1 (33) 2002 Annual Report to Shareholders of the Company (Exhibit
13.1)
21.1 (33) Subsidiaries of the Registrant (Exhibit 21.1)
23.1 * Consent of Independent Accountants
23.2 * Consent of Jenkens & Gilchrist, a Professional Corporation
(included in Exhibit 5.1 hereof)
24.1 * Powers of attorney (included in the signature page of this
Registration Statement)
25.1 * Statement of Eligibility under the Trust Indenture Act of 1939
on Form T-1
(1) Incorporated by referenced to the exhibit shown in parenthesis included
in Registration Statement No. 33-31220 on Form S-1 filed by the Company
with the Securities and Exchange Commission.
(2) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
1990, filed by the Company with the Securities and Exchange Commission.
(3) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
1991, filed by the Company with the Securities and Exchange Commission.
(4) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
1993, filed by the Company with the Securities and Exchange Commission.
(5) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1995, filed by the Company with the Securities and
Exchange Commission.
(6) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1996, filed by the Company with the Securities and
Exchange Commission.
(7) Incorporated by reference to exhibit shown in parenthesis included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1997,
filed by the Company with the Securities and Exchange Commission.
(8) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1997, filed by the Company with the Securities and
Exchange Commission.
(9) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Report on Form 8-K, dated August 28, 1997, filed by the
Company with the Securities and Exchange Commission.
(10) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997, filed by the Company with the Securities and
Exchange Commission.
(11) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-4, dated March 26, 1998,
filed by the Company with the Securities and Exchange Commission.
(12) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
1998, filed by the Company with the Securities and Exchange Commission.
(13) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 1998, filed by the Company with the Securities and
Exchange Commission.
(14) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-4, dated June 15, 1999,
filed by the Company with the Securities and Exchange Commission.
(15) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Report on Form 8-K, dated September 7, 1999, filed by the
Company with the Securities and Exchange Commission.
(16) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 1999, filed by the Company with the Securities and
Exchange Commission.
(17) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
2000, filed by the Company with the Securities and Exchange Commission.
(18) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2000, filed by the Company with the Securities and
Exchange Commission.
II-7
(19) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2000, filed by the Company with the Securities and
Exchange Commission.
(20) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-3, filed on January 1,
1995, as amended by Amendment No. 1 to Form S-3 filed April 7, 1995, by
the Company with the Securities and Exchange Commission (Exhibit 4.3)
(21) Incorporated by reference from the Company's Proxy Statement for the year
ended June 30, 2000, filed by the Company with the Securities and
Exchange Commission.
(22) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
2001, filed by the Company with the Securities and Exchange Commission.
(23) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2001, filed by the Company with the Securities and
Exchange Commission.
(24) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended December 31, 2001, filed by the Company with the Securities and
Exchange Commission.
(25) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 2002, filed by the Company with the Securities and
Exchange Commission.
(26) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on March 1, 1999,
by the Company with the Securities and Exchange Commission (Exhibit 4.4)
(27) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on October 29,
1999, by the Company with the Securities and Exchange Commission (Exhibit
4.4)
(28) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on July 31, 2001,
by the Company with the Securities and Exchange Commission (Exhibit 4.4)
(29) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on February 23,
2000, by the Company with the Securities and Exchange Commission (Exhibit
4.4)
(30) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on November 16,
1994, by the Company with the Securities and Exchange Commission (Exhibit
4.3)
(31) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on March 1, 1999,
by the Company with the Securities and Exchange Commission (Exhibit
4.4.1)
(32) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Registration Statement on Form S-8, filed on November 7,
2001, by the Company with the Securities and Exchange Commission (Exhibit
4.4.2)
(33) Incorporated by reference to the exhibit shown in parenthesis included in
the Company's Annual Report on Form 10-K for the year ended June 30,
2002, filed by the Company with the Securities and Exchange Commission.
* Filed herewith.
II-8
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual reports pursuant to section 13(a) or section 15(d) of the
Securities and Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities and Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 2, 2002.
AMERICREDIT CORP.
By: /s/ Michael R. Barrington
------------------------------------
Michael R. Barrington
Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Clifton H. Morris, Jr. Executive Chairman of the Board October 2, 2002
- ---------------------------
Clifton H. Morris, Jr.
/s/ Michael R. Barrington Vice Chairman of the Board, President and Chief October 2, 2002
- --------------------------- Executive Officer (Principal Executive Officer)
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman of the Board and Chief Financial October 2, 2002
- --------------------------- Officer (Principal Financial and Accounting
Daniel E. Berce Officer)
/s/ Edward H. Esstman Vice Chairman of the Board October 2, 2002
- ---------------------------
Edward H. Esstman
/s/ A.R. Dike Director October 2, 2002
- ---------------------------
A.R. Dike
/s/ James H. Greer Director October 2, 2002
- ---------------------------
James H. Greer
/s/ Douglas K. Higgins Director October 2, 2002
- ---------------------------
Douglas K. Higgins
/s/ Kenneth H. Jones. Jr. Director October 2, 2002
- ---------------------------
Kenneth H. Jones, Jr.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT FINANCIAL SERVICES, INC.
By: /s/ Michael R. Barrington
------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael R. Barrington Vice Chairman and Executive October 8, 2002
- --------------------------- Officer
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman and Chief Financial October 8, 2002
- --------------------------- Officer
Daniel E. Berce
/s/ Michael T. Miller Executive Vice President, Chief October 8, 2002
- --------------------------- Operating Officer
Michael T. Miller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT CORPORATION OF CALIFORNIA
By: /s/ Michael R. Barrington
------------------------------------
Michael R. Barrington
Vice Chairman of the Board
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Clifton H. Morris, Jr. Executive Chairman of the Board October 8, 2002
- ---------------------------
Clifton H. Morris
/s/ Michael R. Barrington Vice Chairman and Chief October 8, 2002
- --------------------------- Executive Officer
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman and Chief Financial October 8, 2002
- --------------------------- Officer
Daniel E. Berce
/s/ Robert J. Frye Executive Vice President October 8, 2002
- ---------------------------
Robert J. Frye
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
ACF INVESTMENT CORP.
By: /s/ Michael R. Barrington
------------------------------------
Michael R. Barrington
Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael R. Barrington Vice Chairman, Chief Executive October 8, 2002
- --------------------------- Officer and President
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman and Chief Financial October 8, 2002
- --------------------------- Officer
Daniel E. Berce
/s/ Michael T. Miller Executive Vice President, Chief October 8, 2002
- --------------------------- Operating Officer
Michael T. Miller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT MANAGEMENT COMPANY
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Vice Chairman of the Board,
Chief Operating Officer and President
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Michael R. Barrington Vice Chairman, Chief Executive October 8, 2002
- --------------------------- Officer and President
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman and Chief Financial October 8, 2002
- --------------------------- Officer
Daniel E. Berce
/s/ Michael T. Miller Executive Vice President, Chief October 8, 2002
- --------------------------- Operating Officer
Michael T. Miller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT CONSUMER DISCOUNT COMPANY
By: /s/ Michael R. Barrington
-------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Michael R. Barrington Chairman of the Board, Chief October 8, 2002
- --------------------------- Executive Officer and President
Michael R. Barrington
/s/ Daniel E. Berce Vice Chairman and Chief Financial October 8, 2002
- --------------------------- Officer
Daniel E. Berce
/s/ Michael T. Miller Executive Vice President, Chief October 8, 2002
- --------------------------- Operating Officer
Michael T. Miller
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT SERVICE CENTER LTD.
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Michael R. Barrington Chief Executive Officer October 8, 2002
- ---------------------------
Michael R. Barrington
/s/ Dean R. Mackey Vice President October 8, 2002
- ---------------------------
Dean R. Mackey
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT FLIGHT OPERATIONS, LLC
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Daniel E. Berce President October 8, 2002
- -------------------
Daniel E. Berce
/s/ Chris A. Choate Secretary October 8, 2002
- -------------------
Chris A. Choate
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT NS I CO.
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Michael R. Barrington Chief Executive Officer October 8, 2002
- ---------------------------
Michael R. Barrington
/s/ Daniel E. Berce Chief Financial Officer October 8, 2002
- ---------------------------
Daniel E. Berce
/s/ Chris A. Choate Executive Vice President, Chief October 8, 2002
- --------------------------- Legal Officer and Secretary
Chris A. Choate
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT NS II CO.
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Vice Chairman of the Board and
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Michael R. Barrington Chief Executive Officer October 8, 2002
- ---------------------------
Michael R. Barrington
/s/ Daniel E. Berce Chief Financial Officer October 8, 2002
- ---------------------------
Daniel E. Berce
/s/ Chris A. Choate Executive Vice President, Chief October 8, 2002
- --------------------------- Legal Officer and Secretary
Chris A. Choate
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Company has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of Tarrant,
State of Texas on October 8, 2002.
AMERICREDIT FINANCIAL SERVICES OF
CANADA LTD.
By: /s/ Michael R. Barrington
--------------------------------------
Michael R. Barrington
Chief Executive Officer
Each individual whose signature appears below hereby designates and
appoints Michael R. Barrington, Daniel E. Berce, Chris A. Choate, and each of
them, any one of whom may act without the joinder of the other, as such person's
true and lawful attorney-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, which
amendments may make such changes in this Registration Statement as any
Attorney-in-Fact deems appropriate, and any registration statement relating to
the same offering filed pursuant to Rule 462(b) under the Securities Act of 1933
and requests to accelerate the effectiveness of such registration statements,
and to file each such amendment with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such Attorneys-in-Fact and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as such person might or
could do in person, hereby ratifying and confirming all that such
Attorney's-in-Fact or either of them, or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
their capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- -----
/s/ Michael R. Barrington Chief Executive Officer October 8, 2002
- ---------------------------
Michael R. Barrington
/s/ Dean R. Mackey Vice President October 8, 2002
- ---------------------------
Dean R. Mackey