Filed Pursuant to Rule 424(b)(5)
File Nos. 333-53130
333-53130-01
333-53130-02
Prospectus Supplement
(To Prospectus dated May 15, 2001)
Conseco Private Label Credit Card Master Note Trust
[Conseco Logo] Issuer
Conseco Bank, Inc.
Transferor and Servicer
Conseco Finance Credit Card Funding Corp.
Transferor
$530,000,000 Class A Series 2001-A Floating Rate Asset Backed Notes
$72,000,000 Class B Series 2001-A Floating Rate Asset Backed Notes
Class A notes Class B notes
---------------------------- ---------------------------
Principal amount $530,000,000 $72,000,000
Interest rate One-Month LIBOR One-Month LIBOR
plus 0.28% per year plus 0.90% per year
Interest payment dates Monthly on the 15th Monthly on the 15th
beginning July 16, 2001 beginning July 16, 2001
Expected principal
payment date May 17, 2004 May 17, 2004
Final maturity date December 15, 2008 November 16, 2009
Price to public $529,404,715 (or 99.887682%) $71,899,867 (or 99.860926%)
Underwriting discount $ 1,855,000 (or 0.35%) $ 252,000 (or 0.35%)
Proceeds to issuer $527,549,715 (or 99.537682%) $71,647,867 (or 99.510926%)
The Class B notes are subordinated to the Class A notes.
The trust is also issuing Class C notes in the amount of $78,826,000 and Class
D notes in the amount of $35,830,000. The Class C notes are subordinated to the
Class A notes and the Class B notes. The Class D notes are subordinated to the
Class A notes, the Class B notes and the Class C notes. In addition, a cash
collateral account in the amount of $35,832,800 will be provided as credit
enhancement for the Class A, Class B, Class C and Class D notes.
The primary assets of the trust are receivables in private label credit card
accounts.
We expect to issue your series of notes on or about May 31, 2001.
You should consider carefully the risk factors beginning on page S-14 in
this prospectus supplement and on page 9 of the accompanying prospectus.
A note is not a deposit and neither the notes nor the underlying accounts or
receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Conseco Private Label Credit Card Master Note
Trust only and are not obligations of Conseco Finance Credit Card Funding
Corp., Conseco Bank, Inc., Conseco Finance Servicing Corp., Green Tree
Retail Services Bank, Inc., Conseco Finance Corp. or any other person. The
notes are payable only from the assets of the trust.
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus
supplement or the prospectus is truthful, accurate or complete. Any
representation to the contrary is a criminal offense.
Credit Suisse First Boston
Banc One Capital Markets, Inc.
Lehman Brothers
The date of this prospectus supplement is May 15, 2001
Important Notice about Information Presented in This
Prospectus Supplement and the Accompanying Prospectus
We provide information to you about the notes in two separate documents:
(1) this prospectus supplement, which describes the specific terms of your
series of notes, and (2) the accompanying prospectus, which provides general
information, some of which may not apply to your series of notes.
You should rely only on the information provided in this prospectus
supplement and the accompanying prospectus, including the information
incorporated by reference. We have not authorized anyone to provide you with
different information. We are not offering the notes in any state where the
offer is not permitted.
We include cross references in this prospectus supplement and the
accompanying prospectus to captions in these materials where you can find
further related discussions. The following Table of Contents and the Table of
Contents in the accompanying prospectus provide the pages on which these
captions are located.
Note on forward-looking statements: All statements, trend analyses and
other information contained in this prospectus supplement and prospectus and
elsewhere (such as in filings by Conseco Finance with the Securities and
Exchange Commission, press releases, presentations by Conseco Finance, its
affiliates or its management or oral statements) relative to markets for
Conseco Finance's products and trends in Conseco Finance's operations, the
Conseco private label credit card business, the Conseco private label
portfolio, the trust portfolio or financial results or performance, as well as
other statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," "should," "could," "goal," "target," "on
track," "comfortable with" and other similar expressions, constitute forward-
looking statements under the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors which may cause actual results to be materially
different from those contemplated by the forward-looking statements.
S-2
Table of Contents
Page
----
Transaction Summary....................................................... S-5
Prospectus Supplement Summary............................................. S-6
The Issuer............................................................... S-6
The Receivables.......................................................... S-6
Private Label Program.................................................... S-6
The Series 2001-A Notes.................................................. S-6
Interest................................................................ S-6
Principal............................................................... S-7
Credit Enhancement....................................................... S-7
Subordination........................................................... S-7
Cash Collateral Account................................................. S-8
Spread Account.......................................................... S-8
Class C Notes and Class D Notes.......................................... S-8
Series 2001-B............................................................ S-8
Amortization Events...................................................... S-9
Other Interests in the Trust............................................. S-9
Other Series of Notes................................................... S-9
The Transferors' Interest............................................... S-10
Allocations of Collections............................................... S-10
Groups................................................................... S-10
Excess Finance Charge Sharing Group One................................. S-10
Principal Sharing Group One............................................. S-10
Application of Collections............................................... S-11
Finance Charge Collections.............................................. S-11
Principal Collections................................................... S-11
Optional Redemption...................................................... S-12
Denominations............................................................ S-12
Registration, Clearance and Settlement................................... S-12
Material Federal Income Tax Consequences................................. S-13
ERISA Considerations..................................................... S-13
Risk Factors............................................................. S-13
Exchange Listing......................................................... S-13
Additional Information................................................... S-13
Risk Factors.............................................................. S-14
Maturity Considerations................................................... S-16
The Glossary.............................................................. S-17
Page
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The Originators, The Transferors, The Servicer and Conseco Finance
Corp. .................................................................. S-17
Green Tree Retail Services Bank, Inc. ................................... S-17
Conseco Bank, Inc. ...................................................... S-17
General................................................................. S-17
Recent Regulatory Developments. ........................................ S-18
Conseco Finance Credit Card Funding Corp. ............................... S-18
Conseco Finance Servicing Corp. ......................................... S-19
Conseco Finance Corp. ................................................... S-19
General................................................................. S-19
Restructuring........................................................... S-20
Litigation Matters...................................................... S-21
The Conseco Private Label Portfolio....................................... S-22
Types of Accounts........................................................ S-22
Merchants in the Conseco Program......................................... S-22
Portfolio Experience..................................................... S-24
Growth and Changes in the Portfolio..................................... S-24
Loss and Delinquency Experience......................................... S-25
Revenue Experience...................................................... S-28
Discount Option......................................................... S-29
Payment Rates........................................................... S-29
The Trust Portfolio....................................................... S-30
Use of Proceeds........................................................... S-36
Description of Series Provisions.......................................... S-36
General.................................................................. S-36
Interest Payments........................................................ S-36
Principal Payments....................................................... S-38
Revolving Period........................................................ S-38
Controlled Accumulation Period.......................................... S-38
Postponement of Controlled Accumulation Period.......................... S-39
S-3
Page
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Early Amortization Period............................................... S-40
Principal Funding Account............................................... S-41
Reserve Account......................................................... S-41
Principal Sharing Group One............................................. S-44
Paired Series........................................................... S-44
Subordination............................................................ S-44
Events of Default........................................................ S-45
Amortization Events...................................................... S-45
Allocation Percentages................................................... S-47
Application of Collections............................................... S-47
Payment of Interest, Fees and Other Items............................... S-47
Payments of Principal................................................... S-49
Excess Finance Charge Sharing Group One.................................. S-50
Subordinated Principal Collections....................................... S-50
Page
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Defaulted Receivables; Investor Charge-Offs............................... S-50
Cash Collateral Account................................................... S-51
Spread Account............................................................ S-51
Spread Account Distributions.............................................. S-54
Servicing Compensation and Payment of Expenses............................ S-54
Administration Fee........................................................ S-55
Reports To Noteholders.................................................... S-55
Covenant Concerning Reaging of Accounts................................... S-55
ERISA Considerations....................................................... S-56
Underwriting............................................................... S-58
Legal Matters.............................................................. S-61
Glossary................................................................... S-62
Annex I Other Series Issued And Outstanding................................ i
S-4
TRANSACTION SUMMARY
Conseco Private Label Credit Card Master Note
Trust: Trust
Conseco Bank, Inc. and Conseco Finance Credit
Transferors: Card Funding Corp.
Originators: Conseco Bank, Inc., Green Tree Retail Services
Bank, Inc. and Conseco Finance Servicing Corp.
Servicer: Conseco Bank, Inc.
Indenture Trustee: U.S. Bank Trust National Association
Owner Trustee: Wilmington Trust Company
Closing Date: May 31, 2001
Clearance and Settlement: DTC/Clearstream/Euroclear
Primary Trust Assets: Receivables in private label credit card accounts
Annual Servicing Fee Rate: 2.0%
Monthly Administration Fee: $100
Principal Sharing Group: Group One
Excess Finance Charge
Sharing Group: Group One
Note Structure Amount % of Total Series
Class A $530,000,000 73.95%
Class B $ 72,000,000 10.05%
Class C $ 78,826,000 11.00%
Class D $ 35,830,000 5.00%
Class A Class B Class C Class D
------- ------- ------- -------
Anticipated Ratings: Aaa/AAA/AAA A1/A/A Baa2/BBB/BBB Not Rated
Moody's/Standard &
Poor's/Fitch
Offered by this Yes Yes No No
document:
Credit Enhancement: subordination of subordination of subordination of cash collateral
Class B, Class C Class C and Class D and cash account and
and Class D and Class D and cash collateral account spread account
cash collateral collateral account and spread account
account
Interest Rate: One-Month One-Month One-Month One-Month
LIBOR plus LIBOR plus LIBOR plus LIBOR plus
0.28% per year 0.90% per year 1.75% per year* 6.50% per year*
Interest Accrual Method: actual/360 actual/360 actual/360 actual/360
Interest Payment Dates: monthly (15th) monthly (15th) monthly (15th) monthly (15th)
Interest Rate Index 2 London business 2 London business 2 London business 2 London business
Reset Date: days before each days before each days before each days before each
interest payment interest payment interest payment interest payment
date date date date
First Interest Payment July 16, 2001 July 16, 2001 July 16, 2001 July 16, 2001
Date:
Expected Principal
Payment Date: May 17, 2004 May 17, 2004 May 17, 2004 May 17, 2004
Commencement of
Accumulation Period May 1, 2003 May 1, 2003 May 1, 2003 May 1, 2003
(subject to
adjustment):
Final Maturity Date: December 15, 2008 November 16, 2009 November 16, 2009 November 16, 2009
- --------
* The interest rate on the Class C notes and the Class D notes may be adjusted
as described in this prospectus supplement.
The Class C notes and the Class D notes will be placed initially with the
transferors or an affiliate of the transferors. The Class C notes and the Class
D notes are not offered by this prospectus supplement and the accompanying
prospectus.
S-5
Prospectus Supplement Summary
This summary highlights information about the notes and does not contain
all of the information that you need to consider in making your investment
decision. You should carefully read this entire document and the accompanying
prospectus before you purchase any notes.
The Issuer
The Series 2001-A notes will be issued by Conseco Private Label Credit Card
Master Note Trust, a Delaware business trust, under an indenture and Series
2001-A supplement to the indenture, each among the trust, the indenture trustee
and the servicer.
The indenture trustee is U.S. Bank Trust National Association.
The Receivables
The following information is as of March 31, 2001 and relates to those
accounts which will be included in the trust on the closing date:
. Total receivables: $1,410,390,326.10
. Number of accounts: 2,628,711
For more information, see "The Trust Portfolio" in this prospectus
supplement.
Private Label Program
As of March 31, 2001, the Conseco private label portfolio included
approximately 37 programs. These programs include programs for specific
merchants, programs sponsored by a specific manufacturer or distributor and
programs developed by Conseco Finance for financing specific types of purchases
such as recreational vehicles or musical instruments.
The Series 2001-A Notes
The Series 2001-A notes include four classes. The Class A notes and the
Class B notes are offered by this prospectus supplement and the accompanying
prospectus. The Class C notes and the Class D notes are being placed initially
with the transferors or an affiliate of the transferors and are not offered by
this document.
Interest
The Class A notes will bear interest at one-month LIBOR as determined each
month plus 0.28% per annum.
The Class B notes will bear interest at one-month LIBOR as determined each
month plus 0.90% per annum.
The Class C notes will bear interest at one-month LIBOR as determined each
month plus 1.75% per annum, subject to adjustment as described under
"Description of Series Provisions--Interest Payments" in this prospectus
supplement.
The Class D notes will bear interest at one-month LIBOR as determined each
month plus 6.50% per annum, subject to adjustment as described under
"Description of Series Provisions--Interest Payments" in this prospectus
supplement.
S-6
For each class of the Series 2001-A notes, interest will be calculated as
follows:
Principal Number of
balance days in
at end of X interest X Interest
prior monthly period rate
period ---------
360
Each interest period begins on and includes a payment date and ends on but
excludes the next payment date. However, the first interest period will begin
on and include the closing date and end on but exclude the July 2001 payment
date.
Interest on the Series 2001-A notes will be paid on each payment date,
which will be July 16, 2001 and the 15th day of each following month if the
15th is a business day and, if not, the following business day.
You may obtain the interest rates for the current interest period and the
immediately preceding interest period by telephoning the indenture trustee at
(800) 934-6802.
See "Description of Series Provisions--Interest Payments" in this
prospectus supplement for a description of how and when LIBOR will be
determined.
Principal
Principal of the Class A notes and the Class B notes is expected to be paid
in full on the May 2004 payment date. However, no principal will be paid on the
Class B notes until required payments on the Class A notes are paid in full.
We are scheduled to begin accumulating collections of principal receivables
starting on May 1, 2003 for payment to the Series 2001-A noteholders on the
expected principal payment date, but we may begin accumulating at a later date.
Principal of the Series 2001-A notes may be paid earlier or later than the
expected principal payment date. You will not be entitled to any premium for
early or late payment of principal.
If specified adverse events known as amortization events occur, principal
may be paid earlier than expected.
If collections of receivables are less than expected or are collected more
slowly than expected, then principal payments may be delayed.
If the Class A notes are not paid on their expected payment date,
collections of principal receivables will continue to be used to pay principal
on the Class A notes until the Class A notes are paid or until the December
2008 payment date, whichever occurs first. If the Class B notes are not paid on
their expected payment date, collections of principal receivables will continue
to be used to pay principal on the Class B notes until the Class B notes are
paid or until the November 2009 payment date, whichever occurs first. Failure
to pay the Class A notes in full by the December 2008 payment date or to pay
the Class B notes in full by the November 2009 payment date is an event of
default.
For more information about principal payments, see "Description of Series
Provisions--Principal Payments" and "--Allocation Percentages" in this
prospectus supplement.
Credit Enhancement
Subordination
Credit enhancement for the Class A notes is provided by the subordination
of
S-7
the Class B notes, the Class C notes and the Class D notes.
Credit enhancement for the Class B notes is provided by the subordination
of the Class C notes and the Class D notes.
Cash Collateral Account
A cash collateral account funded from proceeds of the notes in the amount
of $35,832,800 will be available to pay servicing fees and administration fees,
to pay interest on the notes and to cover any defaulted amounts allocated to
Series 2001-A, in each case to the extent that collections of finance charge
receivables are not sufficient. See "Description of Series Provisions--Cash
Collateral Account."
Spread Account
A spread account will provide credit enhancement for the Class C notes and
the Class D notes. The spread account is not available to fund payments on the
Class A notes or the Class B notes, except in extremely remote circumstances.
The spread account will initially be funded from proceeds of the notes in an
amount equal to 1.0% of the initial invested amount. If at any time the
required spread account amount increases or for any reason the amount in the
spread account is less than the required spread account amount, to the extent
funds are available, deposits will be made into the spread account each month
until the required spread account amount is on deposit in the spread account.
The required spread account amount is described in this prospectus supplement
under "Description of Series Provisions--Spread Account." The spread account
will be used to make interest payments on the Class C notes and Class D notes
if collections of receivables allocated to the Series 2001-A notes are
insufficient to make those payments.
Credit enhancement for your series is for your series' benefit only, and
you are not entitled to the benefits of credit enhancement available to other
series.
For more information about credit enhancement, see "Description of Series
Provisions--Subordinated Principal Collections," "--Application of
Collections," "--Defaulted Receivables; Investor Charge-Offs," "--Cash
Collateral Account" and "--Spread Account" in this prospectus supplement.
Class C Notes and Class D Notes
At the same time as the issuance of the Class A notes and Class B notes,
the trust will issue $78,826,000 of its Class C notes and $35,830,000 of its
Class D notes. The Class C notes and the Class D notes will be held initially
by the transferors or an affiliate of the transferors, and will be subordinated
to the Class A notes and the Class B notes.
Series 2001-B
The trust will issue Series 2001-B simultaneously with Series 2001-A. The
Series 2001-B notes will be in the form of a variable funding note or notes
issued in a private placement to one or more commercial paper conduit issuers.
The Series 2001-B notes will initially have an outstanding balance of $0, but
may be increased from time to time to a maximum principal amount of
approximately $270,000,000. Information concerning the Series 2001-B notes is
provided in Annex I to this prospectus supplement.
S-8
Amortization Events
Amortization events include trust amortization events which apply to all
series of notes issued by the trust and series amortization events which apply
to your series and may or may not also be an amortization event for other
series. If a trust amortization event occurs or a Series 2001-A amortization
event occurs, the trust will use collections of principal receivables allocated
to Series 2001-A each month to pay principal on the Series 2001-A notes.
Amortization events may occur if the transferors fail to make required
payments or deposits, violate other covenants and agreements or make
representations and warranties that are materially incorrect.
The following also are amortization events:
. The average series portfolio yield for any three consecutive months minus
the average of the base rates for the same consecutive three months is less
than 2.0%;
. The Class A notes, the Class B notes, the Class C notes or the Class D notes
are not paid in full on their expected principal payment date;
. After taking into account deposits and withdrawals on those dates, the
amount on deposit in the cash collateral account is less than the required
cash collateral amount for two consecutive payment dates;
. Bankruptcy, insolvency or similar events relating to an account owner or
transferor, including any additional account owner or additional transferor,
or relating to Conseco Finance; provided that an amortization event with
respect to any one or more of the entities listed shall not cause an
amortization event if the removal of that entity or those entities from the
list of entities whose insolvency will result in an amortization event will
not cause a reduction or withdrawal by the rating agencies of the rating of
any outstanding series or class of notes;
. The transferors, including any additional transferors, are unable to transfer
receivables to the trust as required under the transfer and servicing
agreement;
. The transferors, including any additional transferors, do not transfer
receivables in additional accounts or participation interests to the trust
within five business days of the date required under the transfer and
servicing agreement;
. The occurrence of a servicer default that has an adverse effect on the
Series 2001-A noteholders;
. The trust becomes subject to regulation as an "investment company" under the
Investment Company Act of 1940; or
. An event of default occurs for the Series 2001-A notes and the notes are
declared immediately due and payable.
For a more detailed discussion of the amortization events, see "Description
of Series Provisions--Amortization Events" in this prospectus supplement and
"Description of the Notes--Amortization Events" in the accompanying prospectus.
Other Interests in the Trust
Other Series of Notes
The trust will issue the Series 2001-B notes simultaneously with the Series
2001-A notes. The trust will issue other series of notes secured by the assets
of the trust from time to time in the future. The
S-9
issuance of future series will occur without prior review or consent by you or
any other noteholder.
The Transferors' Interest
The assets of the trust not securing your series or any other series
constitute the transferors' interest. The transferors' interest is owned by the
transferors. The transferors may, however, sell all or a portion of their
interest in the transferors' interest. The transferors' interest does not
provide credit enhancement for your series.
Allocations of Collections
Conseco Bank, as servicer, will collect payments on the receivables and
will deposit those collections in an account. It will keep track of those
collections that are finance charge receivables, those collections that are
principal receivables and those receivables that are written off as
uncollectible, called the defaulted amount.
Each month, the servicer will allocate collections received among:
. your series;
. other series outstanding; and
. the transferors' interest in the trust.
The amount allocated to your series will be determined based mainly upon
the size of the invested amount of your series compared to the total amount of
principal receivables owned by the trust. At the time of issuance of the Series
2001-A notes, the invested amount for Series 2001-A will be $716,656,000.
You are entitled to receive payments of interest and principal only from
collections of receivables and other trust assets allocated to your series. If
the invested amount of your series declines, amounts allocated and available
for payment to your series and to you may be reduced. For a description of the
allocation calculations and the events which may lead to these reductions, see
"Description of Series Provisions--Allocation Percentages" and "--Subordinated
Principal Collections" in this prospectus supplement.
Groups
Series 2001-A will not share in principal collections allocated to the
transferors and will not be part of a shared enhancement group or a
reallocation group.
Excess Finance Charge Sharing Group One
Series 2001-A will be included in a group of series designated as excess
finance charge sharing group one. To the extent that available investor finance
charge collections exceed the amount necessary to make required payments for
Series 2001-A, the excess collections may be applied to cover shortfalls of
collections of finance charge receivables allocable to other series in excess
finance charge sharing group one. Conversely, you may receive the benefits of
excess collections of finance charge receivables from other series in excess
finance charge sharing group one. However, there can be no assurance that there
will be any excess collections of finance charge receivables in group one. See
"Description of the Notes--Groups--Excess Finance Charge Sharing Group" in the
accompanying prospectus.
Principal Sharing Group One
Series 2001-A will be included in a group of series designated as principal
sharing group one. If collections of principal receivables allocated to Series
S-10
2001-A are not needed to make payments or deposits for Series 2001-A, these
collections will be applied to cover principal payments for other series in
principal sharing group one. Any reallocation for this purpose will not reduce
the invested amount for Series 2001-A. Conversely, you may receive the benefits
of collections of principal receivables and other amounts allocated to other
series in principal sharing group one. However, there can be no assurance that
there will be any excess collections of principal receivables in group one.
See "Description of the Notes--Groups--Principal Sharing Group" in the
accompanying prospectus.
Application of Collections
Finance Charge Collections
The trust will apply available investor finance charge collections, which
will include any excess finance charges from other series in group one
allocated to Series 2001-A, each month in the following order of priority:
. to pay the monthly servicing fee and administration fee;
. to pay interest on the Class A notes;
. to pay interest on the Class B notes;
. to pay interest on the Class C notes;
. to cover your series' allocation of defaulted receivables;
. to cover previous unreimbursed reductions in your series' invested amount;
. to pay interest on the Class D notes;
. upon the occurrence of an event of default with respect to the Series 2001-A
notes and declaration that the notes are immediately due and payable, the
remaining available investor finance charge collections, if any, up to the
outstanding note principal balance of the Series 2001-A notes, will be
treated as principal collections;
. to make a deposit, if needed, to the cash collateral account to increase the
amount therein to the required cash collateral amount;
. beginning shortly before the accumulation period, to make a deposit to the
reserve account, if needed;
. to make a deposit, if needed, to the spread account for Class C and Class D
up to the required spread account amount;
. to satisfy other obligations of the trust; and
. to distribute to other series in excess finance charge sharing group one or
to the holders of the transferors' interest.
For a more detailed description of these applications, see "Description of
Series Provisions--Application of Collections" in this prospectus supplement.
Principal Collections
The trust will apply your series' share of principal collections each month
as follows:
. During the revolving period, no principal will be paid to you or accumulated
in a trust account. Instead, your series' share of principal collections
will be treated as shared principal collections and may be available to make
principal payments for other series in principal sharing group one.
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. The accumulation period for Series 2001-A is scheduled to begin on May 1,
2003, but may begin at a later date. During the accumulation period, each
month your series' share of principal collections will be deposited in a
trust account up to a controlled deposit amount. On the expected principal
payment date, amounts on deposit in that account will be paid first to the
Class A noteholders, then to the Class B noteholders, then to the Class C
noteholders and then to the Class D noteholders.
. If an amortization event occurs, the early amortization period will begin.
During the early amortization period, your series' share of principal
collections will be paid first to the Class A noteholders, then to the Class
B noteholders, then to the Class C noteholders and then to the Class D
noteholders until your series is paid in full.
. During any of the above periods, principal collections allocated to your
series may be reallocated, if necessary, to make required servicing fee and
administration fee payments and to make interest payments on the Class A
notes, the Class B notes, the Class C notes and the Class D notes, in each
case to the extent not made from available investor finance charge
collections including excess finance charge collections, if any, allocated
from other series, from the cash collateral account and, with respect to the
Class C notes and the Class D notes, from the spread account. However, for
any monthly period, the sum of these subordinated principal collections
cannot exceed 26.0% of the initial invested amount of your series, as
reduced due to charged off receivables or for previously reallocated
principal collections, in each case that have not been reimbursed.
. Any remaining principal collections will first be made available to other
series in principal sharing group one and then be paid to the holders of the
transferors' interest or deposited in the special funding account.
For a more detailed description of these applications, see "Description of
Series Provisions--Application of Collections" in this prospectus supplement.
Optional Redemption
The trust has the option to redeem your notes when the outstanding
principal amount of the Series 2001-A notes has been reduced to 5% or less of
the initial principal amount. See "Description of the Notes--Final Payment of
Principal; Termination" in the accompanying prospectus.
Denominations
Beneficial interests in the Series 2001-A notes may be purchased in minimum
denominations of $1,000 and multiples of $1,000 in excess of that amount.
Registration, Clearance and Settlement
The Series 2001-A notes will be in book-entry form and will be registered
in the name of Cede & Co., as the nominee of The Depository Trust Company.
Except in limited circumstances, you will not receive a definitive instrument
representing your notes. See "Description of the Notes--Definitive Notes" in
the accompanying prospectus.
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You may elect to hold your Series 2001-A notes through The Depository Trust
Company in the United States, or Clearstream Banking, societe anonyme or the
Euroclear System, in Europe.
Transfers will be made in accordance with the rules and operating
procedures of those clearing systems. See "Description of the Notes--Book-Entry
Registration" in the accompanying prospectus.
Material Federal Income Tax Consequences
Subject to important considerations described under "Material Federal
Income Tax Consequences" in the accompanying prospectus, Dorsey & Whitney LLP,
as counsel to the trust, is of the opinion that under existing law the Class A
notes and the Class B notes will be characterized as debt for federal income
tax purposes, and that the trust will not be classified as an association or
publicly traded partnership taxable as a corporation and accordingly will not
be subject to federal income tax. By your acceptance of a Class A note or Class
B note, you will agree to treat your Series 2001-A notes as debt for federal,
state and local income and franchise tax purposes. See "Material Federal Income
Tax Consequences" in the accompanying prospectus for additional information
concerning the application of federal income tax laws.
ERISA Considerations
Subject to important considerations described under "ERISA Considerations"
in this prospectus supplement and in the accompanying prospectus, the Class A
notes and the Class B notes are eligible for purchase by persons investing
assets of employee benefit plans or individual retirement accounts. A fiduciary
or other person contemplating purchasing the Class A notes or the Class B notes
on behalf of or with plan assets of any plan or account should consult with its
counsel regarding whether the purchase or holding of the Class A notes or the
Class B notes could give rise to a transaction prohibited or not otherwise
permissible under ERISA or Section 4975 of the Internal Revenue Code.
Risk Factors
Investment in the Series 2001-A notes involves risks. You should consider
carefully the risk factors beginning on page 9 in the prospectus and S-14 in
this prospectus supplement.
Exchange Listing
We have applied to list the Series 2001-A notes on the Luxembourg Stock
Exchange. We cannot guarantee that the application for the listing will be
accepted.
Additional Information
For more information, you may call (317) 817-6100 and direct your inquiries
to Tammy Hill, Senior Vice President, Investor Relations.
S-13
Risk Factors
In the accompanying prospectus you will find a section called "Risk
Factors." The information in that section applies generally to all series,
including yours. The information in this section applies more specifically to
your series.
You should consider the risk factors discussed under the caption "Risk
Factors" in the prospectus and the risk factors discussed below in this section
before deciding whether to purchase any of the Series 2001-A notes.
You May Not Be Able to Resell If you purchase Series 2001-A notes, you may
Your Series 2001-A Notes not be able to sell them. There is currently
no secondary market for the notes. A
secondary market for your notes may not
develop. If a secondary market does develop,
it may not continue or it may not provide
sufficient liquidity to allow you to resell
all or a part of your notes if you want to do
so. The underwriters may assist in resales of
the notes, but they are not required to do
so.
Credit Enhancement May Not Be Credit enhancement provided for your series
Sufficient to Prevent Loss of notes is limited. The only sources of
payment for your notes are the assets of the
trust allocated to your series. If problems
develop with the receivables, such as an
increase in losses on the receivables or if
there are problems in the collection and
transfer of the receivables to the trust, it
is possible that you may not receive the full
amount of interest and principal that you
would otherwise receive.
Class B Notes are Subordinated If you purchase a Class B note, your right to
to the Class A Notes; Trust receive principal payments is subordinated to
Assets May Be Diverted from the payment of the Class A notes. No payment
Class B to Pay Class A will be paid to you until the required amount
of principal has been paid on the Class A
notes.
In addition, collections of finance charge
receivables available to pay interest on the
notes will be used first to pay interest on
the Class A notes and then the Class B notes.
Therefore, if the collections of finance
charge receivables are not sufficient to pay
interest on the Class A and Class B notes,
all interest on the Class A notes will be
paid before interest on the Class B notes is
paid.
S-14
As a result of this subordination, you may
receive payments of interest and principal
later than you expect or you may not receive
the full amount of expected principal and
interest.
Ratings Can Be Lowered or The ratings assigned to the Series 2001-A
Withdrawn After You Purchase notes are based upon many factors, including
Your Notes and the Market the credit quality of the receivables and the
Value of Your Notes May Be amount of credit enhancement provided. The
Reduced ratings are not a recommendation to purchase,
hold or sell any of the Series 2001-A notes.
The ratings also are not intended and should
not be relied upon to determine the
marketability of the Series 2001-A notes, the
market value of the Series 2001-A notes or
whether the Series 2001-A notes are a
suitable investment for you.
Any rating agency may lower its rating or
withdraw its rating entirely if, in the sole
judgment of the rating agency, the credit
quality of the notes has declined or is in
question. If any rating assigned to your
notes is lowered or withdrawn, the market
value of your notes may be reduced.
An Event of Default Will Occur If the Class A notes are not paid in full on
With Respect to All of the the December 2008 payment date, an event of
Series 2001-A Notes if the default will occur with respect to all of the
Class A Notes Are Not Paid in Series 2001-A notes. As a result, the Series
Full on Their Final Maturity 2001-A notes may be accelerated and the
Date assets allocated to Series 2001-A may be
sold. If the proceeds of the sale are not
sufficient to pay the Class A notes and the
Class B notes in full, the Class A notes will
be paid before the Class B notes, and
following the sale and application of the
proceeds neither class will have any further
rights to the trust assets.
S-15
Maturity Considerations
We expect that principal on the Class A, Class B, Class C and Class D notes
will be paid in full on the May 2004 payment date. However, if an amortization
event occurs, some or all of the notes may be paid prior to that date. On the
other hand, if collections of receivables are slower than we expect, principal
may be paid later than expected.
For certain considerations related to the availability and timing of
collections of receivables, see "Risk Factors" in the accompanying prospectus.
The final maturity date of the Class A notes is the payment date in
December 2008. The Class A notes, if not paid before that date, will be due and
payable on the December 2008 payment date.
The final maturity date of the Class B notes, the Class C notes and the
Class D notes is the payment date in November 2009. The Class B notes, the
Class C notes and the Class D notes, if not paid before that date, will be due
and payable on the November 2009 payment date.
The Series 2001-A supplement to the indenture provides that no principal
will be paid on the Class B notes until the Class A notes are paid in full.
Series 2001-A will have a period of time called the controlled accumulation
period when monthly deposits are made into the principal funding account.
During the controlled accumulation period, amounts deposited in the principal
funding account will accumulate to an amount sufficient to pay the Class A
notes, the Class B notes, the Class C notes and the Class D notes on the
expected payment date. Unless an amortization event occurs, on each payment
date for the controlled accumulation period, monthly deposits of principal will
be made into the principal funding account in an amount equal to the least of:
. available investor principal collections for that payment date;
. the applicable controlled deposit amount; and
. the adjusted invested amount prior to any deposits on that date.
We expect that principal collections will be sufficient to pay the Class A
notes, the Class B notes, the Class C notes and the Class D notes in full on
the payment date in May 2004. However, payment rates vary, and we cannot assure
you that the available investor principal collections will always be sufficient
to make required payments to the principal funding account or to make payments
on your notes when you expect.
On the other hand, if an amortization event occurs, all or a portion of
your principal may be paid to you earlier than expected.
Upon the occurrence of an amortization event, whether a Series 2001-A
amortization event or a trust amortization event, an early amortization period
will begin for Series 2001-A and will continue until the earlier of:
. the payment in full of the Class A notes, the Class B notes, the Class
C notes and the Class D notes; and
. the payment date in November 2009.
S-16
During the early amortization period, the Series 2001-A notes will be
entitled to receive monthly payments of principal in the following order of
priority:
. first, to the Class A notes until paid in full;
. second, to the Class B notes until paid in full;
. third, to the Class C notes until paid in full; and
. fourth, to the Class D notes until paid in full.
The monthly payments will be equal to the available investor principal
collections received by the trust during the related monthly period, plus the
principal amount on deposit in the principal funding account, until the Class A
notes, the Class B notes, the Class C notes and finally the Class D notes, are
paid in full.
Principal collections available to pay the Series 2001-A notes, following
the end of the revolving period, will be based on the fixed investor
percentage.
The Glossary
This prospectus supplement uses defined terms. Definitions can be found in
the Glossary beginning on page S-62 in this prospectus supplement and beginning
on page 107 in the accompanying prospectus.
The Originators, The Transferors, The Servicer and Conseco Finance Corp.
Green Tree Retail Services Bank, Inc.
Green Tree Bank was incorporated in 1995 as a South Dakota banking
corporation and is wholly owned by Conseco Finance Servicing Corp., which in
turn is wholly owned by Conseco Finance. The principal executive office of
Green Tree Bank is located at 1400 Turbine Drive, Rapid City, South Dakota
57701 (telephone (605) 355-7100). Green Tree Bank's deposits are insured by the
FDIC. It is regulated by the Division of Banking of the South Dakota Department
of Commerce and Regulation.
Green Tree Bank has been originating accounts and transferring receivables
from those accounts to Conseco Bank. We expect that those merchant programs
which are currently funded by Green Tree Bank will continue to be funded at
Green Tree Bank. Those programs include the largest Conseco private label
program--that for Menards, Inc. We do not expect that new programs will be
funded at Green Tree Bank.
Conseco Bank, Inc.
General
Conseco Bank is a Utah industrial loan corporation which was incorporated
on December 9, 1996. It was known as Green Tree Capital Bank, Inc. until
December 4, 1998 when its name was changed to Conseco Bank, Inc. The principal
executive office of Conseco Bank is located at 2825 East Cottonwood Parkway,
Suite 230, Salt Lake City, Utah 84121 (telephone (801) 733-2200). Its deposits
are insured by the FDIC. It is regulated by the Utah Department of Financial
Institutions. As authorized by its articles of incorporation, Conseco Bank
(A) engages in credit card operations, (B) accepts time deposits in the form of
certificates of deposit, (C) does not accept demand deposits or deposits that
the depositor
S-17
may withdraw by check, (D) does not accept savings deposits and (E) aside from
any cards relating to contractor and commercial accounts, does not engage in
the business of making commercial loans.
At December 31, 2000, Conseco Bank had total deposits of approximately
$1.88 billion, total assets of approximately $2.52 billion and total equity
capital of approximately $270 million.
Conseco Bank will originate accounts and transfer receivables directly to
the trust. Conseco Bank will be the primary transferor to the trust. In
addition, with respect to one existing private label program, Conseco Bank
originates accounts for customers who purchase merchandise for which Conseco
Finance Servicing Corp. has provided floorplan financing to dealers selling the
product. Conseco Bank sells the receivables arising under that plan on a weekly
basis to Conseco Finance Servicing Corp. Conseco Finance Servicing Corp. then
sells those receivables to Credit Card Funding Corp. for transfer to the trust.
Conseco Bank will be the servicer for all receivables transferred to the
trust. Conseco Bank expects to perform some or all of its servicing functions
through subservicing agreements with its affiliates.
Recent Regulatory Developments
As a result of discussions with its primary regulators, the FDIC and the
Utah Department of Financial Institutions, Conseco Bank's management and board
of directors will, among other things: (1) continue to maintain a Tier 1
leveraged capital ratio of not less than 9% -- a level that is in excess of
that currently required for that capital measure for an institution to be "well
capitalized"; (2) adopt enhanced internal audit and other policies and
procedures; and (3) reduce assets classified by reason of their payment
performance. Conseco Bank's management believes this will be accomplished in
the ordinary course of business and in conjunction with Conseco Bank's adoption
of the Uniform Retail Classification and Account Management Policy.
Conseco Finance Credit Card Funding Corp.
Credit Card Funding Corp. is a newly created special purpose Minnesota
corporation whose stock is owned by Conseco Finance. Credit Card Funding Corp.
was organized for the limited purposes of engaging in the type of transactions
described herein and other transactions entered into in connection with the
trust and any activities incidental to and necessary or convenient for the
accomplishment of its limited purpose. Neither Conseco Finance nor Credit Card
Funding Corp.'s board of directors intends to change the business purpose of
Credit Card Funding Corp. Credit Card Funding Corp. has its principal office
located at 1100 Landmark Towers, 345 Saint Peter Street, Saint Paul, Minnesota
55102 (telephone (651) 293-3400).
Conseco Finance Servicing Corp. will sell to Credit Card Funding Corp.
receivables from accounts originated by Conseco Bank under one merchant program
which are sold to
S-18
Conseco Finance Servicing Corp. Conseco Finance Servicing Corp. will also sell
to Credit Card Funding Corp. receivables from certain existing contractor and
commercial accounts. Credit Card Funding Corp. does not expect that it will
transfer receivables to the trust from any other programs.
Conseco Finance Servicing Corp.
Conseco Finance Servicing Corp. is a Delaware corporation which was
incorporated in December 1994. Until August 1999, Conseco Finance Servicing
Corp. was known as Green Tree Financial Servicing Corporation.
Conseco Finance Servicing Corp. has originated and will continue to
originate receivables under a limited number of existing commercial and
contractor accounts created under specific existing merchant programs. Conseco
Finance Servicing Corp. does not expect to originate any new accounts.
Conseco Finance Corp.
General
Conseco Finance is a Delaware corporation which is a financial services
holding company that originates, securitizes and services manufactured housing,
home equity, retail credit and floorplan loans throughout the United States.
Conseco Finance is a wholly owned subsidiary of Conseco, Inc., a financial
services holding company.
Conseco Finance and its affiliates are collectively referred to in this
prospectus supplement and in the accompanying prospectus as "Conseco."
Each of Conseco Bank, Credit Card Funding Corp. and Green Tree Bank are
wholly owned direct or indirect subsidiaries of Conseco Finance.
Conseco Finance is involved in the development and marketing of the private
label credit card and consumer loan programs. Merchant agreements are generally
entered into by Conseco Finance and then assigned by Conseco Finance to Conseco
Bank, Green Tree Bank or Conseco Financing Servicing Corp. The respective
assignee then assumes the obligations related to the agreement and funds the
loans.
Through its principal offices in Saint Paul, Minnesota, and service centers
throughout the United States, Conseco Finance serves all 50 states. Conseco
Finance's principal executive offices are located at 1100 Landmark Towers, 345
St. Peter Street, Saint Paul, Minnesota 55102-1639 (telephone (651) 293-3400).
The SEC allows Conseco Finance to incorporate by reference some of the
information Conseco Finance files with it, which means that important
information can be disclosed to you by referring you to those documents. The
information that Conseco Finance incorporates
S-19
by reference is considered to be part of this prospectus supplement and the
accompanying prospectus, and later information that Conseco Finance files with
the SEC will automatically update and supersede this information. Conseco
Finance is incorporating by reference the following documents into this
prospectus supplement and the accompanying prospectus:
. Conseco Finance's annual report on Form 10-K for the year ended
December 31, 2000.
. Conseco Finance's quarterly report on Form 10-Q for the quarter ended
March 31, 2001.
Conseco Finance will provide you, upon your written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus
supplement. Please direct your requests for copies to Tammy Hill, Senior Vice
President, Investor Relations, 11825 Pennsylvania Street, Carmel, Indiana
46032, telephone number (317) 817-6100.
All documents filed by Conseco Finance, on behalf of any trust, pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus supplement will be incorporated by reference into
this prospectus supplement.
Federal securities law requires the filing of information with the SEC,
including annual, quarterly and special reports (including those referred to
above as being incorporated by reference) and other information. You can read
and copy these documents at the public reference facility maintained by the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
You can also read and copy these reports and other information at the following
regional offices of the SEC:
New York Regional Office Chicago Regional Office
Seven World Trade Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
Please call the SEC at 1-800-SEC-0330 for more information about the public
reference rooms or visit the SEC's web site at http://www.sec.gov to access
available filings.
Restructuring
During the year 2000, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the rating agencies analyze the impact of
developing events.
On July 27, 2000, Conseco, Inc. announced several courses of action with
respect to Conseco Finance including (i) the sale, closing or runoff of five
units--asset-based lending, vendor leasing, bankcards, transportation and park
construction, (ii) efforts to better utilize existing assets so as to increase
cash and (iii) cost savings and restructuring of ongoing businesses such as the
streamlining of loan origination operations in the manufactured housing and
home equity lending divisions.
Several elements of the plans Conseco Finance previously announced have
already been completed:
(1) Conseco Finance has completed the restructuring of its operations;
S-20
(2) Conseco Finance has completed the sales of its bankcard business and
certain asset-based and transportation loans;
(3) Conseco Finance has completed various financing transactions which
allow better use of existing assets to generate cash;
(4) Conseco Finance amended an agreement with Lehman Brothers Holdings
Inc. which reduced the restriction on intercompany payments to
Conseco, Inc.; and
(5) On January 31, 2001 Conseco Finance completed the sale of its vendor
leasing business.
On August 8, 2000, Moody's reduced the rating of the long-term senior
unsecured debt obligations of Conseco Finance to B1 from Ba3. On April 25,
2001, Moody's changed its ratings outlook for the credit ratings of Conseco,
Inc. and its affiliates to positive from stable. Nonetheless, we cannot assure
you that further downgrades will not occur.
Litigation Matters
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's current and former officers and
directors are named as defendants in one or more of the lawsuits. The lawsuits
have been consolidated into two complaints, one relating to an alleged class of
purchasers of Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class action lawsuit
containing similar allegations was also filed. Plaintiffs in the lawsuits
assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. In each case, plaintiffs allege that Conseco Finance and the other
defendants violated federal securities laws by making false and misleading
statements about Conseco Finance's current state and Conseco Finance's future
prospects, particularly about prepayment assumptions and performance of some of
our loan portfolios, which allegedly rendered Conseco Finance's financial
statements false and misleading. Conseco Finance filed motions to dismiss these
lawsuits. On August 24, 1999, Conseco Finance's motions to dismiss were granted
with prejudice. The plaintiffs subsequently appealed the decision to the U.S.
Court of Appeals for the 8th Circuit, and the appeal is currently pending.
Conseco Finance believes that the lawsuits are without merit and intends to
defend the lawsuits vigorously. However, the ultimate outcome of these lawsuits
cannot be predicted with certainty.
In addition, Conseco Finance and its subsidiaries are involved on an
ongoing basis in lawsuits related to their operations. Although the ultimate
outcome of some of these matters cannot be predicted, none of the lawsuits
currently pending against Conseco Finance or its subsidiaries is expected,
individually or in the aggregate, to have a material adverse effect on Conseco
Finance's consolidated financial condition, cash flows or results of
operations.
S-21
The Conseco Private Label Portfolio
The Conseco private label portfolio includes private label credit card
accounts owned by Green Tree Bank, private label credit card accounts owned by
Conseco Bank, and private label credit card accounts owned by Conseco Finance
Servicing Corp. Accounts designated to the trust will be selected from the
Conseco private label portfolio. However, the Conseco private label portfolio
will include accounts which are not designated to the trust, which means that
the characteristics and performance of the Conseco private label portfolio and
the characteristics and performance of the trust portfolio may be different.
The Conseco private label portfolio includes both accounts originated by
Conseco and accounts which were originated by other financial institutions and
acquired by Conseco.
Types of Accounts
Our private label credit card business originates accounts and receivables
under four general types of programs:
(1) The original or traditional retail credit card programs are store-
based with individual merchants;
(2) Through the distributor name programs Conseco provides financing to
customers of dealers that buy parts and equipment through specific
distributors;
(3) The manufacturer name programs are similar except that the distributor
sells equipment for a brand name manufacturer; and
(4) The Conseco developed programs allow Conseco to provide industry-wide
financing to specific industries.
See "The Conseco Private Label Credit Card Business--Description of the
Private Label Credit Card Business" in the accompanying prospectus for a more
detailed description of the four general types of programs.
As discussed below under the caption "The Conseco Private Label Portfolio--
Portfolio Performance," the nature of our private label portfolio is changing.
Part of that change is a shift of our consumer loan business from closed-end
credit agreements to revolving accounts originated as part of the private label
credit card business. These accounts are primarily originated under our Conseco
developed programs described in "The Conseco Private Label Credit Card
Business--Description of the Private Label Credit Card Business" in the
prospectus.
Merchants in the Conseco Program
Of the receivables in the Conseco private label portfolio as of March 31,
2001, as shown in the following table, 21.3% were in accounts opened under one
merchant program. The following table also lists the amount of receivables and
the percentage of the receivables in the Conseco private label portfolio by
program for those programs representing 3.0% or more of the receivables in the
private label portfolio as of March 31, 2001.
S-22
Composition of Conseco Private Label Portfolio
by Program
as of March 31, 2001(1)
Amount of
Receivables in Percent of Receivables
Private Label in Private Label
Program Portfolio(2) Portfolio
------------------------------------ -------------- ----------------------
Menards............................. $ 389,941,016 21.3%
FUNancing -- CFD Revolving.......... 323,685,047 17.7
ProjectLine(3)...................... 210,512,718 11.5
AquaVantage......................... 120,682,031 6.6
Select Comfort...................... 85,263,410 4.7
MTD Program......................... 78,874,898 4.3
ProjectLine(4)...................... 74,228,944 4.1
RoomStore........................... 56,768,371 3.1
Other............................... 487,761,618 26.7
-------------- -----
Total............................... $1,827,718,053 100.0%
============== =====
--------
(1) Includes those programs representing a concentration of 3.0% or
higher of the private label portfolio.
(2) Receivables include both principal receivables and finance charge
receivables.
(3) This is a Conseco developed program. The numbers do not include
the receivables acquired as described in footnote (4) below.
(4) This is a portfolio which was acquired by Conseco and is now part
of the Conseco developed program.
None of the merchants, manufacturers, distributors or dealers has any
obligation with respect to the accounts. The obligation to pay principal and
interest on the accounts is solely that of the customers, contractors and
commercial entities which open the accounts.
Menards Program is a traditional private label credit card program operated
under a merchant agreement with Menards, Inc., the third largest homecenter in
the United States. Consumer credit cards and some commercial and contractor
accounts are originated under the Menards, Inc. program.
FUNancing -- CFD Revolving Program is a Conseco developed program providing
financing for independent dealers primarily in the recreational motor sports
industry. A significant portion of the accounts originated under this program
contain receivables which are on a fixed monthly payment schedule. The accounts
containing fixed payment receivables will not be added to the trust on the
closing date, although we may add receivables in these accounts in the future.
ProjectLine Program is a Conseco developed program for independent dealers
in the home improvement industry to provide financing for their customers. A
portion of the accounts in this program were part of a portfolio acquired by
Conseco from another lender.
AquaVantage Program is a Conseco developed program that allows independent
dealers of spas, pools and above ground pools a source of financing for their
customers. The AquaVantage program is primarily designed for selected spa
dealers who finance targeted manufacturer products.
S-23
Select Comfort Program is a traditional private label credit card program
operated under a merchant agreement with Select Comfort. On the closing date we
will not transfer any Select Comfort receivables existing under the program to
the trust, although we may add those receivables in the future.
MTD Program is a manufacturer program providing a source of financing for
dealers affiliated with MTD Products Inc., the largest manufacturer of outdoor
consumer power equipment in the United States. Conseco has entered into an
agreement with MTD Products Inc. to sponsor the program and has entered into
merchant agreements with local dealers to provide financing for the equipment.
RoomStore Program is a traditional private label credit card program
operated under a merchant agreement with The RoomStore, LLC.
Portfolio Experience
Growth and Changes in the Portfolio
We began the Conseco private label credit card business in 1996 with one
merchant agreement. At the end of 1996 our private label portfolio included
receivables of $38,273,448, all of which were traditional private label credit
card accounts and all of which were in accounts created under the merchant
agreement with Menards, Inc. Since that time, our private label business has
experienced significant growth and change. As of March 31, 2001, our private
label credit card business included receivables of $1,827,718,053 originated
under approximately 37 programs.
We have grown the business through the addition of new merchant programs,
the acquisition of private label credit card portfolios originated by other
lenders and the development of our distributor name programs, our manufacturer
name programs and our Conseco developed programs as described in the prospectus
under the caption "The Conseco Private Label Credit Card Business--Description
of the Private Label Credit Card Business."
A portion of the growth of our private label portfolio is the result of a
shifting of business within the Conseco organization. For example, in the year
2000 Conseco Finance and its subsidiaries discontinued its closed-end consumer
finance business. However, Conseco Bank, a subsidiary of Conseco Finance,
continues to originate revolving consumer credit agreements through many of the
same dealers. The shift in business from our closed-end consumer finance to the
open-ended revolving credit business is reflected during 2000 primarily in our
Conseco developed programs such as FUNancing -- CFD Revolving.
The overall growth of our private label portfolio is, to a great extent,
affected by the economic health of our merchants' businesses and their economic
condition. Notwithstanding the overall growth of the portfolio, we have from
time to time sold accounts which were originated under specific merchant
agreements or allowed accounts originated under specific merchant agreements to
liquidate. The decision to sell accounts or liquidate accounts originated under
a specific merchant agreement or program was based on the credit quality of the
accounts generated under the specific merchant agreement or, in
S-24
some cases, the bankruptcy or credit condition of the merchant. Also if a
merchant agreement terminates, the merchant may purchase the outstanding
receivables originated under the affected agreement and, if it does so, those
receivables will be removed from our portfolio.
The receivables in the Conseco private label credit card portfolio
increased by 638.37% from December 31, 1996 to December 31, 1997, by 143.42%
from December 31, 1997 to December 31, 1998, by 91.49% from December 31, 1998
to December 31, 1999, by 34.78% from December 31, 1999 to December 31, 2000 and
by 2.95% from December 31, 2000 to March 31, 2001. As a portfolio grows by
significant amounts, the percentages of charge-offs and delinquencies tends to
remain low. We expect that the rate of growth of the portfolio may slow in the
next few months and years and, as the growth slows or stops, the portfolio ages
and the mix of programs in the portfolio changes, the charge-offs and
delinquencies as a percentage of the portfolio may increase above those shown
in the following tables and such increases may be substantial.
We expect continued growth in our private label portfolio in the current
year 2001 and in 2002; however, we do not expect our growth in the next months
and years to be at the same level as in prior years. Also, we expect that the
mix of programs in the portfolio will change although we cannot accurately
predict which programs will experience the greatest rate of growth. Because of
the slowing rate of increase in the portfolio and the maturing of and changing
nature of the portfolio and the changing mix of programs in the portfolio, our
future performance may vary significantly from the historical information
presented in this prospectus supplement.
The following tables set forth certain experience for each of the periods
shown for the Conseco private label portfolio. There can be no assurance that
the actual experience in the future will be similar to the historical
experience set forth in the following tables and there can be no assurance that
the experience of the trust portfolio will be similar to the Conseco private
label portfolio. One difference, but not the only difference, between the
private label portfolio and the trust portfolio will be that, at least
initially, the trust portfolio will not include any receivables which are on a
fixed payment schedule.
Loss and Delinquency Experience
We consider an account delinquent if the minimum payment due under that
account is not received by us on or before the due date.
It is the policy of Conseco Bank, Green Tree Bank and Conseco Finance
Servicing Corp. to charge off an account at the end of the cycle when it
becomes 180 days delinquent. We also charge off accounts due to bankruptcy,
fraud and death of an obligor. See "The Conseco Private Label Credit Card
Business--Delinquency, Charge-Offs and Reaging" in the accompanying prospectus.
In 1999, the Federal Financial Institutions Examination Council ("FFIEC")
published a revised policy statement on the classification of consumer loans.
The revised policy established uniform guidelines for charge-off of loans due
to delinquent, bankrupt and deceased obligors, for charge-off of fraudulent
accounts, and for reaging, extending, deferring or rewriting delinquent
accounts. The revised policy called for implementation by
S-25
January 1, 2001. Conseco Bank, Green Tree Bank and Conseco Finance Servicing
Corp. began implementation during mid-2000. Guideline revisions requiring
programming changes to systems were in place for full implementation on January
1, 2001. Most bankrupt accounts were administered according to the revised
guidelines during the last half of 2000. This resulted in an increase in
bankruptcy-related charge-offs of 50% in the second half of 2000 from
approximately $13 million, had the change not occurred, to approximately
$20 million. Charge-off due to delinquent account status was implemented in
December 2000. This one-time acceleration resulted in an increase in reported
aging related charge-offs of 140% in December 2000 from approximately $5
million, had the change not occurred, to approximately $12 million. The above
referenced charge-off rates are reflected in the following tables.
The following tables set forth the loss and delinquency experience for the
Conseco private label portfolio for each of the periods shown. As described
above under the caption "The Conseco Private Label Portfolio--Portfolio
Experience--Growth and Changes in the Portfolio," there can be no assurance
that the delinquency and loss experience for the trust portfolio will be
similar to the historical experience set forth in the following tables because
among other things, economic and financial conditions affecting the ability and
willingness of cardholders to make payments and the financial condition of
merchants may be different from those that have prevailed during the periods
reflected below. In particular, reported loss and delinquency percentages for
the portfolio as shown in the tables may be lower as a result of the growth of
the portfolio. Receivables in newly originated accounts generally have lower
delinquency and loss levels than receivables in more seasoned accounts. Also,
the addition of new accounts and receivables to a portfolio increases the
outstanding receivables balance for such portfolio which is the denominator
used to calculate the percentages set forth in the following tables and,
therefore, also reduces loss and delinquency rates.
Loss Experience
(Dollars in Thousands)
Three Months
Ended Year Ended December 31
March 31, -------------------------------------
2001 2000 1999 1998 1997
------------ ---------- -------- -------- --------
Average Receivables
Outstanding(1).......... $1,777,257 $1,544,884 $940,631 $473,744 $150,210
Total Net Charge-
offs(2)................. 36,129 97,080 46,942 16,813 3,682
Total Net Charge-offs as
a Percent of Average
Receivables............. 8.13%(3) 6.28% 4.99% 3.55% 2.45%
- --------
(1) Receivables include both principal receivables and finance charge
receivables. Average receivables outstanding for each period indicated are
calculated as of the beginning of every month and averaged based on the
number of months in the period.
(2) Total net charge-offs is gross charge-offs during the period ended less
recoveries received during the period. Charge-offs include both principal
receivables and finance charge receivables.
(3) Annualized.
The increase in the total net charge-off as a percent of average
receivables
-- for the year ended December 31, 1998 compared to the year ended
December 31, 1997 and for the year ended December 31, 1999 compared to
the year ended
S-26
December 31, 1998 was due to the acquisition of portfolios originated
by other lenders; these converted accounts had higher delinquency and
loss rates than those accounts originated by Conseco; some of the
converted portfolios had promotional periods which extended the
seasoning of those portfolios; the increase in the charge-off rate in
these years is also due to the reduction in the portfolio growth rate;
-- for the year ended December 31, 2000 compared to the year ended
December 31, 1999 was due to continued reduction in portfolio growth
rate; the acceleration of bankruptcy related charge-offs in the year
2000 as a result of the implementation of the revised FFIEC policy
guidelines; the acceleration of charge-offs in the year 2000 as a
result of the implementation of the reaging policy required by the
revised FFIEC policy guidelines (the two FFIEC related changes
together account for approximately 42.64% or 55 basis points of the
129 basis point increase in charge-offs from the year ended December
31, 1999 to the year ended December 31, 2000); and
-- for the three months ended March 31, 2001 compared to the year ended
December 31, 2000 was due to seasonally low portfolio growth; the
FFIEC policy guideline revision on reaging accounts resulting in
increased charge-offs of aged delinquent accounts; the FFIEC policy
guideline revision on bankruptcy related charge-offs implemented in
the second half of the year 2000 impacting the full year annualized
calculation of the three months ended March 31, 2001 versus impacting
only half of the year ended December 31, 2000; an increased level of
bankruptcy filings, a portion of which may be attributed to proposed
legislative actions, resulting in increased bankruptcy charge-offs
(bankruptcy related charge-offs annualized for the three months ended
March 31, 2001 account for approximately 81% or 150 basis points of
the 185 basis point increase in charge-offs from the year ended
December 31, 2000 to the three months ended March 31, 2001).
Delinquency Experience
(Dollars in Thousands) (1)(2)
As of December 31
As of March 31, -----------------------------------------------------------------
2001 2000 1999 1998 1997
---------------- ---------------- ---------------- --------------- ---------------
% of % of % of % of % of
Ending Ending Ending Ending Ending Ending Ending Ending Ending Ending
Receiv- Receiv- Receiv- Receiv- Receiv- Receiv- Receiv- Receiv- Receiv- Receiv-
ables ables ables ables ables ables ables ables ables ables
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
1-29 days............... $118,952 6.51% $145,027 8.17% $110,655 8.40% $57,561 8.37% $20,535 7.27%
30-59 days.............. 45,328 2.48 43,212 2.43 32,484 2.47 16,156 2.35 4,253 1.51
60-89 days.............. 29,180 1.60 20,154 1.14 13,937 1.06 7,524 1.09 2,249 0.80
90-119 days............. 22,939 1.26 14,808 0.83 9,142 0.69 5,037 0.73 1,680 0.59
120 days or more........ 26,480 1.45 19,212 1.08 21,125 1.60 9,288 1.35 2,597 0.92
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Total(3)................ $242,878 13.29% $242,413 13.65% $187,343 14.22% $95,567 13.89% $31,315 11.08%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
- --------
(1) Delinquencies shown are delinquent receivables as of the date specified.
The percentages were calculated by dividing the delinquent receivables as
of each of the dates shown by the total receivables as of the same date.
Receivables include both principal receivables and finance charge
receivables.
(2) Total ending receivables as of December 31, 1997 were $282,598,363; as of
December 31, 1998 were $687,900,692; as of December 31, 1999 were
$1,317,225,179; as of December 31, 2000 were $1,775,294,500; and as of
March 31, 2001 were $1,827,718,053.
(3) Totals may not be exact due to the rounding of the amounts in the table.
S-27
Delinquencies increased from 1997 to 1998 due primarily to the change in
the portfolio mix and the performance of accounts in acquired and converted
portfolios.
Revenue Experience
The revenues for the Conseco private label portfolio from finance charges
and fees billed to account holders are set forth in the following table for
each of the periods shown.
The historical revenue figures in the table include finance charges and
fees accrued during the cycle. Cash collections of receivables may not reflect
the historical experience in the table. During periods of increasing
delinquencies, billings of finance charges and fees may exceed cash payments as
amounts collected on credit card receivables lag behind amounts billed to
cardholders. Conversely, as delinquencies decrease, cash payments may exceed
billings of finance charges and fees as amounts collected in a current period
may include amounts billed during prior periods. Revenues from finance charges
and fees on both a billed and a cash basis will be affected by numerous
factors, including the periodic finance charges on the receivables, the
applicability of special payment plans, other fees paid by account holders, the
percentage of account holders who pay off their balances in full each month and
do not incur periodic finance charges on purchases and changes in the level of
delinquencies on the receivables.
Revenue Experience (1)
(Dollars in Thousands)
Three Months Year Ended December 31
Ended March 31, -------------------------------------
2001 2000 1999 1998 1997
--------------- ---------- -------- -------- --------
Average Receivables
Outstanding(2).......... $1,777,257 $1,544,884 $940,631 $473,744 $150,210
Total Finance Charges and
Fees Billed............. 85,984 294,049 173,510 85,230 26,720
Total Finance Charges and
Fees Billed as a
Percentage of Average
Receivables
Outstanding(3).......... 19.35%(4) 19.03% 18.45% 17.99% 17.79%
- --------
(1) Does not include discount option receivables.
(2) Average receivables outstanding for each period indicated are calculated
as of the beginning of every month and averaged based on the number of the
months in the period. The receivables balance includes both principal
receivables and finance charge receivables.
(3) Represents total finance charges and fees billed divided by average
receivables outstanding.
(4) Annualized.
The finance charges and fees shown in the preceding table are composed of
two components: finance charges based upon the applicable interest rates
charged on the accounts and fees and other service charges such as late
charges.
The increase in the total finance charges and fees billed as a percentage
of average receivables outstanding increased from the year ended December 31,
1998 to December 31, 1999 primarily due to seasoning and mix of business in
these accounts and increased from December 31, 1999 to December 31, 2000
primarily due to the increase in the prime rate index on these accounts.
S-28
The revenues for the portfolio shown in the table above are related to
finance charges together with fees billed to holders of the accounts. The
revenues related to finance charges depend in part upon the collective
preference of cardholders to use their credit cards as revolving debt
instruments for purchases and who pay off credit card account balances over
several months as opposed to convenience use, where such cardholders prefer
instead to pay off their entire balance each month, thereby avoiding finance
charges on purchases, and upon other services for which cardholders choose to
avail themselves and which are paid for by the use of the card. Revenues
related to finance charges and fees also depend on the availability and use of
special payment plans and the types of charges and fees assessed on the
accounts in the portfolio. Accordingly, revenues will be affected by future
changes in the promotional programs utilized and the use of special payment
plans and the types of charges and fees assessed on the accounts. Revenues
could be adversely affected by future changes in the charges and fees assessed
by Conseco Bank, Conseco Finance Servicing Corp. and Green Tree Bank and other
factors.
Neither the servicer nor any of its affiliates has any basis to predict how
any future changes in the usage of accounts by account holders or in the terms
of accounts may affect the revenue for the portfolio.
Discount Option
Under the terms of the transfer and servicing agreement, the transferors
will have the option to reclassify a certain percentage of principal
receivables in the trust as finance charge receivables. This will reduce the
amount of principal receivables calculated in the trust and increase the
finance charge receivables and finance charge collections. The principal
receivables which became finance charge receivables are referred to as
"discount option receivables." See the discussion in the accompanying
prospectus under the caption "Description of the Transfer and Servicing
Agreement--Discount Option."
The transferors have initially designated 4.0% of the principal receivables
to be treated as finance charge receivables. The provision will be applied for
purposes of all calculations under the transfer and servicing agreement, the
master indenture and the Series 2001-A supplement to the master indenture.
However, in this prospectus supplement all historical and current data
regarding accounts and receivables is presented without adjustment for the
discount option.
Payment Rates
The following table sets forth for the Conseco private label portfolio the
highest and lowest monthly payment rates during any month in the periods shown
and the average monthly payment rates for all months in the periods shown, in
each case calculated as a percentage of total opening monthly account balances
during the periods shown. Payment rates shown in the table are based on amounts
which would be deemed payments of both principal receivables and finance charge
receivables with respect to the accounts.
S-29
Monthly Payment Rates
Year Ended December
Three Months 31
Ended ----------------------
March 31, 2001 2000 1999 1998 1997
-------------- ---- ---- ---- ----
Lowest Month............................. 10.4% 11.2% 11.6% 16.4% 15.1%
Highest Month............................ 13.3 15.4 18.2 22.3 28.4
Monthly Average.......................... 12.1 12.5 14.2 19.2 20.2
We cannot assure you that the monthly payment rates in the future will be
similar to the historical experience set forth above or that the monthly
payment rates for accounts in the trust portfolio will be the same as payment
rates for the Conseco private label portfolio.
The amount of collections of receivables may vary from month to month due
to seasonal variations, general economic conditions, promotional programs,
fixed payment plans and payment habits of individual cardholders. In addition,
the payment rates set forth in the table include collections of both principal
receivables and finance charge receivables. The decrease in payment rates is
due to the changing mix of the portfolio, largely due to the increase in
FUNancing--CFD Revolving accounts that have higher principal balances with
fixed payments over a longer period of time, thereby reducing the payment rate
in the portfolio.
A portion of our portfolio currently is composed of accounts under which
payments are due on a fixed monthly payment schedule. The monthly payment
includes both principal and interest. For these accounts, the monthly principal
payment rate will increase as interest rates decline and decline as interest
rates increase. If interest rates change significantly, it can have a
significant impact on the principal payment rate.
As of December 31, 2000
. $1,583,646,103 of the receivables in the Conseco private label
portfolio, representing 89.2% of the receivables in the portfolio,
were on a revolving basis; and
. $191,648,397 of the receivables in the Conseco private label
portfolio, representing 10.8% of the receivables in the portfolio,
were on fixed payment schedules.
We expect that the percentage of the receivables which are in a fixed
payment program will increase. Initially we will not transfer to the trust
receivables which are on fixed payment schedules. However, we may add such
fixed payment receivables to the trust in the future if we give prior notice to
the rating agencies and each rating agency notifies us that inclusion of the
fixed payment receivables in the trust will not result in a reduction or
withdrawal of any rating for any outstanding series or class of notes.
The Trust Portfolio
The receivables conveyed to the trust arise in accounts selected from the
Conseco private label portfolio. The transferors represent that each account
selected is an eligible account.
At the time of issuance of the initial series of notes, Conseco will
designate to the trust a substantial portion of the accounts in its private
label portfolio; however, it will not initially
S-30
designate accounts containing receivables payable on a fixed payment schedule,
accounts originated under the merchant agreement with Select Comfort, certain
accounts in programs which are in liquidation, charged-off accounts, accounts
with cardholders with addresses outside the United States and accounts of
employees of Conseco Finance and its affiliates.
Accounts are expected to be added to the trust from time to time and the
trust portfolio will change accordingly.
As of March 31, 2001, of the receivables in accounts which will be
transferred to the trust on the closing date, Conseco Bank will be the
transferor of approximately 97% and Credit Card Funding Corp. will be the
transferor of approximately 3%.
As of March 31, 2001, Conseco Bank was the account owner of accounts
containing approximately 49% of the receivables which will be transferred to
the trust, Green Tree Bank was the account owner of accounts containing
approximately 47% of receivables which will be transferred to the trust and
Conseco Finance Servicing Corp. was the account owner of accounts containing
approximately 4% of the receivables which will be transferred to the trust.
The transferors have the right to designate additional accounts for
inclusion in the trust portfolio and to transfer to the trust all receivables
of those additional accounts, whether the receivables already exist or arise
after the designation, if the conditions described under "Description of the
Transfer and Servicing Agreement--Addition of Trust Assets" in the accompanying
prospectus are satisfied. In addition, the transferors will be required to
designate additional accounts, to the extent available, to maintain the
transferor amount in an amount at least equal to the required transferor amount
and to maintain an aggregate amount of principal receivables in the trust
portfolio equal to or greater than the required minimum principal balance, as
adjusted for any series having a paired series as described in the related
indenture supplement.
The transferors also have the right to designate removed accounts and to
require the indenture trustee to transfer all receivables in the removed
accounts back to the transferors, whether the receivables already exist or
arise after the designation, if the conditions described in "Description of the
Transfer and Servicing Agreement--Removal of Trust Assets" in the accompanying
prospectus are satisfied.
Upon the termination of a merchant agreement, the terminating merchant,
sponsor or dealer may purchase all receivables originated under that agreement,
if it does so, those receivables will be removed from the trust.
Throughout the term of the trust, the accounts in which the receivables
arise will be the accounts designated by the transferors at the time the trust
is established plus any additional accounts minus any removed accounts. As a
result, the composition of the trust assets is expected to change over time.
For a general description of the receivables in the trust, see "The Trust
Portfolio" in the accompanying prospectus.
S-31
The following is particular information about the accounts which will be
transferred to the trust on the closing date and the receivables in those
accounts as of March 31, 2001. This information is as of the beginning of the
day on March 31, 2001:
. The accounts which will be designated to the trust included
$1,410,390,326.10 of receivables.
. The accounts had an average receivable balance of $536.53 and an
average credit limit of $3,439.94.
. The percentage of the aggregate receivable balance to the aggregate
total credit limit was 15.60%. The average age of the accounts was
approximately 27.11 months.
. As of the beginning of the day on March 31, 2001, cardholders whose
accounts will be designated to the trust had billing addresses in all
50 states and the District of Columbia.
The following tables summarize information with respect to the accounts
that will be designated to the trust by various criteria as of the beginning of
the day on March 31, 2001. Because the future composition of the trust
portfolio will change over time, these tables are not necessarily indicative of
the composition of the trust portfolio at any subsequent time. All receivables
shown include both principal and finance charge receivables. The totals shown
may not be exact due to the rounding of the amounts in the tables.
S-32
Composition of Accounts by Industry
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Number of Number of Outstanding Receivables
Industry(1) Accounts Accounts ($1,000s) Outstanding
- ----------- --------- ---------- ----------- -----------
Home Center....................... 1,437,929 54.70% $ 479,456 33.99%
Home Improvement.................. 244,129 9.29 473,850 33.60
Outdoor Power Equipment........... 172,588 6.57 119,375 8.46
Powersports....................... 65,453 2.49 107,366 7.61
Miscellaneous Liquidating......... 204,587 7.78 96,237 6.82
Furniture......................... 129,094 4.91 94,908 6.73
Soft Goods........................ 368,650 14.02 30,281 2.15
Other............................. 6,281 0.24 8,918 0.63
--------- ------ ---------- ------
Total........................... 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
- --------
(1) Industry classification is determined by Conseco.
Composition by Account Balance
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Number of Number of Outstanding Receivables
Account Balance Range Accounts Accounts ($1,000s) Outstanding
- --------------------- --------- ---------- ----------- -----------
Credit Balance..................... 38,337 1.46% $ (2,024) (0.14%)
$0.00 to $0.00..................... 1,570,113 59.73 0.00 0.00
$0.01 to $1,000.00................. 639,076 24.31 213,548 15.14
$1,000.01 to $2,000.00............. 156,484 5.95 223,781 15.87
$2,000.01 to $3,000.00............. 78,194 2.97 193,367 13.71
$3,000.01 to $4,000.00............. 51,721 1.97 179,587 12.73
$4,000.01 to $5,000.00............. 35,809 1.36 161,032 11.42
$5,000.01 to $6,000.00............. 20,474 0.78 112,057 7.95
$6,000.01 to $7,000.00............. 12,512 0.48 81,101 5.75
$7,000.01 to $8,000.00............. 8,873 0.34 66,338 4.70
$8,000.01 to $9,000.00............. 5,714 0.22 48,458 3.44
$9,000.01 to $10,000.00............ 3,941 0.15 37,471 2.66
Over $10,000.00.................... 7,463 0.28 95,673 6.78
--------- ------ ---------- ------
Total............................ 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
S-33
Composition by Credit Limit
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Number of Number of Outstanding Receivables
Credit Limit Range Accounts Accounts ($1,000s) Outstanding
- ------------------ --------- ---------- ----------- -----------
Less than or equal to $1,000.00... 423,842 16.12% $ 88,292 6.26%
$1,000.01 to $2,000.00............ 624,092 23.74 138,975 9.85
$2,000.01 to $3,000.00............ 371,922 14.15 135,899 9.64
$3,000.01 to $4,000.00............ 313,070 11.91 156,557 11.10
$4,000.01 to $5,000.00............ 588,497 22.39 257,265 18.24
$5,000.01 to $6,000.00............ 87,388 3.32 117,494 8.33
$6,000.01 to $7,000.00............ 42,234 1.61 75,293 5.34
$7,000.01 to $8,000.00............ 45,632 1.74 94,646 6.71
$8,000.01 to $9,000.00............ 22,230 0.85 69,128 4.90
$9,000.01 to $10,000.00........... 51,753 1.97 102,333 7.26
Over $10,000.00................... 58,051 2.21 174,509 12.37
--------- ------ ---------- ------
Total........................... 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
Composition by Period of Delinquency
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Period of Delinquency Number of Number of Outstanding Receivables
(Days Contractually Delinquent) Accounts Accounts ($1,000s) Outstanding
- ------------------------------- --------- ---------- ----------- -----------
Up to 29 Days..................... 2,591,732 98.59% $1,327,611 94.13%
30 to 59 Days..................... 16,627 0.63 34,207 2.43
60 to 89 Days..................... 7,169 0.27 17,726 1.26
90 to 119 Days.................... 4,767 0.18 11,157 0.79
120 to 149 Days................... 3,443 0.13 8,236 0.58
150 to 179 Days................... 2,464 0.09 6,014 0.43
180 Days or More.................. 2,509 0.10 5,440 0.39
--------- ------ ---------- ------
Total........................... 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
S-34
Composition by Account Age
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Number of Number of Outstanding Receivables
Account Age(1) Accounts Accounts ($1,000s) Outstanding
- -------------- --------- ---------- ----------- -----------
Less than 1 Month.................. 4,833 0.18% $ 673 0.05%
1 Month to 6 Months................ 413,492 15.73 288,765 20.47
7 Months to 12 Months.............. 438,921 16.70 319,817 22.68
13 Months to 24 Months............. 697,644 26.54 340,324 24.13
25 Months to 48 Months............. 739,732 28.14 311,839 22.11
49 Months to 72 Months............. 208,436 7.93 112,897 8.00
73 Months to 96 Months............. 45,045 1.71 17,420 1.24
97 Months to 120 Months............ 26,658 1.01 7,566 0.54
Over 120 Months.................... 53,950 2.05 11,088 0.79
--------- ------ ---------- ------
Total............................ 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
- --------
(1) Account ages include periods prior to acquisition by Conseco.
Geographic Distribution of Accounts
Trust Portfolio
Percentage Percentage
of Total Receivables of Total
Number of Number of Outstanding Receivables
State Accounts Accounts ($1,000s) Outstanding
- ----- --------- ---------- ----------- -----------
Illinois........................... 327,781 12.47% $ 138,043 9.79%
Texas.............................. 166,112 6.32 129,419 9.18
California......................... 122,597 4.66 107,188 7.60
Indiana............................ 155,522 5.92 80,077 5.68
Wisconsin.......................... 228,130 8.68 76,140 5.40
Arizona............................ 69,120 2.63 69,699 4.94
Florida............................ 70,629 2.69 67,121 4.76
Minnesota.......................... 183,710 6.99 66,475 4.71
New York........................... 142,608 5.43 59,090 4.19
Michigan........................... 110,958 4.22 52,259 3.71
Ohio............................... 145,274 5.53 51,410 3.65
Iowa............................... 127,996 4.87 48,878 3.47
Other.............................. 778,274 29.61 464,593 32.94
--------- ------ ---------- ------
Total.............................. 2,628,711 100.00% $1,410,390 100.00%
========= ====== ========== ======
S-35
Use of Proceeds
The proceeds from the sale of the Series 2001-A notes will be paid to the
transferors and used in the purchase of receivables or repayment of prior
financings related to the receivables. However, a portion of the proceeds will
be used to fund the cash collateral account and the spread account. See
"Description of Series Provisions--Cash Collateral Account" and "--Spread
Account" in this prospectus supplement.
Description of Series Provisions
The following is a summary of the material provisions of the terms unique
to the Series 2001-A notes and the indenture supplement. You also should refer
to the accompanying prospectus for a further discussion of material provisions
common to all notes issued under the indenture. The form of each of the
transfer and servicing agreement, the indenture and an indenture supplement has
been filed with the SEC as an exhibit to the registration statement relating to
the notes.
General
The Class A notes, Class B notes, Class C notes and the Class D notes
comprise the Series 2001-A notes and will be issued under the indenture, as
supplemented by the indenture supplement relating to the Series 2001-A notes,
in each case among the trust, the indenture trustee and the servicer. As
described under "Description of the Notes--New Issuances" in the accompanying
prospectus, the transferors may cause the owner trustee, on behalf of the
trust, the indenture trustee and the servicer to execute further indenture
supplements in order to issue additional series.
The closing date for Series 2001-A is expected to be May 31, 2001. The
Class A and Class B notes will be issued in denominations of $1,000 and
integral multiples of $1,000 and will be available only in book-entry form,
registered in the name of Cede, as nominee of DTC. See "Description of the
Notes--General," "--Book-Entry Registration" and "--Definitive Notes" in the
accompanying prospectus. Unless definitive notes are issued, you will be able
to transfer your interest in the notes only through the facilities of DTC. You
will receive payments and notices through DTC and its participants. Payments of
interest and principal will be made on each payment date to the noteholders in
whose names Series 2001-A notes were registered on the record date.
Application will be made to list the notes on the Luxembourg Stock
Exchange; however, we cannot assure you that the listing will be obtained.
The Class C notes and the Class D notes will initially be held by the
transferors or an affiliate of the transferors and are not being offered under
this prospectus supplement.
Interest Payments
The Class A notes will accrue interest from and including the closing date
through but excluding the July 2001 payment date and for each following
interest period, at a rate of 0.28% per annum above LIBOR for the related LIBOR
determination date.
S-36
The Class B notes will accrue interest from and including the closing date
through but excluding the July 2001 payment date, and for each following
interest period, at a rate of 0.90% per annum above LIBOR for the related LIBOR
determination date.
The Class C notes will accrue interest from and including the closing date
through but excluding the July 2001 payment date and for each following
interest period, at a rate of 1.75% per annum above LIBOR for the related LIBOR
determination date; provided, that the interest rate on the Class C notes may
be changed at the option of the transferors if the transferors have received
notice from the rating agencies that the change will not cause a withdrawal or
downgrade of any rating on any outstanding series or class of notes.
The Class D notes will accrue interest from and including the closing date
through but excluding the July 2001 payment date and for each following
interest period, at a rate of 6.50% per annum above LIBOR for the related LIBOR
determination date; provided, that the interest rate on the Class D notes may
be changed at the option of the transferors if the transferors have received
notice from the rating agencies that the change will not cause a withdrawal or
downgrade of any rating on any outstanding series or class of notes.
For the interest period beginning on the closing date and ending on the
first payment date, interest will be calculated from the closing date to but
excluding June 15, 2001 on the basis of LIBOR determined on the second London
business day preceding the closing date and calculated from and including June
15, 2001 to but excluding July 16, 2001 on the basis of LIBOR determined on the
second London business day preceding June 15, 2001. For the interest period
beginning July 16, 2001 and each interest period thereafter, the indenture
trustee will determine LIBOR for each interest period on the LIBOR
determination date.
The Class A note interest rate and the Class B note interest rate
applicable to the then current and immediately preceding interest period may be
obtained by telephoning the indenture trustee at its corporate trust office at
(800) 934-6802.
Interest on the notes will be calculated on the basis of the actual number
of days in the related interest period and a 360-day year.
Interest will be paid on each payment date, which will be July 16, 2001 and
the 15th day of each following month or, if the 15th day is not a business day,
the following business day.
Interest payments on the Class A notes, the Class B notes, the Class C
notes and the Class D notes on any payment date will be calculated on the
aggregate principal balance of the Class A notes, the Class B notes, the Class
C notes and the Class D notes, as applicable, as of the preceding record date,
except that interest for the first payment date will accrue at the applicable
note interest rate on the initial aggregate principal balance of the Class A
notes, the Class B notes, the Class C notes and the Class D notes, as
applicable, from the closing date.
Interest due on the Class A notes, the Class B notes, the Class C notes and
the Class D notes but not paid on any payment date will be payable on the
following payment date,
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together with additional interest on that amount at the applicable note
interest rate. Additional interest will accrue on the same basis as interest on
the Series 2001-A notes, and will accrue from the payment date on which the
overdue interest became due, to but excluding the payment date on which the
additional interest is paid.
Interest payments on the Series 2001-A notes on any payment date will be
paid from available investor finance charge collections, including excess
finance charge collections allocated to Series 2001-A, if any, for the related
monthly period. To the extent available investor finance charge collections are
insufficient, interest will be paid from amounts available in the cash
collateral account and from subordinated principal collections, to the extent
available, for the related monthly period. Interest payments on the Class C
notes and the Class D notes on any payment date will also be paid from
available amounts on deposit in the spread account to the extent needed.
Principal Payments
You are expected to receive payment of principal in full on the May 2004
payment date. You may, however, receive payments of principal earlier than the
expected principal payment date if an amortization event occurs and the early
amortization period begins. The holders of the Class B notes will not begin to
receive payments of principal until the final principal payment on the Class A
notes has been made.
The holders of the Class C notes will not begin to receive payments of
principal until the final principal payments on the Class A notes and Class B
notes have been made, except to the extent payments, if any, are made from the
spread account.
The holders of the Class D notes will not receive any payments of principal
until the final principal payments on the Class A notes, the Class B notes and
the Class C notes have been made, except to the extent payments, if any, are
made from the spread account.
Revolving Period
The revolving period for the Series 2001-A notes begins on the closing date
and ends on the earlier of the date the controlled accumulation period begins
or the date the early amortization period begins. During the revolving period,
the investor percentage of collections of principal receivables will, subject
to limitations, including the allocation of any subordinated principal
collections for that monthly period, be treated as shared principal collections
and used to pay principal to other series in principal sharing group one or
will be paid to the holders of the transferors' interest.
Series 2001-A will not permit partial amortization during the revolving
period.
Controlled Accumulation Period
Principal for payment to the Series 2001-A noteholders will accumulate
during the controlled accumulation period in the principal funding account
established by the indenture trustee. The controlled accumulation period for
the Series 2001-A notes is scheduled to
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begin at the close of business on the last day of April 2003, but may be
postponed, as discussed under "--Postponement of Controlled Accumulation
Period" below, and ends on the earliest of:
(1) the beginning of the early amortization period; and
(2) the payment in full of the aggregate principal balance of the notes.
If an amortization event occurs before the controlled accumulation period
begins, there will be no controlled accumulation period, and the early
amortization period will begin.
On each payment date relating to the controlled accumulation period, the
indenture trustee will deposit in the principal funding account an amount equal
to the least of:
(1) available investor principal collections with respect to that payment
date;
(2) the applicable controlled deposit amount; and
(3) the adjusted invested amount prior to any deposits on that date.
Amounts in the principal funding account will be paid:
first, to Class A noteholders, up to the aggregate principal balance of
the Class A notes;
second, to Class B noteholders, up to the aggregate principal balance of
the Class B notes;
third, to Class C noteholders, up to the aggregate principal balance of
the Class C notes; and
fourth, to Class D noteholders, up to the aggregate principal balance of
the Class D notes;
in each case, on the expected principal payment date unless paid earlier due to
the commencement of the early amortization period.
During the controlled accumulation period, the portion of available
investor principal collections not applied for the payment of principal on the
Class A notes, the Class B notes, the Class C notes and the Class D notes on a
payment date generally will be treated as shared principal collections.
We expect, but cannot assure you, that the amounts available in the
principal funding account on the expected principal payment date will be
sufficient to pay in full the aggregate principal balance of the Class A notes,
the Class B notes, the Class C notes and the Class D notes. If these amounts
are not available on the expected principal payment date, an amortization event
will occur and the early amortization period will begin.
Postponement of Controlled Accumulation Period
The controlled accumulation period is scheduled to last 12 months. However,
the servicer may elect to extend the revolving period and postpone the
controlled accumulation period by providing a notice to the indenture trustee.
The servicer can make this election
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only if the number of months needed to fund the principal funding account based
on expected principal collections needed to pay principal on the Series 2001-A
notes is less than 12 months.
On each determination date beginning in February 2003 and ending when the
controlled accumulation period begins, the servicer will review the amount of
expected principal collections and determine the number of months expected to
be required to fully fund the principal funding account by the expected
principal payment date and may elect to postpone the controlled accumulation
period. In making its decision, the servicer is required to assume that the
principal payment rate will be no greater than the lowest monthly payment rate
for the prior 12 months and will consider the amount of principal expected to
be allocable to noteholders of all other series, if any, in principal sharing
group one which are expected to be amortizing or accumulating principal during
the controlled accumulation period for Series 2001-A. In no case will the
controlled accumulation period be reduced to less than one month.
The method for determining the number of months required to fully fund the
principal funding account may be changed upon receipt of written confirmation
that the change will not result in the reduction or withdrawal by any rating
agency of its rating of any outstanding series or class.
Early Amortization Period
The early amortization period for the Series 2001-A notes will begin on the
day on which an amortization event with respect to Series 2001-A occurs and end
on the earlier of the date on which the Series 2001-A notes are paid in full or
the payment date in November 2009.
If an amortization event occurs during the controlled accumulation period,
on the next payment date any amounts on deposit in the principal funding
account will be paid in the following order of priority:
. first, to the Class A noteholders, up to the principal balance of the
Class A notes;
. second, to the Class B noteholders, up to the principal balance of the
Class B notes;
. third, to the Class C noteholders, up to the principal balance of the
Class C notes; and
. fourth, to the Class D noteholders, up to the principal balance of the
Class D notes.
In addition, if the principal balance of the Class A notes has not been
paid in full, available investor principal collections will be paid to the
Class A noteholders on each payment date until the earlier of:
(1) the date the Class A notes are paid in full; and
(2) the payment date in December 2008.
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After the Class A notes have been paid in full, and the trust termination
date has not occurred, available investor principal collections will be paid to
the Class B noteholders on each payment date until the earlier of:
(1) the date the Class B notes are paid in full; and
(2) the payment date in November 2009.
After the Class B notes have been paid in full, and the trust termination
date has not occurred, available investor principal collections will be paid to
the Class C noteholders on each payment date until the earlier of:
(1) the date the Class C notes are paid in full; and
(2) the payment date in November 2009.
After the Class C notes have been paid in full, and the trust termination
date has not occurred, available investor principal collections will be paid to
the Class D noteholders on each payment date until the earlier of:
(1) the date the Class D notes are paid in full; and
(2) the payment date in November 2009.
If a class of notes has not been paid in full by its final maturity date,
an event of default will occur. See "--Amortization Events" below for a
discussion of events that might lead to the commencement of the early
amortization period.
Principal Funding Account
The indenture trustee will establish and maintain with an eligible
institution a segregated trust account held for the benefit of the noteholders
to serve as the principal funding account. During the controlled accumulation
period, the indenture trustee at the direction of the servicer will transfer
available investor principal collections from the collection account to the
principal funding account as described under "--Application of Collections" in
this prospectus supplement.
Funds on deposit in the principal funding account will be invested to the
following payment date by the indenture trustee at the direction of the
servicer in eligible investments. Principal funding investment proceeds will be
deposited in the collection account and included in available investor finance
charge collections for the related monthly period.
Reserve Account
The indenture trustee will establish and maintain with an eligible
institution a segregated trust account held for the benefit of the noteholders
to serve as the reserve account. The reserve account is established to assist
with the subsequent distribution of interest on the notes during the controlled
accumulation period and on the first payment date with respect to the early
amortization period. The reserve account will not be funded until the reserve
account funding date. On each payment date from and after the reserve account
funding date, but prior to the termination of the reserve account, the
indenture trustee, acting in accordance with the servicer's instructions, will
apply available investor finance charge
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collections, including excess finance charge collections allocated to the
Series 2001-A notes, if any (to the extent described under "--Application of
Collections--Payment of Interest, Fees and Other Items"), initially up to the
required reserve account amount and thereafter to increase the amount on
deposit in the reserve account, to the extent that amount is less than the
required reserve account amount.
As long as no event of default for your series has occurred and is
continuing, on each payment date, after giving effect to any deposit to be made
to, and any withdrawal to be made from, the reserve account on that payment
date, the indenture trustee will withdraw from the reserve account an amount
equal to the excess, if any, of the amount on deposit in the reserve account
over the required reserve account amount and will apply such excess first, to
the cash collateral account, to the extent that funds on deposit in the cash
collateral account are less than the required cash collateral amount, second,
to the spread account, to the extent that funds on deposit in the spread
account are less than the required spread account amount, and third, to the
trust for distribution to the holders of the transferors' interest. Any amounts
withdrawn from the reserve account and distributed to the trust as described
above will not be available for distribution to the noteholders. On any day
following an event of default and an acceleration of the notes, funds available
in the reserve account will be used to fund any amounts owed to the
noteholders.
So long as the reserve account is not terminated, all amounts on deposit in
the reserve account on any payment date, after giving effect to any deposits
to, or withdrawals from, the reserve account to be made on that payment date,
will be invested to the following payment date by the indenture trustee at the
direction of the servicer in eligible investments. The interest and other
investment income, net of investment expenses and losses, earned on these
investments will be retained in the reserve account, to the extent the amount
on deposit is less than the required reserve account amount, and otherwise will
be deposited in the collection account and treated as available investor
finance charge collections.
On or before each payment date with respect to the controlled accumulation
period and on the first payment date with respect to the early amortization
period, a withdrawal will be made from the reserve account, and the amount of
this withdrawal will be deposited in the collection account and included as
available investor finance charge collections, as provided in the Series 2001-A
indenture supplement, for that payment date in an aggregate amount equal to the
least of:
(1) the amount then on deposit in the reserve account with respect to
that payment date;
(2) the required reserve account amount; and
(3) the reserve draw amount with respect to that payment date.
However, the amount of the withdrawal will be reduced to the extent that funds
otherwise would be available to be deposited in the reserve account on that
payment date.
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If, for any payment date, the principal funding investment proceeds are
less than the sum of:
(1) the product of (a) the balance of the principal funding account, up
to the principal balance of the Class A notes, on the record date
immediately preceding that payment date, (b) the Class A note
interest rate for the related interest period, and (c) the number of
days in the related interest period divided by 360, plus
(2) the product of (a) the balance of the principal funding account in
excess of the principal balance of the Class A notes up to the
principal balance of the Class B notes on the record date immediately
preceding that payment date, (b) the Class B note interest rate for
the related interest period, and (c) the number of days in the
related interest period divided by 360, plus
(3) the product of (a) the balance of the principal funding account in
excess of the sum of the aggregate principal balance of the Class A
notes and the Class B notes on the record date immediately preceding
that payment date, up to the principal balance of the Class C notes
on the record date immediately preceding that payment date, (b) the
Class C note interest rate for the related interest period, and (c)
the number of days in the related interest period divided by 360,
plus
(4) the product of (a) the balance of the principal funding account in
excess of the sum of the aggregate principal balance of the Class A
notes, the Class B notes and the Class C notes on the record date
immediately preceding that payment date up to the principal balance
of the Class D notes on the record date immediately preceding that
payment date, (b) the Class D note interest rate for the related
interest period, and (d) the number of days in the related interest
period divided by 360,
then the indenture trustee will withdraw the shortfall, called the "reserve
draw amount," to the extent required and available, from the reserve account
and deposit it in the collection account for use as available investor finance
charge collections.
The reserve account will be terminated upon the earliest to occur of:
(1) the first payment date for the early amortization period;
(2) the expected principal payment date; and
(3) the termination of the trust.
Upon the termination of the reserve account, all amounts on deposit in the
reserve account (after giving effect to any withdrawal from the reserve account
on that date as described above) will be distributed first, to the cash
collateral account, to the extent that funds on deposit in the cash collateral
account are less than the required cash collateral amount, second, to the
spread account, to the extent that funds on deposit in the spread account are
less than the required spread account amount and third, to the trust for
further distributions to the holders of the transferors' interest. Any amounts
withdrawn from the
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reserve account and distributed to the trust as described above will not be
available for distribution to the noteholders.
Principal Sharing Group One
Series 2001-A will be included in a group of series designated as principal
sharing series group one. Collections of principal receivables for any monthly
period allocated to Series 2001-A will first be used to cover, during the
controlled accumulation period, deposits of the applicable controlled deposit
amount to the principal funding account, and during the early amortization
period, payments to the noteholders. Shared principal collections will be
determined and allocated by the servicer to cover principal shortfalls. Shared
principal collections will not be used to cover investor charge-offs or
unreimbursed subordinated principal collections for any series. If principal
shortfalls exceed shared principal collections for any monthly period, shared
principal collections will be allocated pro rata among the applicable series in
principal sharing group one based on the relative amounts of principal
shortfalls. To the extent that shared principal collections exceed principal
shortfalls, the balance will, subject to limitations described under
"Description of the Notes--Application of Collections" in the accompanying
prospectus, be paid to the holders of the transferors' interest.
Paired Series
Your series of notes may be paired with one or more series of notes issued
at a later time once the controlled accumulation period or the early
amortization period for your series begins. We call each of these later issued
series a paired series. All or a portion of a paired series may be pre-funded
with an initial deposit to a funding account that is for the sole benefit of
the paired series; in the alternative, a paired series may have a principal
amount that can be increased. As your series amortizes, if there have been no
unreimbursed investor charge-offs for any paired series, the invested amount of
the paired series will be increased by an amount equal to the related amortized
amount. The issuance of the paired series will be subject to the conditions
described under "Description of the Notes--New Issuances" in the accompanying
prospectus.
We cannot assure you that the terms of any paired series will not have an
impact on the calculation of the investor percentage or the timing or amount of
payments received by you as a Series 2001-A noteholder. The extent to which the
timing or amount of payments received by you may be affected will depend on
many factors, one of which is a change in the calculation of the investor
percentage.
Subordination
The Class B notes are subordinated to the Class A notes. Interest payments
will be made on the Class A notes prior to being made on the Class B notes.
Principal payments on the Class B notes will not begin until the Class A notes
have been paid in full.
If principal collections allocated to your series are reallocated to pay
the interest on the Class A notes, the principal amount of the Class B notes
may not be repaid. If a foreclosure
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and sale of trust assets after an event of default occurs, the net proceeds of
that sale which are available to pay principal and interest on the Series 2001-
A notes would be paid first to the Class A notes before any remaining net
proceeds would be available for payments due to the Class B notes.
The Class C notes and the Class D notes are subordinated to the Class A
notes and the Class B notes. Principal payments on the Class C notes and the
Class D notes will not begin until the Class A notes and the Class B notes have
been paid in full, except to the extent that payment may be made on the Class C
notes and the Class D notes from the spread account.
Events Of Default
The events of default for Series 2001-A, as well as the rights and remedies
available to the indenture trustee and the Series 2001-A noteholders when an
event of default occurs, are described under "Description of the Indenture--
Events of Default; Rights Upon Event of Default" in the accompanying
prospectus.
If an event of default for Series 2001-A occurs, the indenture trustee or
the holders of a majority of the outstanding principal amount of the Series
2001-A notes may declare the Series 2001-A notes to be immediately due and
payable. If the Series 2001-A notes are accelerated, you may receive principal
prior to the expected principal payment date for your notes.
Amortization Events
As described above, the revolving period will continue through April 30,
2003 (unless that date is postponed as described under "--Principal Payments--
Postponement of Controlled Accumulation Period" in this prospectus supplement),
unless an amortization event occurs prior to that date.
An "amortization event" refers to any of the following events:
(1) failure by the transferors (a) to make any payment or deposit on
the date required under the transfer and servicing agreement, the
indenture or the Series 2001-A indenture supplement, or within the
applicable grace period which shall not exceed five days or (b) to observe
or perform in any material respect any other covenants or agreements of
the transferors set forth in the transfer and servicing agreement, the
indenture or the Series 2001-A indenture supplement, which failure has an
Adverse Effect on the Series 2001-A noteholders and which continues
unremedied for a period of 60 days after written notice of the failure,
requiring the same to be remedied, and continues to materially and
adversely affect the interests of the noteholders for the designated
period;
(2) any representation or warranty made by the transferors in the
transfer and servicing agreement, or any information required to be given
by the transferors to the indenture trustee to identify the accounts
proves to have been incorrect in any material respect when made or
delivered and which continues to be incorrect in any material respect for
a period of 60 days after written notice of the failure, requiring the
same to be remedied, and which has an Adverse Effect on the Series 2001-A
noteholders and
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such Adverse Effect continues for the designated period; except that an
amortization event described in this subparagraph (2) will not occur if
the transferors have accepted reassignment of the related receivable or
all related receivables, if applicable, during the designated period in
accordance with the provisions of the transfer and servicing agreement;
(3) any servicer default occurs which would have an Adverse Effect on
the Series 2001-A noteholders;
(4) the average of the series portfolio yields for any three
consecutive monthly periods minus the average of the base rates for the
same monthly periods is less than 2%;
(5) the Class A notes, the Class B notes, the Class C notes and the
Class D notes have not been paid in full on or before the expected
principal payment date;
(6) after making all deposits and withdrawals on such dates, the
amount on deposit in the cash collateral account is less than the required
cash collateral amount for two consecutive payment dates;
(7) a failure by a transferor to convey receivables in additional
accounts or participations to the trust within five business days after
the date required by the transfer and servicing agreement;
(8) bankruptcy, insolvency, liquidation, conservatorship, receivership
or similar events relating to the trust, one or more of the transferors,
one or more of the account owners or Conseco Finance; provided that an
insolvency event with respect to any one or more of the entities listed
will not cause an amortization event if the removal of that entity or
those entities from the list of entities whose insolvency will result in
an amortization event will not cause a reduction or withdrawal by the
rating agencies of the rating of any outstanding series or class of notes;
(9) a transferor, including any additional transferor, is unable for
any reason to transfer receivables to the trust in accordance with the
provisions of the transfer and servicing agreement;
(10) the trust becomes subject to regulation as an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended; or
(11) an event of default and acceleration of the notes for Series
2001-A occurs under the indenture.
In the case of any event described in clause (1), (2) or (3) above, an
amortization event will be deemed to have occurred with respect to the notes
only if, after any applicable grace period, either the indenture trustee or the
Series 2001-A noteholders evidencing interests aggregating more than 50% of the
aggregate unpaid principal amount of the Series 2001-A notes, by written notice
to the transferors and the servicer and to the indenture trustee if given by
the Series 2001-A noteholders, declare that an amortization event has occurred
with respect to the Series 2001-A notes as of the date of the notice.
If an event described in clause (8), (9), or (10) occurs, then an
amortization event with respect to all series then outstanding shall occur, and
if an event described in clause (4), (5),
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(6), (7) or (11) occurs, then an amortization event with respect to the Series
2001-A notes only will occur, in each case, without any notice or other action
on the part of the indenture trustee or the Series 2001-A noteholders
immediately upon the occurrence of the event.
On the date on which an amortization event is deemed to have occurred, the
early amortization period will begin.
See "Description of the Notes--Amortization Events" in the accompanying
prospectus for an additional discussion of the consequences of an insolvency,
conservatorship or receivership of the transferors.
Allocation Percentages
Under the indenture, with respect to each monthly period, the servicer will
allocate among Series 2001-A, all other series issued and outstanding and the
transferors' interest, all amounts collected on finance charge receivables, all
amounts collected on principal receivables and all defaulted amounts with
respect to that monthly period. These amounts will be allocated based on the
investor percentage.
Defaulted amounts and collections of finance charge receivables at any
time, and principal receivables during the revolving period will be allocated
to the invested amount based on the floating investor percentage.
Collections of principal receivables during the controlled accumulation
period and early amortization period will be allocated to the invested amount
allocated to Series 2001-A based on the fixed investor percentage.
Interest payments on the Series 2001-A notes will be paid from available
investor finance charge collections which include excess finance charge
collections, if any, allocated to Series 2001-A. To the extent investor finance
charge collections are not sufficient, interest will be paid from the cash
collateral account and if the cash collateral account is not sufficient,
interest on the Class C notes and the Class D notes will be paid from the
spread account. Principal payments on the Series 2001-A notes will be paid from
available investor principal collections.
Application of Collections
Payment of Interest, Fees and Other Items
On each payment date, the servicer will direct the indenture trustee to
apply available investor finance charge collections, including excess finance
charge collections, if any, allocated to Series 2001-A, on deposit in the
collection account in the following order:
(1) an amount equal to the monthly servicing fee and administration
fee due for the related payment date, and past due for any prior payment
date, will be paid to the servicer and administrator, respectively;
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(2) an amount equal to the Class A monthly interest plus Class A
additional interest due for the related payment date, and past due for any
prior payment dates, will be paid to the Class A noteholders on that
payment date;
(3) an amount equal to the Class B monthly interest plus Class B
additional interest due for the related payment date, and past due for any
prior payment dates, will be paid to the Class B noteholders on that
payment date;
(4) an amount equal to the Class C monthly interest plus Class C
additional interest due for the related payment date, and past due for any
prior payment dates, will be paid to the Class C noteholders on that
payment date;
(5) an amount equal to the investor default amount, if any, for the
related monthly period, will be treated as available investor principal
collections;
(6) an amount equal to the sum of the investor charge-offs and the
amount of unreimbursed subordinated principal collections will be treated
as available investor principal collections;
(7) an amount equal to the Class D monthly interest plus Class D
additional interest due for the related payment date, and past due for any
prior payment dates, will be paid to the Class D noteholders on that
payment date;
(8) upon the occurrence of an event of default with respect to Series
2001-A and acceleration of the maturity of the Series 2001-A notes, the
remaining available investor finance charge collections, if any, up to the
outstanding Series 2001-A note principal balance will be treated as
available investor principal collections for such payment date;
(9) an amount equal to the excess, if any, of the required cash
collateral amount over the amount then on deposit in the cash collateral
account will be deposited in the cash collateral account;
(10) on and after the reserve account funding date, an amount equal to
the excess, if any, of the required reserve account amount over the amount
then on deposit in the reserve account will be deposited into the reserve
account;
(11) an amount equal to the excess, if any, of the required spread
account amount over the amount then on deposit in the spread account will
be deposited into the spread account;
(12) any other amounts the trust is required to deposit into any
accounts or any other amounts for which the trust is liable will be
applied by the indenture trustee as directed by the servicer; and
(13) all remaining amounts will be treated as excess finance charge
collections and will be available to cover any shortfalls in finance
charge collections for other outstanding series in excess finance charge
sharing group one and, after payment of these shortfalls, the remaining
amount will be paid to the owner trustee to be applied in accordance with
the trust agreement.
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Payments of Principal
On each payment date, the servicer will direct the indenture trustee to
apply available investor principal collections on deposit in the collection
account in the following priority:
. on each payment date with respect to the revolving period, all
available investor principal collections will be treated as shared
principal collections and applied as described under "Description of
Series Provisions--Principal Payments--Principal Sharing Group One" in
this prospectus supplement and "Description of the Notes--Groups--
Principal Sharing Group" in the accompanying prospectus;
. on each payment date with respect to the controlled accumulation
period and the early amortization period, all available investor principal
collections will be distributed or deposited in the following priority:
(1) during the controlled accumulation period and prior to the
payment in full of the Class A, Class B, Class C and the Class D
notes, an amount equal to monthly principal will be deposited in the
principal funding account in an amount not to exceed the controlled
deposit amount;
(2) during the early amortization period, an amount equal to the
monthly principal will be distributed to the paying agent for payment
to the Class A noteholders until the principal balance of the Class A
notes has been paid in full;
(3) during the early amortization period, an amount equal to
monthly principal will, after the principal balance of the Class A
notes has been paid in full, be distributed to the paying agent for
payment to the Class B noteholders until the principal balance of the
Class B notes has been paid in full;
(4) during the early amortization period, an amount equal to
monthly principal will, after the principal balances of the Class A
notes and the Class B notes have been paid in full, be distributed to
the paying agent for payment to the Class C noteholders until the
principal balance of the Class C notes has been paid in full;
(5) during the early amortization period, an amount equal to
monthly principal will, after the principal balances of the Class A
notes, the Class B notes and the Class C notes have been paid in full,
be distributed to the paying agent for payment to the Class D
noteholders until the principal balance of the Class D notes has been
paid in full; and
(6) on each payment date with respect to the controlled
accumulation period and the early amortization period, the balance of
available investor principal collections not applied as described in
clauses (1) through (5) above, if any, will be treated as shared
principal collections with respect to principal sharing group one and
applied as described under "Description of Series Provisions--
Principal Payments--Principal Sharing Group One" in this prospectus
supplement and "Description of the Notes--Groups--Principal Sharing
Group" in the accompanying prospectus; and
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. On the earlier to occur of (1) the first payment date for the early
amortization period and (2) the expected principal payment date, the
indenture trustee will withdraw from the principal funding account and
distribute to the Class A noteholders, the Class B noteholders, the Class
C noteholders and the Class D noteholders, in that order of priority, the
amounts deposited into the principal funding account.
Excess Finance Charge Sharing Group One
Series 2001-A will be included in a group of series designated as excess
finance charge sharing group one. Available investor finance charge
collections--and other amounts treated like finance charge collections--in
excess of the amount required to make payments or deposits for your series will
be made available to other series included in excess finance charge sharing
group one whose allocation of available investor finance charge collections is
not sufficient to make its required payments or deposits. To the extent that
investor finance charge collections allocated to Series 2001-A are insufficient
to make all required payments, your series will have access to finance charge
collections--and other amounts treated like finance charge collections--from
other series in excess finance charge sharing group one. Each series that is
part of excess finance charge sharing group one and has a shortfall will
receive a share of the total amount of excess finance charge collections
available for that month based on the amount of shortfall for that series
divided by the total shortfall for all series for that same month.
Subordinated Principal Collections
On each payment date, if the sum of the monthly servicing fee and
administration fee and the Class A interest, Class B interest and the Class C
interest cannot be paid from available investor finance charge collections
including excess finance charge collections as described under "--Application
of Collections," and amounts withdrawn from the cash collateral account and,
with respect to the Class C notes, from the spread account, then collections of
principal receivables allocated to Series 2001-A will be available to pay these
amounts, up to an amount equal to the subordinated principal collections, and
the invested amount will be reduced accordingly. A reduction in the invested
amount will reduce the allocation of collections of finance charge receivables
and principal receivables to your series.
Defaulted Receivables; Investor Charge-Offs
The investor default amount represents the series' share of losses from the
trust portfolio. On each payment date, the servicer will calculate the investor
default amount. If the investor default amount exceeds the amount of available
investor finance charge collections, including excess finance charge
collections, and any amounts withdrawn from the cash collateral account
allocated to fund this amount for the prior month, then the invested amount
(after giving effect to any reductions for any subordinated principal
collections) will be reduced by the excess. The invested amount will also be
reduced by the amount of any subordinated principal collections. In no event,
however, will the invested amount be reduced below zero. Reductions in the
invested amount from both of these items
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may be reimbursed from subsequent available investor finance charge
collections, including excess finance charge collections allocated for
reimbursement, if available. If the invested amount is reduced to zero, your
series will not receive any further allocations of collections of finance
charge receivables or principal receivables.
Cash Collateral Account
The indenture trustee will establish and maintain with an eligible
institution a segregated trust account held for the benefit of the noteholders
to serve as the cash collateral account. Amounts on deposit in the cash
collateral account shall be used to fund shortfalls in the amounts needed to
pay the servicing and administration fees, to pay interest on the Series 2001-A
notes, to cover the investor default amount allocated to Series 2001-A or to
reimburse reductions in the Series 2001-A invested amount resulting from
charge-offs and the application of subordinated principal collections.
On the closing date, the indenture trustee shall deposit into the cash
collateral account $35,832,800 of the proceeds from the sale of the Series
2001-A notes.
On or before each payment date, a withdrawal will be made from the cash
collateral account in an aggregate amount equal to the least of:
(1) the amount then on deposit in the cash collateral account with
respect to that payment date;
(2) the required cash collateral amount; and
(3) the required cash collateral draw amount.
If, for any payment date, the available investor finance charge
collections, including any excess finance charge collections allocated to
Series 2001-A are less than the sum of items (1) through (7) under "--
Application of Collections--Payment of Interest, Fees and Other Items," then
the indenture trustee will withdraw the shortfall, called the "required cash
collateral draw amount," to the extent required and available, from the cash
collateral account and apply it to fund any deficiency in such items (1)
through (7) in the same order of priority.
In the event that on any payment date, after giving effect to all deposits
to and withdrawals from the cash collateral account with respect to such
payment date, the amount on deposit in the cash collateral account exceeds the
required cash collateral amount, the indenture trustee, acting in accordance
with the written instructions of the servicer, shall withdraw such excess from
the cash collateral account, and pay such amounts to the trust to be
distributed to the holders of the transferors' interest.
Funds in the cash collateral account shall be invested at the direction of
the servicer by the indenture trustee in eligible investments.
Spread Account
The indenture trustee will establish and maintain with an eligible
institution the spread account as a segregated account held as security for the
benefit of the Class C noteholders
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and the Class D noteholders. Amounts on deposit in the spread account will be
used to fund shortfalls in interest payments on the Class C notes and the Class
D notes. Any amounts on deposit in the spread account on the November 2009
payment date will be used to fund any shortfall in payment of the principal
balances of the Class C notes and the Class D notes.
The spread account initially will be funded with $7,166,560 of the proceeds
of the Series 2001-A notes, an amount equal to 1.0% of the initial invested
amount of the Series 2001-A notes. If the required spread account amount is
increased at any time or if for any reason the amount in the spread account is
less than the required spread account amount, then available investor finance
charge collections, including excess finance charge collections allocated to
Series 2001-A, if any, as described above under "--Application of Collections--
Payment of Interest, Fees and Other Items," will be deposited into the spread
account on any payment date to the extent that the funds available in the
spread account are less than the required spread account amount on that payment
date.
The "required spread account amount" will be determined on each payment
date, and, in general, for any date of determination, will be equal to the
product of:
(1) the spread account percentage in effect on the date of determination,
and
(2) the initial invested amount.
However, unless an event of default for your series has occurred, the required
spread account amount will not exceed the sum of the principal balance of the
Class C notes and the Class D notes minus the excess, if any, of the principal
funding account balance over the sum of the principal balances of the Class A
notes and the Class B notes on the date of determination.
Once an event of default for your series occurs and is continuing, the
required spread account amount for any payment date will automatically increase
to the sum of:
(1) the amount on deposit in the spread account on that payment date, and
(2) available investor finance charge collections and excess finance
charge collections for that payment date available immediately after
funding the reserve account.
However, following an event of default for your series, if the maturity of your
notes is not accelerated, the increase in the required spread account amount
will be limited to an amount equal to the aggregate principal balance of your
series of notes.
The "spread account percentage" will be determined as follows:
If the
Quarterly
Excess then, the
Spread Spread
Percentage Account
is greater Percentage
than or less will
equal to: than: equal:
---------- and ----- ----------
5.0% -- 1.0%
4.5% 5.0% 1.5%
4.0% 4.5% 2.0%
3.5% 4.0% 2.5%
3.0% 3.5% 3.0%
-- 3.0% 4.0%
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After the spread account percentage has been increased above 1.0% as
specified in the table above, it will remain at the specified percentage until:
(1) further increased to a higher required percentage as specified
above, or
(2) if the quarterly excess spread percentage has increased to a level
above that for the then current spread account percentage, and has
remained at that level for each of three consecutive payment dates, then
as of that third payment date, the spread account percentage will be
decreased to the appropriate percentage as specified above or, if the
quarterly excess spread percentage for three consecutive payment dates is
greater than or equal to 5.0%, the spread account percentage will be 1.0%.
However, if an amortization event, other than an amortization event
resulting from the occurrence of an event of default, with respect to Series
2001-A has occurred, the spread account percentage will equal 4.0%, as provided
in the definition of spread account percentage above, and may not be
subsequently reduced.
The "quarterly excess spread percentage" will be determined as follows:
For the July 2001 The modified excess spread percentage
payment date:
For the August 2001 The modified excess spread percentage for the first monthly
payment date: period, plus
the excess spread percentage for the July 2001 monthly period
2
For the September 2001 The modified excess spread percentage for the first monthly
payment date: period, plus
the excess spread percentage for the July 2001 monthly
period plus
the excess spread percentage for the August 2001 monthly period
3
For each following The sum of the excess spread percentage for the three
payment date: prior monthly periods
3
The "excess spread percentage" for any monthly period will be the amount,
if any, by which the series portfolio yield exceeds the base rate.
The "modified excess spread percentage" will be calculated for the first
monthly period in accordance with the Series 2001-A indenture supplement based
on available investor finance charge collections less the investor default
amount for that first monthly period in relation to the amount of interest and
monthly servicing fee and administration fee accrued for the first payment date
and the initial invested amount.
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Funds on deposit in the spread account will be invested at the direction of
the servicer in eligible investments. For purposes of the spread account, the
reference in the definition of eligible investments to a rating in the "highest
rating category" refers to a rating of at least A-2 by Standard & Poor's, P-2
by Moody's or F2 by Fitch. Investment earnings, net of losses and investment
expenses, will, except as otherwise indicated in this prospectus supplement, be
retained in the spread account to the extent that the available spread account
amount is less than the required spread account amount, and the balance will be
paid to the trust for distribution to the holders of the transferors' interest.
Spread Account Distributions
If on any payment date, the interest to be paid on the Class C notes
exceeds the amount allocated to pay that interest, including any amounts
available in the cash collateral account for that purpose, the indenture
trustee, at the instruction of the servicer, will withdraw from the spread
account the lesser of (1) the amount on deposit in the spread account,
including investment earnings, to the extent necessary to fund that excess, and
(2) the amount of the excess, and will deposit that amount into the collection
account for payment of interest on the Class C notes.
If on any payment date, the interest to be paid on the Class D notes
exceeds the amount allocated to pay that interest, the indenture trustee, at
the instruction of the servicer, will withdraw from the spread account, after
making any withdrawals with respect to the Class C notes, the lesser of (1) the
amount on deposit in the spread account, including investment earnings, to the
extent necessary to fund that excess, and (2) the amount of the excess, and
will deposit that amount into the collection account for payment of interest on
the Class D notes.
Any amounts on deposit in the spread account on the November 2009 payment
date, after giving effect to any withdrawals to be made as discussed in the
preceding paragraph, will be used to fund any shortfall in the payment of the
principal balances of the Class C notes, the Class D notes, the Class A notes
and the Class B notes, in that order of priority.
Funds on deposit in the spread account on any payment date in excess of the
required spread account amount on that date will be paid to the trust for
distribution to the holders of the transferors' interest. On the date on which
all amounts due to the noteholders from the spread account have been paid in
full, all amounts, if any, then remaining in the spread account will be
distributed to the trust for further distribution to the holders of the
transferors' interest.
Servicing Compensation and Payment of Expenses
The share of the servicing fee allocable to Series 2001-A with respect to
any payment date is the monthly servicing fee. The share of the servicing fee
allocable to Series 2001-A with respect to any payment date will be equal to
one-twelfth of the product of the servicing fee rate of 2.0% and the floating
investor percentage for the related monthly period, provided that the monthly
servicing fee for the first payment date will be $1,194,427.
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The servicer will pay from its servicing compensation expenses incurred in
connection with servicing the receivables including, without limitation,
payment of the fees and disbursements of the indenture trustee and independent
certified public accountants and other fees which are not expressly stated in
the transfer and servicing agreement, the indenture or the Series 2001-A
indenture supplement to be payable by the trust or the noteholders other than
federal, state and local income and franchise taxes, if any, of the trust.
Administration Fee
Under the administration agreement, the administrator shall be entitled to
a fee for its services in the amount of $1,200 per year payable in equal
monthly installments.
Reports To Noteholders
On each payment date, the paying agent, on behalf of the indenture trustee,
will forward to each noteholder of record, a statement prepared by the servicer
setting forth the items described in "Description of the Notes--Reports to
Noteholders" in the accompanying prospectus.
Covenant Concerning Reaging of Accounts
In the Series 2001-A indenture supplement, the servicer will agree that,
for so long as any of the Series 2001-A notes are outstanding, it will comply
with the policy on reaging, extensions, deferrals, renewals and rewrites of
open-end account described in the notice published by the Federal Financial
Institutions Examination Council on June 12, 2000. The servicer may, however,
revise its reaging policies if the policy of the Federal Financial Institutions
Examination Council changes, if the servicer is required to change the policy
by its regulators or the regulators for Conseco Bank or Green Tree Bank or if
the rating agencies have been notified in advance of the change and have
notified the servicer that the change will not result in a reduction or
withdrawal of any ratings then existing on any series or class of notes.
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ERISA Considerations
The Employee Retirement Income Security Act of 1974, as amended, and
Section 4975 of the Code impose requirements on employee benefit plans and
other plans and arrangements, including individual retirement accounts and
annuities, Keogh plans and most collective investment funds or insurance
company general or separate accounts in which the plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility
provisions of ERISA and/or Section 4975 of the Code, and on persons who are
fiduciaries with respect to Plans, in connection with the investment of "plan
assets" of any Plan ("Plan Assets"). ERISA generally imposes on Plan
fiduciaries general fiduciary requirements, including those of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and parties in interest to a Plan or its Plan Assets,
unless a statutory or administrative exemption is available. Parties in
interest that participate in a prohibited transaction may be subject to a
penalty imposed under ERISA and/or an excise tax imposed under Section 4975 of
the Code, unless a statutory or administrative exemption is available. These
prohibited transactions generally are set forth in Section 406 of ERISA and
Section 4975 of the Code.
Subject to the considerations described in this section and in the
accompanying prospectus, the Class A notes and Class B notes are eligible for
purchase with Plan Assets of any Plan.
Any fiduciary or other Plan investor considering whether to purchase the
notes with Plan Assets of any Plan should determine whether that purchase is
consistent with its fiduciary duties and whether that purchase would constitute
or result in a non-exempt prohibited transaction under ERISA and/or Section
4975 of the Code because any of the transferors, the servicer, the indenture
trustee, the owner trustee or any other party may be parties in interest with
respect to the investing Plan and may be deemed to be benefiting from the
issuance of the notes. If either of the transferors or the servicer is a party
in interest with respect to the prospective Plan investor, any fiduciary or
other Plan investor considering whether to purchase or hold the Class A notes
or Class B notes should consult with its counsel regarding the availability of
exemptive relief under U.S. Department of Labor Prohibited Transaction Class
Exemption 96-23 (relating to transactions determined by "in-house asset
managers"), 95-60 (relating to transactions involving insurance company general
accounts), 91-38 (relating to transactions involving bank collective investment
funds), 90-1 (relating to transactions involving insurance company pooled
separate accounts) or 84-14 (relating to transactions determined by independent
"qualified professional asset managers") or any other prohibited transaction
exemption issued by the DOL. A purchaser of the Class A notes or Class B notes
should be aware, however, that even if the conditions specified in one or more
of the above-referenced exemptions are met, the scope of the exemptive relief
provided by the exemption might not cover all acts which might be construed as
prohibited transactions.
S-56
In addition, under DOL Regulation Section 2510.3-101, the purchase with
Plan Assets of equity interests in the issuer could, in many circumstances,
cause the receivables and other assets of the issuer to be deemed Plan Assets
of the investing Plan which, in turn, would subject the issuer and its assets
to the fiduciary responsibility provisions of ERISA and the prohibited
transaction provisions of ERISA and Section 4975 of the Code. Nevertheless,
because the Class A notes and Class B notes (a) are expected to be treated as
indebtedness under local law and will, in the opinion of Dorsey & Whitney LLP,
counsel to the trust, be treated as debt, rather than equity, for federal tax
purposes (see "Material Federal Income Tax Consequences--Tax Consequences to
Noteholders--Treatment of the Notes as Indebtedness" in the accompanying
prospectus), and (b) should not be deemed to have any "substantial equity
features," purchases of the Class A notes or Class B notes with Plan Assets
should not be treated as equity investments and, therefore, the receivables and
other assets included as assets of the issuer should not be deemed to be Plan
Assets of the investing Plans. Those conclusions are based, in part, upon the
traditional debt features of the Class A notes and Class B notes, including the
reasonable expectation of purchasers of the Class A notes or Class B notes that
the notes will be repaid when due, as well as the absence of conversion rights,
warrants and other typical equity features.
The Class A notes and Class B notes may not be purchased or held by any
Plan, or any person investing Plan Assets of any Plan, if any of the
transferors, the servicer, the indenture trustee, the owner trustee or any of
their respective affiliates (a) has investment or administrative discretion
with respect to the Plan Assets used to effect the purchase; (b) has authority
or responsibility to give, or regularly gives, investment advice with respect
to the Plan Assets, for a fee and under an agreement or understanding that the
advice (1) will serve as a primary basis for investment decisions with respect
to the Plan Assets, and (2) will be based on the particular investment needs of
that Plan; or (c) unless PTCE 95-60, 91-38 or 90-1 is applicable, is an
employer maintaining or contributing to that Plan. Each purchaser or holder of
the Class A notes or Class B notes or any interest in the Class A notes or
Class B notes will be deemed to have represented by its purchase and holding of
its notes that it is not subject to the foregoing limitation.
Any fiduciary or other Plan investor considering whether to purchase any
notes on behalf of or with Plan Assets of any Plan should consult with its
counsel and refer to this prospectus supplement for guidance regarding the
ERISA considerations applicable to the notes offered by this prospectus
supplement and the accompanying prospectus.
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Underwriting
Subject to the terms and conditions set forth in the underwriting agreement
between the transferors and the underwriters named below, the transferors have
agreed to sell to the underwriters, and each of the underwriters has severally
agreed to purchase, the principal amount of the notes set forth opposite its
name:
Principal Principal
balance of balance of
Underwriters Class A notes Class B notes
- ------------ ------------- -------------
Credit Suisse First Boston Corporation.............. $176,666,668 $24,000,000
Banc One Capital Markets, Inc. ..................... 176,666,666 24,000,000
Lehman Brothers Inc. ............................... 176,666,666 24,000,000
------------ -----------
Total............................................. $530,000,000 $72,000,000
============ ===========
In the underwriting agreement, the underwriters have agreed, subject to the
terms and conditions set forth in that agreement, to purchase all of the Class
A notes and the Class B notes offered hereby if any of the Class A notes and
Class B notes are purchased.
The underwriters propose initially to offer the Class A notes to the public
at 99.887682% of their principal amount and to dealers at that price less
concessions not in excess of 0.21% of the principal amount of the Class A
notes. The underwriters may allow, and the dealers may reallow, concessions not
in excess of 0.126% of the principal amount of the Class A notes to brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the underwriters.
The underwriters propose initially to offer the Class B notes to the public
at 99.860926% of their principal amount and to dealers at that price less
concessions not in excess of 0.21% of the principal amount of the Class B
notes. The underwriters may allow, and the dealers may reallow, concessions not
in excess of 0.126% of the principal amount of the Class B notes to brokers and
dealers. After the initial public offering, the public offering price and other
selling terms may be changed by the underwriters.
We will receive proceeds of approximately $599,197,581 from the sale of the
notes, representing 99.537682% of the principal amount of each Class A note and
99.510926% of the principal amount of each Class B note, after paying the
underwriting discount of $2,107,000, representing 0.35% of the principal amount
of each Class A note and 0.35% of the principal amount of each Class B note.
Additional offering expenses are estimated to be $1,429,000.
Each underwriter has represented and agreed that:
(1) it has complied and will comply with all applicable provisions of
the Financial Services Act 1986 with respect to anything done by it in
relation to the notes in, from or otherwise involving the United Kingdom;
(2) it has only issued or passed on and will only issue or pass on in
the United Kingdom any document received by it in connection with the
issue or sale of the notes
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to a person who is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or
is a person to whom that document may otherwise lawfully be issued or
passed on;
(3) if it is an authorized person under Chapter III of part I of the
Financial Services Act 1986, it has only promoted and will only promote
(as that term is defined in Regulation 1.02(2) of the Financial Services
(Promotion of Unregulated Schemes) Regulations 1991) to any person in the
United Kingdom the scheme described in this prospectus supplement and the
accompanying prospectus if that person is of a kind described either in
Section 76(2) of the Financial Services Act 1986 or in Regulation 1.04 of
the Financial Services (Promotion of Unregulated Schemes) Regulations
1991; and
(4) it is a person of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996.
The transferors will indemnify the underwriters against liabilities,
including liabilities under the Securities Act, or contribute to payments the
underwriters may be required to make in respect of those liabilities.
The underwriters may engage in over-allotment transactions, stabilizing
transactions, syndicate covering transactions and penalty bids with respect to
the notes in accordance with Regulation M under the Exchange Act. Over-
allotment transactions involve syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions permit bids
to purchase the notes so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the notes in the
open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the underwriters to reclaim a
selling concession from a syndicate member when the notes originally sold by
that syndicate member are purchased in a syndicate covering transaction. Over-
allotment transactions, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the prices of the notes to be higher
than they would otherwise be in the absence of those transactions. Neither the
transferors nor the underwriters represent that the underwriters will engage in
any of these transactions or that those transactions, once commenced, will not
be discontinued without notice at any time.
The underwriters may purchase and sell notes in the open market. These
transactions may include short sales, stabilizing transactions and purchases to
cover positions created by short sales. Short sales involve the sale by the
underwriters of a greater number of notes than they are required to purchase in
the offering. "Covered" short sales are sales made in an amount not greater
than the underwriters' option to purchase additional notes from the issuer in
the offering. The underwriters may close out any covered short position by
either exercising their option to purchase additional notes or purchasing notes
in the open market. In determining the source of notes to close out the covered
short position, the underwriters will consider, among other things, the price
of notes available for purchase in the open
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market as compared to the price at which they may purchase notes through the
over-allotment option. "Naked" short sales are any sales in excess of that
option. The underwriters must close out any naked short position by purchasing
notes in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the
price of the notes in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of notes made by the underwriters in the open
market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased notes sold
by or for the account of that underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to
cover the syndicate short sales may have the effect of raising or maintaining
the market price of the notes or preventing or retarding a decline in the
market price of the notes. As a result, the price of the notes may be higher
than the price that might otherwise exist in the open market.
In the ordinary course of business, one or more underwriters or their
affiliates have engaged, and may engage in the future, in certain investment
banking or commercial banking transactions with Conseco Bank, Conseco Finance
Servicing Corp., Green Tree Retail Services Bank, Credit Card Funding Corp.,
Conseco Finance or any of their affiliates.
In early 2000, Conseco Finance sold $1.3 billion of finance receivables to
affiliates of Lehman Brothers for cash and a right to share in future profits
from a subsequent sale or securitization of the assets sold. Affiliates of
Lehman Brothers also amended existing repurchase and other financing facilities
with Conseco Finance to expand the types of assets financed. As partial
consideration for the financing amendments, an affiliate of Lehman Brothers
received a warrant, with a nominal exercise price, for five percent of the
common stock of Conseco Finance. The warrant has a five-year term. After three
years, the holder of the warrant or Conseco Finance may cause the warrant and
any stock issued upon its exercise to be purchased for cash at an appraised
value. Since the terms of the warrant permit cash settlement at fair value at
the option of the holder of the warrant, the warrant is required to be
classified on Conseco Finance's financial statements as a liability measured at
fair value, with changes in its value reported in earnings. The warrant would
be cancelled in certain circumstances in the event the holder thereof or an
affiliate were to participate in a group that purchases Conseco Finance. The
initial value of the warrant will be amortized over the expected life of the
Lehman Brothers financing facilities of approximately one year.
A portion of the net proceeds of the sale of the Series 2001-A notes will
be used by Conseco Bank to purchase receivables currently in a trust and
pledged as security for and a source of payment for certificates issued to and
held by a commercial paper conduit issuer for which Credit Suisse First Boston,
New York Branch, acts as agent. Credit Suisse First Boston, New York Branch, is
an affiliate of an underwriter for the Series 2001-A notes. This
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will result in payment of amounts due to the commercial paper conduit. Another
portion of the net proceeds will be used to acquire receivables which are
currently pledged to secure obligations of an affiliate of Conseco Finance to
Lehman Commercial Paper Inc. and thereby pay amounts due to Lehman Commercial
Paper Inc. Lehman Commercial Paper Inc. is an affiliate of Lehman Brothers
Inc., one of the underwriters of the Series 2001-A notes.
In addition, the Series 2001-B notes will initially be purchased by one or
more commercial paper conduit issuers for which Credit Suisse First Boston, New
York Branch, acts as agent.
Legal Matters
Legal matters relating to the issuance of the notes will be passed upon for
the transferors, the servicer and Conseco Finance Servicing Corp. by Dorsey &
Whitney LLP, counsel to the transferors. Legal matters relating to the federal
tax consequences of the issuance of the notes will be passed upon for the
transferors by Dorsey & Whitney LLP. Legal matters relating to the issuance of
the Series 2001-A notes will be passed upon for the underwriters by Orrick,
Herrington & Sutcliffe LLP.
S-61
Glossary
"adjusted invested amount" means, for any date of determination, an amount
equal to:
(1) the invested amount as of that date, minus
(2) the amount on deposit in the principal funding account for that date.
"adjusted principal balance" means an amount equal to the greater of:
(1) the sum of (a) the total amount of principal receivables as of the
close of business on the last day of the prior monthly period, or
with respect to the first monthly period, the total amount of
principal receivables as of the closing date, and (b) the principal
amount on deposit in the special funding account as of the close of
business on the last day of the prior monthly period (or with respect
to the first monthly period, the closing date); and
(2) the sum of the numerators used to calculate the investor percentages
for allocations with respect to principal receivables, finance charge
receivables or defaulted amounts, as applicable, as of the date as to
which that determination is being made;
provided, however, if an amortization event occurs during a controlled
accumulation period or an early amortization period with respect to another
series that is a paired series with respect to Series 2001-A, the transferors
may designate a different numerator for the fixed investor percentage, so long
as (x) such numerator is not less than the adjusted invested amount of the
paired series as of the last day of its revolving period, (y) such action does
not result in a reduction or withdrawal of any rating of any outstanding series
or class of notes and (z) in the reasonable belief of the transferors, such
action will not cause an amortization event or an event that, after the giving
of notice or the lapse of time, would constitute an amortization event to occur
with respect to Series 2001-A notes;
provided, further, however, that with respect to any monthly period in
which an addition date or a removal date occurs, the amount in clause (1)(a)
above shall be the sum of the amounts for each day in that monthly period
computed as follows and divided by the number of days in that monthly period:
(A) the aggregate amount of principal receivables as of the close of
business on the last day of the prior monthly period, for each day in
the period from and including the first day of that monthly period to
but excluding the related addition date or removal date; and
(B) the aggregate amount of principal receivables as of the close of
business on the related addition date or removal date after adjusting
for the aggregate amount of principal receivables added to or removed
on the related addition date or removal date, as the case may be, for
each day in the period from and including the related addition date
or removal date to and including the last day of that monthly period.
S-62
"administration fee" means an annual fee payable to the administrator in an
amount equal to $1,200.
"amortization event" has the meaning set forth on page S-45.
"available investor finance charge collections" means, for any monthly
period, an amount equal to the sum of:
(1) the investor finance charge collections--which term includes discount
option receivables-- deposited in the collection account for that
monthly period;
(2) excess finance charge collections allocated to Series 2001-A;
(3) an amount equal to the principal funding investment proceeds, if any,
for the related payment date; and
(4) amounts, if any, to be withdrawn from the reserve account which are
required to be included in available investor finance charge
collections under the Series 2001-A indenture supplement for the
related payment date.
"available investor principal collections" means, for any monthly period,
an amount equal to the sum of:
(1) the investor percentage of collections of principal receivables
deposited in the collection account for that monthly period; minus
the amount of subordinated principal collections for that monthly
period;
(2) any shared principal collections from other principal sharing series
in principal sharing group one allocated to your series and any
amount released from the special funding account and treated as
shared principal collections allocated to your series; and
(3) any amounts treated as available investor principal collections for
the related payment date.
"base rate" means, with respect to any monthly period, the annualized
percentage equivalent of a fraction, the numerator of which is the sum of the
monthly interest, the monthly servicing fee and monthly administration fee and
the denominator of which is the sum of the Class A outstanding principal
balance, the Class B outstanding principal balance, the Class C outstanding
principal balance and the Class D outstanding principal balance, as of the
first day of such monthly period.
"business day" means, any day other than a Saturday, a Sunday or a day on
which banking institutions in New York City, Delaware, or any other state in
which the principal executive offices of the transferors, the owner trustee,
the indenture trustee or other account owner, as the case may be, are located,
are authorized or obligated by law, executive order or governmental decree to
be closed.
"Class A additional interest" means, for any payment date, will equal to
the product of:
(1) the excess of Class A monthly interest for that payment date and any
unpaid Class A monthly interest for a prior payment date over the
aggregate amount of funds allocated and available to pay Class A
monthly interest for that payment date;
S-63
(2) the Class A note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class A note interest rate" means, for any interest period, a rate of
0.28% per annum above LIBOR for the related LIBOR determination date.
"Class A monthly interest" means, for any payment date, an amount equal to
the product of:
(1) the Class A note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class A notes as of the close of
business on the last day of the prior monthly period or, with respect
to the first payment date, the principal balance of the Class A notes
as of the closing date.
"Class B additional interest" means, for any payment date, an amount equal
to the product of:
(1) the excess of Class B monthly interest for that payment date and any
unpaid Class B monthly interest for a prior payment date over the
aggregate amount of funds allocated and available to pay Class B
monthly interest for that payment date;
(2) the Class B note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class B note interest rate" means, for any interest period, a rate of
0.90% per annum above LIBOR for the related LIBOR determination date.
"Class B monthly interest" means, for any payment date, an amount equal to
the product of:
(1) the Class B note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class B notes as of the close of
business on the last day of the prior monthly period or, with respect
to the first payment date, the principal balance of the Class B notes
as of the closing date.
"Class C additional interest" means, for any payment date, an amount equal
to the product of:
(1) the excess of Class C monthly interest for that payment date and any
unpaid Class C monthly interest for a prior payment date over the
aggregate amount of funds allocated and available to pay Class C
monthly interest for that payment date;
(2) the Class C note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
S-64
"Class C note interest rate" means, for any interest period, a rate of
1.75% per annum above LIBOR for the related LIBOR determination date; provided
that the interest rate on the Class C notes may be adjusted, at the option of
the transferors, with confirmation from the rating agencies that an adjustment
will not cause a downgrade or withdrawal of any rating on any outstanding
series or class of notes.
"Class C monthly interest" means, for any payment date, an amount equal to
the product of:
(1) the Class C note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class C notes as of the close of
business on the last day of the prior monthly period or, with respect
to the first payment date, the principal balance of the Class C notes
as of the closing date.
"Class D additional interest" means, for any payment date, an amount equal
to the product of:
(1) the excess of Class D monthly interest for that payment date and any
unpaid Class D monthly interest for a prior payment date over the
aggregate amount of funds allocated and available to pay Class D
monthly interest for that payment date;
(2) the Class D note interest rate for the related interest period; and
(3) the actual number of days in that interest period divided by 360.
"Class D note interest rate" means, for any interest period, a rate of
6.50% per annum above LIBOR for the related LIBOR determination date; provided
that the interest rate on the Class D notes may be adjusted, at the option of
the transferors, with confirmation from the rating agencies that an adjustment
will not cause a downgrade or withdrawal of any rating on any outstanding
series or class of notes.
"Class D monthly interest" means, for any payment date, an amount equal to
the product of:
(1) the Class D note interest rate for the related interest period;
(2) the actual number of days in that interest period divided by 360; and
(3) the principal balance of the Class D notes as of the close of
business on the last day of the prior monthly period or, with respect
to the first payment date, the principal balance of the Class D notes
as of the closing date.
"controlled accumulation amount" means, for any payment date with respect
to the controlled accumulation period, $59,721,333. However, if the
commencement of the controlled accumulation period is postponed as described
under "Description of the Notes--Principal Payments--Postponement of Controlled
Accumulation Period," the controlled accumulation amount may be higher than the
amount stated above for each payment date
S-65
with respect to the controlled accumulation period and will be determined by
the servicer in accordance with the Series 2001-A indenture supplement based on
the principal payment rates for the accounts and on the invested amounts of
other series, other than excluded series, which are scheduled to be in their
revolving periods and then scheduled to create shared principal collections
during the controlled accumulation period.
"controlled deposit amount" means, for any payment date, the sum of:
(1) the controlled accumulation amount for that payment date, plus
(2) the deficit controlled accumulation amount, if any.
"deficit controlled accumulation amount" means:
(1) on the first payment date during the controlled accumulation period,
the excess, if any, of the controlled accumulation amount for that
payment date over the amount deposited in the principal funding
account on that payment date; and
(2) on each subsequent payment date during the controlled accumulation
period, the excess, if any, of the applicable controlled accumulation
amount for that subsequent payment date plus any deficit controlled
accumulation amount for the prior payment date over the amount
deposited in the principal funding account on that subsequent payment
date.
"eligible investments" means, with respect to funds allocable to Series
2001-A in the collection account, the principal funding account, the reserve
account and the cash collateral account, "eligible investments" as defined in
the master indenture, except that (a) all references in such definition to
"rating satisfactory to the rating agency" shall mean ratings of not less than
"A-1+", "P-1" and "F1+," whichever is applicable, unless otherwise specified by
the rating agency, and (b) all such investments shall have maturities at the
time of the acquisition thereof occurring no later than the payment date
following such date of acquisition.
"excess finance charge collections" means available investor finance charge
collections, and other amounts treated like finance charge collections, in
excess of the amount required to make payments or deposits for the series to
which the collections were first allocated.
"excess spread percentage" has the meaning set forth on page S-53.
"expected principal payment date" means the payment date in May 2004.
"fixed investor percentage" means, for any monthly period, the percentage
equivalent of a fraction:
(1) the numerator of which is the invested amount as of the close of
business on the last day of the revolving period; and
(2) the denominator of which is the adjusted principal balance.
S-66
"floating investor percentage" means, for any monthly period, the
percentage equivalent of a fraction:
(1) the numerator of which is the adjusted invested amount as of the close
of business on the last day of the preceding monthly period (or with
respect to the first monthly period, the initial invested amount); and
(2) the denominator of which is the adjusted principal balance.
"interest period" means the period beginning on and including a payment
date and ending on but excluding the next payment date; provided that the first
interest period will begin on and include the closing date.
"invested amount" means, for any date of determination, an amount equal to:
(1) the initial principal amount of the Series 2001-A notes, minus
(2) the amount of principal previously paid to the Series 2001-A
noteholders (including the principal amount of any Series 2001-A
notes purchased by a transferor or its affiliate), minus
(3) the amount of unreimbursed investor charge-offs and subordinated
principal collections.
"investor charge-offs" means, for any monthly period, the excess of:
(1) the investor default amount for the related monthly period; over
(2) the amount available for reimbursement of investor default amounts
described under clause (5) under "Description of Series Provisions--
Application of Collections--Payment of Interest, Fees and Other
Items" and any amounts available for that purpose from the cash
collateral account.
"investor default amount" means, for any payment date, an amount equal to
the product of:
(1) the floating investor percentage for the related monthly period; and
(2) the defaulted amount.
"investor finance charge collections" means, for any payment date, an
amount equal to the product of:
(1) the floating investor percentage for the related monthly period; and
(2) collections of finance charge receivables deposited in the collection
account for the related monthly period.
"investor percentage" means, for any monthly period:
(1) for defaulted amounts and for collections of finance charge
receivables at any time and for collections of principal receivables
during the revolving period, the floating investor percentage; and
S-67
(2) for collections of principal receivables during the controlled
accumulation period, and early amortization period, the fixed
investor percentage.
"LIBOR" means, for any LIBOR determination date, the rate for deposits in
United States dollars for a one-month period which appears on Telerate Page
3750 as of 11:00 a.m., London time, on that date. If that rate does not appear
on Telerate Page 3750, the rate for that LIBOR determination date will be
determined based on the rates at which deposits in United States dollars are
offered by four major banks selected by the servicer at approximately 11:00
a.m., London time, on that day to prime banks in the London interbank market
for a one-month period. The indenture trustee will request the principal
London office of each of those banks to provide a quotation of its rate. If at
least two quotations are provided, the rate for that LIBOR determination date
will be the arithmetic mean of the quotations. If fewer than two quotations
are provided, the rate for that LIBOR determination date will be the
arithmetic mean of the rates quoted by major banks in New York City, selected
by the servicer, at approximately 11:00 a.m., New York City time, on that day
for loans in United States dollars to leading European banks for a one-month
period.
"LIBOR determination date" means, for any interest period, two London
business days before that interest period commences, provided that for the
first interest period there will be two LIBOR determination dates, the first
will be two London business days before the closing date and the second will
be two London business days before June 15, 2001.
"London business day" is any business day on which dealings in deposits in
United States dollars are transacted in the London interbank market.
"modified excess spread percentage" has the meaning set forth on page S-
53.
"monthly administration fee" means an amount equal to one-twelfth of the
administration fee.
"monthly interest" means, for any payment date, an amount equal to the sum
of the Class A monthly interest, the Class B monthly interest, the Class C
monthly interest and the Class D monthly interest for that payment date.
"monthly period" means the period from and including the first day of a
calendar month to and including the last day of that calendar month, other
than the initial monthly period, which will commence on and include May 1,
2001 and end on and include June 30, 2001.
"monthly principal" means, for any payment date, an amount equal to the
least of:
(1) the available investor principal collections on deposit in the
collection account with respect to that payment date;
(2) for each payment date with respect to the controlled accumulation
period, the controlled deposit amount for that payment date; and
(3) the invested amount, as adjusted for any investor charge-offs and
subordinated principal collections on that payment date.
S-68
"monthly servicing fee" means, for any payment date, an amount equal to
one-twelfth of the product of:
(1) the servicing fee rate;
(2) the floating investor percentage for the related monthly period; and
(3) the total amount of principal receivables as of the close of business
on the last day of the immediately preceding monthly period, or with
respect to the first monthly period, the total amount of principal
receivables as of the closing date, in either case, excluding the
principal portion of participation interests;
provided, however, that with respect to any monthly period in which an addition
date for the addition of accounts or a removal date for removal of accounts
occurs, the amount in clause (3) above shall be the sum of the amounts for each
day in that monthly period computed as follows and divided by the number of
days in that monthly period:
(A) the aggregate amount of principal receivables, excluding the
principal portion of participation interests, as of the close of
business on the last day of the prior monthly period, for each day in
the period from and including the first day of that monthly period to
but excluding the related addition date or removal date; and
(B) the aggregate amount of principal receivables, excluding the
principal portion of participation interests, as of the close of
business on the related addition date or removal date after adjusting
for the aggregate amount of principal receivables, excluding the
principal portion of participation interests, added to or removed on
the related addition date or removal date, as the case may be, for
each day in the period from and including the related addition date
or removal date to and including the last day of that monthly period;
provided further, that with respect to the first payment date, the monthly
servicing fee will equal $1,194,427.
"monthly subordination amount" means, for any monthly period, the sum of:
(1) the lower of:
(a) the excess of the amounts needed to pay the current and past due
monthly servicing fee and administration fee and to pay current
and past due Class A monthly interest as described under "--
Application of Collections--Payment of Interest, Fees and Other
Items" over the available investor finance charge collections and
excess finance charge collections allocated to cover these
amounts and the amount withdrawn from the cash collateral account
to cover these amounts; and
(b) 26% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections; plus
(2) the lower of:
(a) the excess of the amounts needed to pay current and past due
Class B monthly interest as described under "--Application of
Collections--Payment
S-69
of Interest, Fees and Other Items" over the available investor
finance charge collections and excess finance charge collections
allocated to cover these amounts and the amount withdrawn from the
cash collateral account to cover these amounts; and
(b) 16% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections (including the amounts required in (a)
above); plus
(3) the lower of:
(a) the excess of the amounts needed to pay current and past due
Class C monthly interest as described under "--Application of
Collections--Payments of Interest, Fees and Other Items" over the
available investor finance charge collections and excess finance
charge collections allocated to cover these amounts and the
amounts withdrawn from the cash collateral account and the spread
account to cover Class C interest; and
(b) 5% of the initial invested amount minus the amount of
unreimbursed investor charge-offs and unreimbursed subordinated
principal collections (including the amounts required in (a) and
(b) above).
"payment date" means July 16, 2001 and the 15th day of each following
month or, if the 15th day is not a business day, the following business day.
"principal funding investment proceeds" means investment earnings, net of
investment losses and expenses, on funds on deposit in the principal funding
account.
"principal shortfalls" means any scheduled, permitted or required
principal payments to noteholders and deposits to principal funding accounts,
if any, for any series in principal sharing group one which have not been
covered out of the collections of principal receivables allocable to that
series.
"quarterly excess spread percentage" has the meaning set forth on page S-
53.
"record date" means, for any payment date, the last day of the calendar
month preceding that payment date.
"recoveries" are the amounts received by the transferors or the servicer
which are reasonably estimated by the servicer to be attributable to defaulted
receivables, including the net proceeds of any sale of such defaulted
receivables and any amounts received upon foreclosure or other realization
from any security provided by the obligor.
"required cash collateral amount" shall mean $35,832,800; provided,
however, that the required cash collateral amount may be reduced without the
consent of the Series 2001-A noteholders, if it does not cause the rating of
any series or class of outstanding notes to be reduced or withdrawn as a
result of such reduction and the servicer delivers to the indenture trustee an
officer's certificate to the effect that such reduction will not cause an
Adverse Effect.
"required cash collateral draw amount" has the meaning set forth on page
S-51.
S-70
"required minimum principal balance" means for all outstanding series,
unless otherwise provided in the related indenture supplement for a series
having a paired series, the sum of the series invested amounts for each series
outstanding on that date plus the required transferor amount on that date,
minus the amounts on deposit in the special funding account.
"required transferor amount" will be calculated as follows:
required X aggregate series invested amounts of
transferor all series related to pool one
percentage
"required transferor percentage" means initially 7.0%, but may be a
different percentage designated by the transferors if the transferors provide
the servicer and the indenture trustee with written confirmation that the
designation will not result in:
(1) the reduction or withdrawal by any rating agency of its rating of any
outstanding series or class; and
(2) an Adverse Effect.
"required spread account amount" has the meaning set forth on page S-52.
"reserve account funding date" means
if the average excess spread then the reserve account
percentage for any three funding date will be the
consecutive months is greater following payment date prior
than or equal to: to the beginning of the
controlled accumulation
period:
8% third payment date
6% but less than 8% fourth payment date
4% but less than 6% sixth payment date
2% but less than 4% twelfth payment date
"reserve draw amount" has the meaning set forth on page S-43.
"required reserve account amount" means for any payment date on or after
the reserve account funding date an amount equal to:
(1) 0.50% of the principal balance of the Class A notes, the Class B
notes, the Class C notes and the Class D notes; or
(2) any other amount designated by the transferors; except that if the
designation is of a lesser amount, the transferors will provide the
servicer and the indenture trustee with written confirmation that the
designation will not result in the reduction or withdrawal by any
rating agency of its rating of any outstanding series or class and
each transferor will deliver to the indenture trustee a certificate
of an authorized officer of such transferor to the effect that, based
on the facts known to that officer
S-71
at the time, in the reasonable belief of such transferor, the
designation will not result in an Adverse Effect.
"Series 2001-A final maturity date" means the earlier of:
(1) the date on which the aggregate principal balance of the notes is paid
in full; or
(2) the payment date in December 2008 for the Class A notes and the
payment date in November 2009 for the Class B notes, the Class C
notes and the Class D notes.
"series portfolio yield" means, for any monthly period, the annualized
percentage equivalent of a fraction:
(1) the numerator of which is the amount of available investor finance
charge collections less any excess finance charge collections
allocated to Series 2001-A for that monthly period minus the investor
default amount for that monthly period; and
(2) the denominator of which is the aggregate principal balance of the
notes as of the close of business on the last day of the immediately
preceding monthly period;
provided, however, that excess finance charge collections allocated to Series
2001-A with respect to a monthly period may be included in available investor
finance charge collections when determining the series portfolio yield if the
servicer provides ten business days notice to each rating agency and each
rating agency has confirmed that the inclusion will not cause a withdrawal or
downgrade of any rating on any outstanding series or class of notes.
"servicing fee rate" means 2.0% per annum or such lesser percentage as may
be specified by the servicer if, in the reasonable belief of the servicer, the
change will not result in an Adverse Effect and each rating agency has
confirmed that the change will not cause a downgrade or withdrawal of a rating
on any outstanding series or class of notes.
"shared principal collections" means the amount of collections of principal
receivables for any monthly period allocated to Series 2001-A remaining after
covering required principal deposits and payments and any application of
subordinated principal collections, any similar amount remaining for any other
series in principal sharing group one and, at the option of the issuer as
specified in the indenture, specified net proceeds from the issuance of a new
series; plus, if an amortization period or accumulation period has commenced
and is continuing for Series 2001-A or any other series, amounts in the special
funding account will be treated as shared principal collections.
"spread account percentage" has the meaning set forth on page S-52.
"subordinated principal collections" means, for any monthly period,
available investor principal collections used to pay interest on the Class A
notes, the Class B notes and the Class C notes or used to pay the monthly
servicing fee and administration fee in an amount not to exceed the lesser of:
(1) the monthly subordination amount for that monthly period; and
S-72
(2) the invested amount after giving effect to any investor charge-offs
for that payment date.
"transferor amount" means with respect to pool one an amount equal to the
difference between:
(1) the sum of (a) the total amount of principal receivables in pool one
on the immediately preceding day and (b) the special funding account
balance on the immediately preceding day; and
(2) the aggregate series invested amounts of all series of notes related
to pool one then outstanding.
"Telerate Page 3750" means the display page currently so designated on the
Bridge Telerate Capital Markets Report, or any other page as may replace that
page on that service for the purpose of displaying comparable rates or prices.
S-73
Annex I
Other Series Issued And Outstanding
At the time of issuance of the Series 2001-A notes, no prior series will be
in existence. Simultaneously with the issuance of the Series 2001-A notes,
however, the trust will issue the Series 2001-B notes. The Series 2001-B notes
will be included in excess finance charge sharing group one and in principal
sharing group one.
The following information relates to Series 2001-B:
Series 2001-B
Initial invested amount.............................. $0
Maximum invested amount.............................. approximately $270,000,000
Note interest rate................................... Commercial Paper Index
Annual servicing fee rate............................ 2.0%
Series issuance date................................. May 31, 2001
i
Prospectus
Conseco Private Label Credit Card Master Note Trust
Issuer
Conseco Bank, Inc.
Transferor and Servicer
Conseco Finance Credit Card Funding Corp.
Transferor
Asset Backed Notes
The Trust --
. may periodically issue asset backed notes in one or more series with
one or more classes; and
. will own --
. receivables in a portfolio of private label credit card accounts;
. payments due on those receivables; and
. other property described in this prospectus and in the
accompanying prospectus supplement.
The Notes --
. offered by this prospectus will be rated in one of the four highest
rating categories by at least one nationally recognized rating
organization;
. will be paid only from the trust assets;
. may have one or more forms of credit enhancement; and
. will be issued as part of a designated series which may include one or
more classes of notes and credit enhancement.
----------------
You should consider carefully the risk factors beginning on page 9 in this
prospectus.
A note is not a deposit and neither the notes nor the underlying accounts
or receivables are insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
The notes are obligations of Conseco Private Label Credit Card Master Note
Trust only and are not obligations of Conseco Finance Credit Card Funding
Corp., Conseco Finance Servicing Corp., Conseco Bank, Inc., Green Tree Retail
Services Bank, Inc., Conseco Finance Corp. or any other person.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these notes or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
May 15, 2001
Important Notice about Information Presented in this
Prospectus and the Accompanying Prospectus Supplement
We provide information to you about the notes in two separate documents:
(1) this prospectus, which provides general information, some of which may
not apply to your series of notes; and
(2) the accompanying prospectus supplement, which describes the specific
terms of your series of notes, including:
. the terms, including interest rates, for each class;
. the timing of interest and principal payments;
. information about the receivables;
. information about credit enhancement, if any, for each class;
. the ratings for each class being offered; and
. the method for selling the notes.
You should rely only on the information provided in this prospectus and the
accompanying prospectus supplement, including the information incorporated by
reference. We have not authorized anyone to provide you with different
information. We are not offering the notes in any state where the offer is not
permitted.
We include cross references in this prospectus and the accompanying
prospectus supplement to captions in these materials where you can find further
related discussions. The following Table of Contents and the Table of Contents
in the accompanying prospectus supplement provide the pages on which these
captions are located.
Table of Contents
Page
----
Prospectus Summary........................................................ 1
The Issuer............................................................... 1
Risk Factors............................................................. 1
The Indenture Trustee.................................................... 1
The Transferors.......................................................... 1
The Servicer and Administrator........................................... 1
The Originators.......................................................... 2
The Merchants and Dealers................................................ 2
Accounts................................................................. 3
Receivables.............................................................. 3
Trust Assets............................................................. 4
Interest Payments on the Notes........................................... 4
Principal Payments on the Notes.......................................... 4
Revolving Period........................................................ 4
Partial Amortization.................................................... 5
Amortization or Accumulation Periods.................................... 5
Amortization Events..................................................... 5
Early Amortization or Early Accumulation Period......................... 5
Events of Default........................................................ 6
General................................................................. 6
Events of Default; Remedies............................................. 6
Note Ratings............................................................. 6
Credit Enhancement....................................................... 7
Tax Status............................................................... 7
Collections and Allocations.............................................. 7
Groups................................................................... 7
Shared Transferor Principal Collections.................................. 8
Risk Factors.............................................................. 9
The Glossary.............................................................. 23
The Issuer................................................................ 23
Use of Proceeds........................................................... 24
The Conseco Private Label Credit Card Business............................ 24
Background............................................................... 24
Conseco Finance Corp..................................................... 25
Description of Originators and Transferors............................... 25
Conseco Bank, Inc....................................................... 25
Page
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Conseco Finance Servicing Corp. ........................................ 25
Green Tree Retail Services Bank, Inc.................................... 26
Conseco Finance Credit Card Funding Corp................................ 26
Description of the Private Label Credit Card Business.................... 26
Marketing................................................................ 28
Merchants and Dealers................................................... 28
Customers............................................................... 29
Servicing................................................................ 29
Description of Fiserv.................................................... 30
Merchants and Dealers.................................................... 30
Merchant and Dealer Contracts............................................ 31
Termination of Merchant Agreements....................................... 32
Cardholder Agreements.................................................... 32
Accounts................................................................. 33
General................................................................. 33
Applications............................................................ 33
Credit Evaluation....................................................... 34
Credit Limits........................................................... 34
Finance Charges......................................................... 35
Fees.................................................................... 36
Billing................................................................. 36
Minimum Payments........................................................ 37
Application of Payments................................................. 38
Special Payment Plans................................................... 38
Skip-a-Payment Promotions............................................... 39
In-Store Payments....................................................... 39
Security Interests...................................................... 39
Deliquency, Charge Offs and Reaging...................................... 39
The Trust Portfolio....................................................... 40
Description of the Notes.................................................. 43
General.................................................................. 43
Book-Entry Registration.................................................. 45
Definitive Notes......................................................... 49
New Issuances............................................................ 50
Funding Period........................................................... 51
Paired Series............................................................ 52
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Page
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Interest Payments........................................................ 52
Principal Payments....................................................... 53
Credit Enhancement....................................................... 54
General................................................................. 54
Subordination........................................................... 55
Cash Collateral Guaranty or Account..................................... 56
Spread Account.......................................................... 56
Reserve Account......................................................... 56
Letter of Credit........................................................ 57
Surety Bond or Insurance Policy......................................... 57
Amortization Events...................................................... 57
Final Payment of Principal; Termination.................................. 58
Defeasance............................................................... 59
Reports to Noteholders................................................... 60
Investor Percentage, Transferor Percentage and Credit Enhancement
Percentage............................................................. 61
Groups................................................................... 62
General................................................................. 62
Excess Finance Charge Sharing Group..................................... 62
Reallocation Group...................................................... 62
Shared Enhancement Group................................................ 62
Principal Sharing Group................................................. 63
Shared Transferor Principal Collections.................................. 63
Trust Bank Accounts...................................................... 63
Application of Collections............................................... 63
Defaulted Receivables; Investor
Charge-Offs............................................................ 66
Description of the Indenture.............................................. 67
Events of Default; Rights upon Event of Default.......................... 67
Material Covenants....................................................... 70
Modification of the Indenture............................................ 71
No Consent of Noteholders Required; Rating Agency Confirmation
Required.............................................................. 71
No Noteholder Consent Required; No Rating Agency Consent Required....... 72
Page
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Noteholder Consent Required; Notice to Rating Agencies................. 73
Unanimous Affected Noteholder Consent Required; Notice to Rating
Agencies............................................................. 73
Annual Compliance Statement............................................. 74
List of Noteholders..................................................... 74
Satisfaction and Discharge of Indenture................................. 74
Resignation and Removal of the Indenture Trustee........................ 74
Description of the Transfer and Servicing Agreement...................... 75
General................................................................. 75
Representations and Warranties of the Transferors....................... 75
Regarding No Conflict.................................................. 75
Regarding Enforceability............................................... 76
Regarding the Accounts and the Receivables............................. 76
Additional Representations and Warranties in the Prospectus
Supplement........................................................... 77
Additional Transferors.................................................. 77
Eligible Accounts....................................................... 78
Eligible Receivables.................................................... 79
Addition of Trust Assets................................................ 80
Required Additions..................................................... 81
Conditions to Additions................................................ 81
Automatic Account Additions............................................ 82
Removal of Trust Assets................................................. 82
Discount Option......................................................... 84
Servicing Compensation and Payment of Expenses.......................... 84
Matters Regarding the Servicer and the Transferors...................... 84
Servicer Default........................................................ 86
Evidence of Compliance.................................................. 88
Assumption of a Transferor's Obligations................................ 89
Amendments.............................................................. 90
Description of the Receivables Purchase Agreements....................... 92
-ii-
Page
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Sale from Green Tree Bank to Conseco Bank................................ 92
Sale from Conseco Bank to Conseco Finance Servicing Corp. ............... 93
Sale from Conseco Finance Servicing Corp. to Credit Card Funding Corp. .. 94
Note Ratings.............................................................. 95
Material Legal Aspects of the Receivables................................. 96
Certain Matters Relating to the Transfer of the Receivables.............. 96
Certain Matters Relating to Conservatorship, Receivership and
Bankruptcy............................................................. 97
Consumer Protection Laws................................................. 98
Page
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Material Federal Income Tax Consequences................................... 99
General................................................................... 99
Treatment of the Trust as an Entity not Subject to Tax.................... 100
Tax Consequences to Noteholders........................................... 100
State and Local Tax Consequences.......................................... 104
ERISA Considerations....................................................... 104
Plan of Distribution....................................................... 105
Reports to Noteholders..................................................... 106
Where You Can Find More Information........................................ 106
Glossary................................................................... 107
Global Clearance, Settlement and Tax Documentation Procedures.............. A-1
-iii-
Prospectus Summary
This summary highlights information and does not contain all of the
information that you need to consider in making your investment decision. You
should carefully read this entire document and the accompanying prospectus
supplement before you purchase any notes.
The Issuer
Conseco Private Label Credit Card Master Note Trust, a Delaware business
trust, is the issuer of the notes. The trust's principal place of business is
located at Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001. Its phone number is (302) 651-8856.
The trust is a master trust and will issue notes in series. Each series of
notes will consist of one or more classes. The classes of a series may be
issued at the same time or at different times. The notes of each series will be
issued from an indenture and a series supplement to the indenture, each among
the trust, the servicer and the indenture trustee.
Some classes or series may not be offered by this prospectus. They may be
offered, for example, in a private placement.
Risk Factors
Investment in the notes involves risks. You should consider carefully the
risk factors beginning on page 9 in this prospectus and the risk factors
described in the accompanying prospectus supplement.
The Indenture Trustee
U.S. Bank Trust National Association is the indenture trustee under the
indenture. Its address is 180 East Fifth Street, 2nd Floor, Saint Paul,
Minnesota 55101 attention: Corporation Trust. Its phone number is (651) 244-
5000.
The Transferors
Conseco Bank, Inc. and Conseco Finance Credit Card Funding Corp. will
transfer receivables to the trust. Other entities may also become transferors
in the future.
Conseco Bank will be the primary transferor. Its address is 2825 East
Cottonwood Parkway, Suite 230, Salt Lake City, Utah 84121. Its phone number is
(801) 733-2200. Conseco Bank is a Utah industrial loan corporation. Its
deposits are insured by the FDIC.
Conseco Finance Credit Card Funding Corp. will be a transferor for
receivables generated in a small portion of the accounts. Its address is 1100
Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102. Its phone
number is (651) 293-3400. Conseco Finance Credit Card Funding Corp. is a newly
created special purpose Minnesota corporation whose stock is held by Conseco
Finance Servicing Corp.
The Servicer and Administrator
Conseco Bank will service the receivables for the trust and will act as the
trust's administrator. Conseco Bank expects to subservice some or all of the
receivables through one or more affiliates.
1
In limited cases, the servicer may resign or be removed, and either the
indenture trustee or a third party may be appointed as the new servicer. The
servicer receives a servicing fee from the trust, and each series is obligated
to pay a portion of that fee.
In addition, Conseco Bank will act as the trust's administrator and will
receive an administration fee from the trust.
The Originators
A portion of the accounts are owned by Green Tree Retail Services Bank,
Inc. The receivables in those accounts are originated by Green Tree Bank and,
with limited exceptions, are sold to Conseco Bank.
A small portion of the accounts are accounts owned by Conseco Finance
Servicing Corp. Conseco Finance Servicing Corp. will transfer the receivables
arising in those accounts to Credit Card Funding Corp., which will in turn
transfer them to the trust.
The balance of the accounts designated to the trust are owned by Conseco
Bank. Conseco Bank will transfer the receivables arising in those accounts to
the trust.
Conseco Bank, Green Tree Bank, and Conseco Finance Servicing Corp.,
collectively referred to as the Conseco entities or Conseco, are the
originators of the credit card receivables. In the future other entities may
originate private label credit card accounts and designate those accounts to
the trust.
The Merchants and Dealers
Each of the accounts designated to the trust has been or will be originated
under an agreement with a specific merchant or product sponsor or dealer. These
agreements are collectively referred to as merchant agreements. Under the
merchant agreements, Green Tree Bank, Conseco Bank, or Conseco Finance
Servicing Corp. provides credit:
. to customers of a merchant to purchase goods and services at the merchant's
stores;
. to customers of a dealer to purchase goods or services of a specific
distributor or manufacturer; and/or
. to customers of a dealer to purchase goods or services of a specific type,
such as recreational vehicles or musical instruments, for which Conseco has
developed a credit card program.
We expect that over time the merchants, dealers and programs will change.
New merchants, dealers and programs will be added and some of the existing
merchant agreements and programs will be discontinued.
The merchants and dealers represent a wide variety of industries with the
primary concentration currently being in the home center and home improvement
industries. Other industries and products for which financing is provided
include spas and pools, musical instruments, motorcycles, sports and
recreational vehicles, marine craft, outdoor power equipment, furniture and
soft goods.
None of the merchants, product sponsors or dealers has any obligation with
respect to the accounts. The obligation to
2
pay principal, interest and fees on the accounts is solely that of the obligors
who enter into the cardholder agreements.
Accounts
Conseco Bank, Green Tree Bank and Conseco Finance Servicing Corp. each owns
a portfolio of private label credit card accounts. The Conseco Bank private
label credit card portfolio, the Green Tree Bank private label credit card
portfolio and the Conseco Finance Servicing Corp. private label credit card
portfolio together constitute the Conseco private label credit card portfolio.
Accounts designated to the trust will be selected from the Conseco private
label credit card portfolio.
The accounts designated to the trust will constitute the trust portfolio.
The trust will own the receivables arising from time to time in the accounts in
the trust portfolio.
Each of the accounts is opened under the terms of an agreement with an
individual as the obligor or, in the case of commercial and contractor
accounts, with an individual or business entity as the obligor. Each account is
owned either by Green Tree Bank, Conseco Bank, Conseco Finance Servicing Corp.
or another affiliate of Conseco Finance.
The accounts are primarily revolving private label credit card accounts.
Notwithstanding the revolving characteristics of the accounts, under some
programs, fixed monthly payments are required.
We are permitted to add MasterCard(R) and VISA(R)* accounts to the trust,
if those accounts otherwise meet the eligibility criteria for inclusion in the
trust. We do not, however, have any current intent to do so.
Receivables
The receivables owned by the trust will be those arising from time to time
in the accounts designated to the trust.
The receivables will be all amounts shown on the servicer's records as
amounts payable by obligors on those accounts designated to the trust except
for any amounts which constitute insurance premiums. The receivables will
include amounts payable as principal receivables and as finance charge
receivables.
Finance charge receivables include all periodic rate finance charges, late
fees and overlimit fees charged to the accounts designated to the trust.
Finance charge receivables also include a portion of the principal receivables
which will be recharacterized as finance charge receivables and include
recoveries with respect to receivables previously charged off.
Principal receivables include all receivables other than the finance charge
receivables or defaulted receivables.
- --------
* MasterCard(R) and VISA(R) are federally registered servicemarks of
MasterCard International, Inc. and VISA U.S.A., Inc., respectively.
3
Trust Assets
The receivables owned by the trust will be the primary trust assets.
The transferors are also permitted to add, from time to time,
participations and related collections to the trust. These participations must
be undivided interests in a pool of assets primarily consisting of receivables
arising under credit card accounts.
For more information about the receivables, see "The Trust Portfolio" in
this prospectus.
All trust assets will initially be in a pool of assets designated as pool
one. All series of notes offered by this prospectus will be backed by the
assets in pool one unless the prospectus supplement for a series specifies a
different pool of assets for that series. In the event that assets are
transferred to the trust and designated as being in a pool of assets other than
pool one, a separate collection account and special funding account will be
created for that pool. Series of notes which are issued to finance assets in a
different pool will be backed solely by those assets and not by assets in pool
one. All references in this prospectus to receivables, accounts and notes shall
refer to pool one only, unless otherwise stated.
Interest Payments on the Notes
Each note entitles the holder to receive payments of interest as described
in the applicable prospectus supplement. If a series of notes consists of more
than one class, each class may differ in, among other things, priority of
payments, payment dates, interest rates, methods for computing interest, and
rights to series enhancement.
Each class of notes may have fixed, floating or any other type of interest
rate. Generally, interest will be paid monthly, quarterly, semi-annually or on
other scheduled dates over the life of the notes. See "Description of the
Notes--Interest Payments" in this prospectus.
Principal Payments on the Notes
Each note entitles the holder to receive payments of principal as described
in the applicable prospectus supplement. If a series of notes consists of more
than one class, each class may differ in, among other things, the amounts
allocated for principal payments, priority of payments, payment dates,
maturity, and rights to series enhancement. See "Description of the Notes--
Principal Payments" in this prospectus.
Revolving Period
Each series of notes will begin with a period during which the trust will
not pay or accumulate principal for payment to the noteholders of that series.
The period when no principal is paid or accumulated is known as the revolving
period. The trust, during the revolving period, will pay available collections
of principal receivables to noteholders of other series in a principal sharing
group as shared principal collections or to the transferors as holders of the
transferors' interest, or in limited circumstances described under "Description
of the Notes--Application of Collections" will deposit the available principal
in the special funding account.
4
Partial Amortization
A series of notes may be subject to a partial amortization during the
revolving period, if so described in the prospectus supplement for that series.
A partial amortization may occur, among other causes, if a merchant terminates
its merchant agreement and purchases receivables then in the trust and the
receivables are not replenished as described in the prospectus supplement.
Amortization or Accumulation Periods
Following the termination of the revolving period, each class of notes will
have one or more of the following periods in which:
. principal is accumulated in specified amounts per month to be paid on an
expected principal payment date, known as a controlled accumulation period;
. principal is paid in fixed amounts at scheduled intervals, known as a
controlled amortization period; or
. principal is paid or accumulated in varying amounts each month based on the
amount of principal receivables collected following an amortization event,
known as an early amortization period or early accumulation period,
respectively.
In addition, each class may have other types of accumulation or
amortization periods as specified in the related prospectus supplement.
Amortization Events
An amortization event for any series of notes will include adverse events
described in the prospectus supplement for that series. In addition, the
following will be amortization events for all series:
. bankruptcy, insolvency or similar events relating to any one or more of the
following entities: the trust, one or more of the transferors, including any
additional transferor, one or more of the account owners, or Conseco
Finance; provided that a bankruptcy, or insolvency with respect to any such
entity shall not cause an amortization event if written confirmation is
received from each rating agency that the bankruptcy or insolvency of such
entity will not result in a reduction or withdrawal of any rating of an
outstanding series or class.
. the transferors, including any additional transferor, are unable to transfer
receivables to the trust as required under the transfer and servicing
agreement; or
. the trust becomes subject to regulation as an "investment company" under the
Investment Company Act of 1940.
See "Description of the Notes--Amortization Events" in this prospectus.
Early Amortization or Early Accumulation Period
If an amortization event occurs which affects all series or your series,
then an early amortization period or early accumulation period will begin. If a
series or class of notes is in an early amortization or early accumulation
period, the trust will pay available principal to those noteholders on each
distribution date or accumulate available principal by making a deposit into an
account on each distribution date. If the series has more than one class, each
class may have a different priority for payment.
5
Events of Default
General
The indenture and related indenture supplement governing the terms and
conditions of the notes include a list of adverse events called events of
default.
If an event of default occurs, then, after any applicable cure period, the
indenture trustee or the holders of a majority of the outstanding principal
amount of notes of the affected series may declare all the notes of that series
to be immediately due and payable.
Events of default include the following:
. the trust fails to pay interest on any note within 35 days of its due date;
. the trust fails to pay in full principal on any note on or before its due
date;
. the trust defaults on any covenant or breaches any agreement under the
indenture and the default or breach continues unremedied for 60 days after
notice is given to the trust by the indenture trustee or to the trust and
the indenture trustee by holders of at least 25% of the outstanding
principal amount of the affected series of notes; or
. the occurrence of those events of bankruptcy, insolvency, reorganization or
similar events relating to the trust described under "Description of the
Indenture--Events of Default; Rights upon Event of Default."
See "Description of the Indenture--Events of Default; Rights upon Event of
Default" in this prospectus for a description of the events of default and
their consequences to noteholders.
It is not an event of default if the principal of a note is not paid on its
expected principal payment date. It is only an event of default if the
principal amount is not paid on or before that note's final maturity date,
which may be several months or years after the expected payment date.
Events of Default; Remedies
After an event of default and the acceleration of a series of notes, funds
in the collection account and any trust accounts for that series will be
applied to pay those notes to the extent permitted by law. After an event of
default, principal collections and finance charge collections allocated to that
series of notes will be applied to make monthly principal and interest payments
on those notes until the earlier of the date those notes are paid in full or
the series final maturity date of those notes.
See "Description of the Indenture--Events of Default; Rights upon Event of
Default" in this prospectus.
Note Ratings
Any note offered by this prospectus and an accompanying prospectus
supplement will be rated in one of the four highest rating categories by at
least one nationally recognized rating organization.
The ratings of the notes address the likelihood of the timely payment of
interest on and the ultimate payment of principal of the notes. The rating
agencies will not rate the trust's ability to pay principal of the notes in
full on the expected principal
6
payment date or any other date prior to the series final payment date.
A rating is not a recommendation to buy, sell or hold securities, and may
be revised or withdrawn at any time by the assigning agency. Each rating should
be evaluated independently of any other rating. See "Description of the Notes--
Note Ratings" in this prospectus.
Credit Enhancement
Each class of a series may be entitled to credit enhancement. Credit
enhancement for the notes of any class may take the form of one or more of the
following:
. subordination . letter of credit
. collateral . surety bond
interest . spread account
. insurance . reserve account
policy . guaranteed rate agreement
. cash . tax protection agreement
collateral
guaranty or
account
. swap
arrangements
. interest rate
cap agreement
. overcollateralization
The type, characteristics and amount of any credit enhancement for a series
will be:
. based on several factors, including the characteristics of the receivables
and accounts at the time a series of notes is issued; and
. established based on the requirements of the rating agencies.
See " Description of the Notes--Credit Enhancement" in this prospectus.
Tax Status
Subject to important considerations described under "Material Federal
Income Tax Consequences" in this prospectus, Dorsey & Whitney LLP, as counsel
to the trust, is of the opinion that, for United States federal income tax
purposes, the notes offered by this prospectus will be treated as indebtedness
and the trust will not be an association or a publicly traded partnership
taxable as a corporation and accordingly will not be subject to federal income
tax. In addition, noteholders will agree, by acquiring notes, to treat the
notes as debt of the issuer for federal, state and local income and franchise
tax purposes.
Collections and Allocations
The servicer receives collections on the receivables, deposits those
collections in the collection account and keeps track of them as finance charge
receivables or principal receivables.
The servicer then allocates those collections among each series of notes
outstanding and the transferors' interest. The servicer allocates collections
of finance charge receivables and principal receivables, and receivables in
accounts written off as uncollectible to each series based on varying
percentages. The accompanying prospectus supplement describes the allocation
percentages applicable to your series.
The interest in the assets not allocated to any series of notes is the
transferors' interest. The principal amount of the transferors' interest
fluctuates with the amount of the principal receivables held in the trust and
the amount of notes outstanding.
Groups
The notes of a series may be included in one or more groups of series that
share
7
collections of finance charge and/or principal receivables. The prospectus
supplement will identify whether your series has been included in one or more
of the following groups:
. Excess finance charge sharing group
. Reallocation group
. Shared enhancement group
. Principal sharing group
See "Description of the Notes--Groups" in this prospectus.
Shared Transferor Principal Collections
If a series is identified in its prospectus supplement as being entitled to
receive shared transferor principal collections, collections of principal
receivables otherwise payable to the transferors may be applied to cover
principal payments for that series. See "Description of the Notes-- Shared
Transferor Principal Collections" in this prospectus.
8
Risk Factors
The risk factors disclosed in this section of the prospectus and in the
prospectus supplement describe the principal risk factors of an investment in
the notes. You should consider the following factors and the risk factors
described in the prospectus supplement before you decide whether or not to
purchase the notes.
Payment patterns will require Many of our financing programs include
new accounts to maintain the accounts which are opened primarily for the
trust; failure to maintain financing of a major purchase such as a
required principal balances motorcycle, lawn equipment or home
will cause an early improvements. We expect that the portion of
amortization. the accounts which are in this category will
increase. These accounts perform differently
than more typical revolving credit card
accounts. We expect that, for the most part,
as the principal of the accounts which was
incurred for a major purchase is repaid,
additional large principal amounts will not
be charged to the accounts to replenish the
outstanding principal receivables; therefore,
to replace these receivables, and to maintain
the trust, we will be required to originate
and designate new accounts to the trust. If
we are unable to originate new principal
receivables, an early amortization event may
occur and your notes may be paid early, which
may leave you with a reinvestment risk.
Promotional programs may Many of the Conseco private label credit card
reduce the yield on the trust programs offer promotional programs to
and cause an early attract new accounts and to encourage the use
amortization or an inability of existing accounts. Promotional programs
to pay the full amount due on take many forms, but most involve a period of
your notes. months during which no finance charges accrue
or during which finance charges accrue at a
reduced rate or involve a forgiveness of
finance charges if the principal of a
purchase is paid within a stated period of
time. Use of these programs may reduce the
yield on the Conseco private label credit
card portfolio and the yield on the trust
portfolio. This may result in the occurrence
of an early amortization event occurring for
one or more series of notes. In more extreme
situations, the promotional programs could
reduce the level of finance charge
receivables to such an extent that payment
defaults could occur on the notes.
9
Recharacterization of A percentage of the receivables that would
principal receivables will otherwise be treated as principal receivables
reduce principal receivables have been designated to be treated as finance
and may require the addition charge receivables. This designation will
of new receivables. If new increase the collections of receivables that
receivables are unavailable are treated as collections of finance charge
when required you may receive receivables and should decrease the
payment of principal earlier likelihood of an early amortization event
than expected. occurring as a result of a reduction of the
series portfolio yield for a given period.
However, this designation will also reduce
the aggregate amount of principal receivables
in the trust, which may increase the
likelihood that the transferors will be
required to add receivables to the trust. If
the transferors were unable to add
receivables and could not make a sufficient
cash deposit into the special funding
account, one or more series of notes,
including your series, could go into early
amortization resulting in principal being
paid before the scheduled payment date.
Relationships with merchants The private label credit card business is
create risk resulting from dependent upon our ability to attract
pressure to provide attractive merchants, sponsors and dealers to
credit pricing and promotions participate in the program and to maintain
and create risk from and retain the merchant, sponsor and dealer
termination of agreements. relationships. Competition for merchant
agreements is intense and to win and retain
desirable merchant agreements, credit
providers must provide attractive terms and
participate in promotional programs offered
by the merchants, sponsors and dealers to
their customers. This competition and
negotiation may significantly reduce the
amount which we are able to realize upon the
accounts.
Merchant agreements are generally initially
entered into for a period of three to five
years with provisions for periodic extension.
In addition to the stated termination date in
the merchant agreements, there are a number
of circumstances specified in the merchant
agreements which will cause or permit the
termination of the agreement. Some of the
circumstances which may result in a
termination of a merchant agreement are the
failure of either the merchant or the Conseco
entity to pay amounts due to the other party
when required and/or an event of bankruptcy
or insolvency.
10
Such agreements frequently provide that upon
termination, the merchant has the right to
purchase all outstanding accounts including
receivables originated under the program. If
this were to occur, particularly if the
termination and sale were related to a
merchant with accounts which represented a
significant portion of the trust portfolio,
our ability to replace those accounts cannot
be assured. Proceeds received from the sale
of the accounts would be deposited into an
account and held, to the extent required in
the transaction documents, by the indenture
trustee in that account. If receivables in
new accounts were not available to replace
the amounts in the sold accounts, this could
result in an early redemption of some or all
of your notes.
In the alternative, if the terminating
merchant did not purchase the existing
accounts, the obligors' charging privileges
would be terminated, but the trust would
continue to own the existing receivables in
those accounts. However, the termination
could adversely affect the payment patterns
on the remaining accounts.
Decline or failure of Our ability to generate receivables to be
merchants' businesses or added to the trust and to maintain the trust
decline in sales in an at required levels is closely tied to the
industry will adversely affect success or failure of the merchants with
our ability to generate which we contract and the industries to which
receivables and the we provide credit. Those credit cards which
performance of the trust. are provided under the traditional private
label merchant arrangements, are used
primarily to purchase goods and services from
a specific merchant. Those credit cards
provided under the manufacturer name
programs, distributor name programs and
Conseco developed programs are used primarily
to purchase goods and services of a specific
manufacturer or distributor or a type of
product. In the event there is a (i) general
decline in any of the industries in which we
provide credit or (ii) a merchant,
manufacturer or distributor closes stores,
reduces the dealers through which it sells
its products, becomes bankrupt or insolvent
or there is otherwise a decline in its
business, there may be a corresponding
decline in receivables in the trust and
available for transfer to the trust. Also,
upon the bankruptcy of a merchant,
11
we may, although we are not required to do
so, remove the accounts originated under that
program from the trust. These factors may
result in the receivables in the trust
dropping below required levels and we may not
be able to add receivables in an amount
sufficient to prevent an early amortization
of the notes. If this happens the trust would
go into early amortization and you would
receive payment of your notes earlier than
expected. Also, an insolvency or other
adverse development involving a merchant may
adversely affect the performance and payment
patterns of accounts created under the
related merchant agreement. In an extreme
case, this could result in a default on your
notes.
If we add fixed monthly The Conseco private label portfolio includes
payment plans to the trust accounts with receivables payable on a fixed
this may affect when or if you monthly schedule. We expect that this portion
receive principal payments on of our private label business will grow.
your notes. Initially we will not include accounts
containing fixed payment receivables in the
trust, however, we may add these receivables
in the future. Before we can add fixed
payment receivables to the trust, we must
notify the rating agencies of the proposed
addition and the rating agencies must notify
us that the addition will not cause the
reduction or withdrawal of any outstanding
rating on any series or class of notes. If we
do add these receivables to the trust, it may
have an effect on when you receive payments
on your notes. Fixed payment plans usually
are structured as fixed monthly payments
including both principal and interest
payments. Therefore, for those accounts tied
to a floating rate index, as interest rates
fluctuate, the portion of the monthly payment
which represents interest and the portion
that represents principal fluctuates. This
will result in a shortened repayment period
as interest rates fall and an extension of
the repayment period as interest rates rise.
If interest rates rise dramatically, the
entire amount of the monthly payments may be
applied as interest, and it is possible that
negative principal amortization may occur.
Increases in interest rates may result in
your receipt of principal payments on the
notes being delayed beyond the expected
payments dates or may, in extreme cases,
result in default on principal payments on
the notes.
12
Some liens may be given Although each transfer of receivables by
priority over your notes which Conseco Bank, Conseco Finance Servicing
could cause your receipt of Corp., Green Tree Bank, Credit Card Funding
payments to be delayed or Corp. and any additional account owner or
reduced. additional transferor will be characterized
as a sale in the transfer documents, a court
could conclude that any of such transfers was
not an absolute transfer but a secured
borrowing and that the transferring party
remains the owner of the receivables. Even
so, the indenture trustee would still have a
first priority perfected security interest in
the receivables; however, the following
interests may receive priority above your
interest:
. a tax or governmental lien, or other lien
imposed under state or federal law without
consent, on the property of the person
that owns the receivables arising before
receivables come into existence;
. the fees and expenses of a receiver or
conservator for Conseco Bank, Green Tree
Bank, or any other account owner or
transferor which is a bank or a similarly
regulated financial institution;
. the interests of other creditors in
collections commingled and used for the
benefit of the servicer, if insolvency or
bankruptcy proceedings were commenced by
or against the servicer, any subservicer
or Conseco Finance.
In addition, if insolvency or bankruptcy
proceedings were commenced by or against
Conseco Finance Servicing Corp., Credit Card
Funding Corp. or any other account owner or
transferor that is not a bank or a similarly
regulated financial institution, the
automatic stay provisions of that law could
interfere with the timely transfer of
collections to the indenture trustee. If any
of these events were to occur, payments to
you could be delayed or reduced. See
"Material Legal Aspects of the Receivables--
Transfer of Receivables" and "Description of
the Transfer and Servicing Agreement--
Representations and Warranties of the
Transferors" in this prospectus.
13
If a conservator or receiver If the FDIC were appointed as conservator or
were appointed for Conseco receiver for Conseco Bank, Green Tree Bank or
Bank, Green Tree Bank or another account owner or transferor, an early
another account owner or payment of principal on all outstanding
transferor, or a transferor or series could result or payments could be
account owner became a debtor reduced or delayed and defaults could occur
in a bankruptcy case, delays on your notes. If the FDIC did not respect
or reductions in payment of the security interest granted by Conseco
your notes could occur. Bank, Green Tree Bank or other account owner
or transferor, in the receivables, the FDIC
could:
. require the indenture trustee to go
through the administrative claims
procedure established by the FDIC in order
to obtain payments on the notes;
. request a stay of any actions by the
indenture trustee to enforce the transfer
and servicing agreement against Conseco
Bank or request a stay of any actions to
enforce the receivables purchase agreement
against Green Tree Bank; or
. repudiate the transfer and servicing
agreement and/or the receivables purchase
agreement or other documents transferring
the receivables and limit the claims of
the holders of the notes to their "actual
direct compensatory damages."
If the FDIC were to take any of these
actions, the amount payable to you could be
delayed and could be less than the
outstanding principal and accrued interest on
the notes, thus resulting in losses to you.
Payments to you also could be delayed or
reduced if the transfer of receivables to the
transferors or to the trust was construed as
the grant of a security interest rather than
an absolute assignment or if the assets and
liabilities of the transferors or to the
trust were substantively consolidated with
those of an entity in bankruptcy.
If a conservator or receiver were to be
appointed for Green Tree Bank or Conseco
Bank, or any account owner or transferor, or
if an event of bankruptcy or insolvency
occurred with respect to any transferor or
any account owner, an early payment of
principal on all outstanding series could
result. Under the terms of the transaction
documents, new principal receivables would
not be transferred to the trust. However, the
14
bankruptcy court, the conservator or the
receiver may have the power, regardless of
the terms of the transaction documents, to
delay that procedure, to prevent the early
payment of principal, or to require new
principal receivables to continue to be
transferred.
In addition, in the event a conservator or
receiver were appointed for the servicer, the
conservator or the receiver may have the
power to prevent either the indenture trustee
or the noteholders from appointing a new
servicer.
See "Material Legal Aspects of the
Receivables-- Certain Matters Relating to
Conservatorship, Receivership and Bankruptcy"
in this prospectus.
Bankruptcy or insolvency of We intend that Credit Card Funding Corp. and
Conseco Finance or other the trust will be organized and operated in
affiliates of the transferors such a manner that, in the event of the
could cause delays in payment bankruptcy or insolvency of Conseco Finance
of or losses on your notes or an affiliate thereof, neither Credit Card
Funding Corp. nor the trust, will be
consolidated in the bankruptcy or insolvency
proceeding. However, if Conseco Finance or an
affiliate were to become a debtor under the
federal bankruptcy code, it is possible that
a creditor or trustee in bankruptcy for
Conseco Finance or the affiliate or Conseco
Finance or the affiliate as debtor-in-
possession, may argue that all or a part of
the assets of Credit Card Funding Corp. and
all or part of the trust assets should be
consolidated in the bankruptcy proceeding or
may otherwise interfere with the rights of
the trust to the receivables. See "The
Conseco Private Label Credit Business" in
this prospectus and information concerning
Conseco Finance in this prospectus and the
accompanying prospectus supplement.
Limited experience in Conseco Finance, formerly known as Green Tree
underwriting and servicing Financial Corporation, and its affiliates
private label credit card began its private label credit card business
accounts and changes in the in 1996 and has limited historical experience
business may result in higher with underwriting, originating and servicing
than expected delinquencies, private label credit card accounts. In
defaults or losses on the particular, Conseco has not been engaged in
accounts which may result in the private label business during any periods
default on your notes. of significant economic downturn. In
15
addition, the business has expanded
significantly since its initiation and the
nature of the business has changed and we
expect that it will continue to change. The
historical information concerning the Conseco
private label portfolio presented in this
prospectus and in any prospectus supplement
is limited and reflects a business in its
early stages. The business has changed and
will continue to change. For example, we
expect the portion of the accounts and
receivables related to major purchases and
those with fixed payments to increase. Future
results may not be consistent with historical
information presented. Although we have
calculated and presented historical
delinquency and net loss experience for the
private label portfolio, you must not assume
that this information or any other historical
information presented will actually reflect
future experience for the receivables
transferred into the trust. Our private label
portfolio has experienced a high rate of
growth since its inception. Delinquency and
default rates in expanding portfolios can be
expected to increase as growth slows.
You must not assume that any future
delinquency, loan loss or recoveries
experience of the trust for the receivables
will be better or worse than those described.
If the delinquency, default or loss
experience of the receivables transferred
into the trust is worse than expected, you
could suffer a loss on your investment.
In addition, our experience with managing and
predicting customer payment patterns and
yield and spread levels is limited and our
business is changing and you must not assume
that historical experiences will reflect
future experiences.
Change in the characteristics Our private label credit card business is
of the merchants and accounts changing, expanding and developing.
may adversely affect payment Historically, a majority of our accounts are
patterns. revolving accounts opened for the purpose of
financing general purchases at specified
merchants and to receive cash advances.
However, a growing percentage of the accounts
are opened to finance a major purchase or
home improvement and a portion of the
accounts involve a fixed monthly payment
plan. We cannot accurately predict how our
16
business will develop in the future. As a
result, you should be aware that the
characteristics of our private label credit
card business and the accounts designated to
the trust may change significantly during the
term of your notes.
Additions to trust assets may The transferors expect that they will
decrease the credit quality or periodically add additional accounts to the
change the characteristics of trust and may, at times, be obligated to add
the assets securing the additional accounts. While each additional
repayment of your notes. If account must be an eligible account at the
this occurs, your receipt of time of its designation, additional accounts
payments of principal and may not be of the same credit quality as the
interest may be reduced, initial accounts, may not be originated under
delayed or accelerated. the same merchant or dealer programs or
within the same industries. There are many
reasons which could cause differences in
credit quality and the performance of the
receivables. These reasons include the fact
that the additional accounts may have been
originated using credit criteria different
from those which were applied to the initial
accounts or the additional accounts may have
been acquired from an institution which may
have used different credit criteria or the
accounts may have been originated under
programs with different merchants or dealers
or for different industries. Consequently,
there is no assurance that future additional
accounts will have the same credit quality or
that the receivables will perform as those
currently designated to the trust. If
additional accounts added to the trust reduce
the credit quality of the trust assets, it
will increase the likelihood that your
receipt of payments will be reduced or not be
received on the scheduled principal payment
date.
You may have limited or no Under the indenture, noteholders holding a
ability to control actions specified percentage of the outstanding
under the indenture. This may principal amount of notes of a series or
result in, among other things, class or all the notes may take actions, or
payment of principal being may direct the indenture trustee to take
accelerated when it is in your various actions described under "Description
interest to receive payment of of the Indenture--Events of Default; Rights
principal at the scheduled Upon Events of Default," including
principal payment date, or it accelerating the payment of principal of the
may result in payment of notes. In the case of votes by series or
principal not being votes by holders of all the notes, the most
accelerated when it is in your senior class of notes will generally be
interest to receive early substantially greater than the subordinate
payment of principal. class or classes of notes. The holders of the
most senior class of notes will
17
therefore generally have the ability to
determine whether and what actions are to be
taken. The holders of the subordinate class
or classes of notes will generally need the
concurrence of the holders of the most senior
class of notes to cause actions to be taken.
Therefore, the actions taken or not taken by
the controlling noteholders may be contrary
to the actions that you determine to be in
your best interest.
Issuance of additional series The trust is expected to issue additional
by the trust may affect the series from time to time. The trust may issue
timing of payments to you. additional series with terms that are
different from your series without your prior
review or consent. It is a condition to the
issuance of each new series that each rating
agency that has rated an outstanding series
confirm in writing that the issuance of the
new series will not result in a reduction or
withdrawal of its rating of any class of any
outstanding series. The rating agency
confirmation primarily will be based on the
trust's ability to pay principal by the
series final maturity date and interest on
each payment date. The rating agency
confirmation will not consider how the terms
of a new series could affect the timing and
amounts of payments on your series on its
expected principal payment date. Therefore,
the issuance of a new series may cause
payments of principal and interest on your
notes to be reduced, delayed or accelerated.
If an event of default occurs, Your remedies may be limited if an event of
your remedy options will be default occurs. After an event of default and
limited and you may not the acceleration of your series of notes,
receive full payment of collections of principal receivables and
principal and accrued finance charge receivables allocated to those
interest. notes and, if applicable, any funds in the
principal funding account for your series,
will be applied to make payments on those
notes until the earlier of the date those
notes are paid in full and the final maturity
date of those notes. However, no principal
collections will be allocated to a class of
notes if its invested amount is zero, even if
the stated principal balance of the note has
not been paid in full. If your series
includes a principal funding account, funds
in that principal funding account, if any,
that are not reallocated to other classes of
that series will still be available to pay
notes with an invested amount of zero. If
your notes are subordinated notes as
18
specified in the prospectus supplement, you
will receive payment of principal of those
notes only if and to the extent that, after
giving effect to that payment, the amount of
subordination, as specified in the prospectus
supplement, will be maintained for the senior
classes of notes in that series.
If a transferor breaches Conseco Bank, Green Tree Bank, Conseco
representations and warranties Finance Servicing Corp. and Credit Card
relating to the receivables, Funding Corp., as originators and/or parties
payments on your notes may be transferring the receivables, make
reduced. representations and warranties relating to
the validity and enforceability of the
receivables arising under the accounts in the
trust portfolio, and as to the perfection and
priority of the indenture trustee's interest
in the receivables. However, neither the
owner trustee nor the indenture trustee will
make any examination of the receivables or
the related assets to determine the presence
of defects, compliance with the
representations and warranties or for any
other purpose.
If a representation or warranty relating to
the receivables is violated, the related
obligors may have defenses to payment or
offset rights, or creditors of the other
account owners or the transferors may claim
rights to the trust assets. If a
representation or warranty is violated, the
transferor or account owner may have an
opportunity to cure the violation. If it is
unable to cure the violation within the
specified time period or if there is no right
to cure the violation, the transferor must
accept reassignment of the receivables
affected by the violation. These
reassignments are the only remedy for
breaches of representations and warranties,
even if your damages exceed your share of the
reassignment price. See "Description of the
Transfer and Servicing Agreement--
Representations and Warranties of the
Transferors" in this prospectus.
Changes to consumer protection Receivables that do not comply with consumer
laws may impede collection protection laws may not be valid or
efforts or reduce collections enforceable against the obligors on those
which may result in a receivables.
reduction in payments on your
notes.
Federal and state consumer protection laws
regulate the creation and enforcement of
consumer loans, including credit card
accounts and receivables.
19
Changes or additions to those regulations
could make it more difficult for the servicer
of the receivables to collect payments on the
receivables or could reduce the finance
charges and other fees that the originator
can charge on credit card account balances,
resulting in reduced collections.
If an obligor sought protection under federal
or state bankruptcy or debtor relief laws, a
court could reduce or discharge completely
the obligor's obligations to repay amounts
due on its account and, as a result, the
related receivables would be written off as
uncollectible. See "Material Legal Aspects of
the Receivables--Consumer Protection Laws" in
this prospectus.
Competition in the credit card The credit card industry is highly
and consumer loan industry may competitive. As new credit card companies
result in a decline in new enter the market and companies try to expand
receivables and may result in their market share, effective advertising,
a reduction in the yield on target marketing and pricing strategies grow
the accounts. This may result in importance. Attracting merchants and
in the payment of principal to dealers to private label programs is
you earlier or later that your especially competitive. Merchant agreements
scheduled principal payment are negotiated periodically and merchants and
date. dealers may decide not to renew their
contracts with the Conseco entity. Our
ability to compete in this environment will
affect our ability to generate new
receivables and may also affect payment
patterns on the receivables. If the rate at
which Green Tree Bank, Conseco Bank or other
account owners generate new receivables
declines significantly, the account owners
may be unable to transfer additional
receivables or designate additional accounts
to the trust and an amortization event could
occur, resulting in payment of principal
sooner than expected. If the rate at which
the account owners generate new receivables
decreases significantly at a time when
noteholders are scheduled to receive
principal or principal is scheduled to be
accumulated, then noteholders may receive
principal earlier or later than expected.
Also, competition may result in lower rates
charged on accounts and more extensive use of
promotional programs. This could result in a
reduction in amounts available to pay
interest on the notes and could, if yields
decline, result in an early amortization.
20
The account owner may change As owner of the accounts, Green Tree Bank,
the terms and conditions of Conseco Bank, Conseco Finance Servicing
the accounts in a way that Corp., or other account owner retains the
reduces collections. These right to change various account terms
changes may result in reduced including finance charges, other fees and the
or early payments to you. required monthly minimum payment. Those
changes may be voluntary on the part of Green
Tree Bank, Conseco Bank or Conseco Finance
Servicing Corp. or may be undertaken at the
request of a merchant or dealer or may be
forced by law or market conditions. Changes
by the account owner in interest rates and
fees charged to its customers could decrease
the effective yield on the accounts and this
could result in an early payment or reduced
payment of principal of your notes. Changes
in the required monthly minimum payment could
result in delays in the payment of your
notes. Changes in account terms could also
cause a reduction in the credit ratings on
your notes.
The note interest rate and the Substantially all accounts have finance
receivables interest rate may charges set at a variable rate based on the
re-set at different times and prime rate while a minimal number composed
will be established using mainly of contractor and commercial accounts
different indexes, resulting have finance charges based upon a fixed rate.
in reduced or early payments Some, under promotional programs, may bear no
to you. interest for a specified period of time. A
series of notes may bear interest either at a
fixed rate or at a floating rate based on a
different index. If the interest rate charged
on the accounts declines, collections of
finance charge receivables may be reduced
without a corresponding reduction in the
amounts of interest payable on your notes and
other amounts required to be paid out of
collections of finance charge receivables.
This could result in delayed or reduced
payments to you.
A decrease in the spread, or difference,
between collections of finance charge
receivables and those collections allocated
to make interest payments on your notes could
also increase the risk of early repayment of
your notes.
In-store payments provide a A few of our private label programs allow
risk that collections may not obligors to make payments of their accounts
be available to make payments in the merchant's store rather than sending
on your notes. payment to the servicer's account. An event
of bankruptcy or insolvency of the merchant
may result in these payments being
21
captured in the bankruptcy or insolvency
proceedings of the merchants. In such event,
payments made in the stores may not be
available to the trust, thus reducing the
amount available to pay your notes.
Subordinated classes bear One or more classes of notes in a series may
losses before senior classes. be subordinated to one or more senior classes
If you own subordinated notes, of notes in the same series. Principal
the priority of allocations allocations to the subordinated class or
among classes of notes may classes generally do not begin until each of
result in payment on your the more senior classes has been paid in
notes being reduced or full. Therefore, if you own subordinate
delayed. notes, your receipt of principal payments may
be delayed or reduced to the extent the
senior noteholders have not received full and
timely payments with respect to their notes.
Additionally, if collections of finance
charge receivables allocated to a series are
insufficient to cover amounts due for that
series' senior notes, the invested amount for
the series might be reduced. This would
reduce the amount of the collections of
finance charge receivables allocated to the
series in future periods and could cause a
possible delay or reduction in principal and
interest payments on the subordinated notes.
Allocations of defaulted The servicer will write off the receivables
receivables could reduce arising in accounts in the trust portfolio if
payments to you. the receivables become uncollectible. Your
series will be allocated a portion of these
defaulted receivables. See "Description of
Series Provisions--Allocation Percentages" in
the accompanying prospectus supplement. If
the amount of defaulted receivables allocated
to your series of notes exceeds the amount of
funds available to reimburse those amounts,
you may not receive the full amount of
principal and interest due to you. See
"Description of Series Provisions--
Reallocation Group One," "--Application of
Collections" and "--Defaulted Receivables;
Investor Charge-Offs" in the accompanying
prospectus supplement.
There is no public market for The underwriters may assist in resales of the
the notes. As a result you may notes but they are not required to do so. A
be unable to sell your notes secondary market for any notes may not
or the price of the notes may develop. If a secondary market does develop,
suffer. it might not continue or it might not be
sufficiently liquid to allow you to resell
any of your notes.
22
The Glossary
This prospectus uses defined terms. You can find a listing of defined terms
in the Glossary beginning on page 107 in this prospectus.
The Issuer
Conseco Private Label Credit Card Master Note Trust is a business trust
created under the laws of the State of Delaware on December 26, 2000. It is
operated under a trust agreement among Conseco Bank and Credit Card Funding
Corp., as transferors, and Wilmington Trust Company, as owner trustee.
The activities of the issuer are limited to:
. acquiring, owning and managing the trust assets and the proceeds of
those assets;
. issuing and making payments on the notes; and
. engaging in related activities.
The primary assets of the issuer will be
. the receivables transferred to the issuer by Credit Card Funding
Corp., Conseco Bank and any other transferor and amounts collected or
to be collected from obligors in respect of those receivables;
. any participation interests transferred to it;
. credit enhancement facilities obtained in connection with any series
of notes or class of notes;
. derivative agreements that the issuer will enter into from time to
time to manage interest rate or currency risk relating to certain
series, classes or tranches of notes; and
. funds on deposit in the trust accounts; and
. certain rights under the merchant agreements.
The issuer does not expect to have any other significant assets.
Conseco Bank will be the administrator for the issuer under an
administration agreement between the administrator and the issuer. The
administrator will provide notices and perform, on behalf of the issuer, other
administrative obligations required by the transfer and servicing agreement,
the indenture and the indenture supplement for each series. The administrator
will be compensated with a monthly fee as specified in the prospectus
supplement. The transferors are responsible for payment of the administrator's
fees, to the extent not paid under the terms of any indenture supplement, and
will reimburse the administrator for any of its liabilities and extra out-of-
pocket expenses related to its performance under the administration agreement
and any other document relating to the issuance of the notes.
The issuer's principal offices are in Delaware, in care of Wilmington Trust
Company, as owner trustee, at the following address: Rodney Square North, 1100
North Market Street, Wilmington, Delaware 19890-0001. Its phone number is (302)
651-8856.
23
The transferors will pay the fees of the owner trustee and will reimburse
it for particular liabilities and expenses.
Use of Proceeds
The proceeds from each sale of notes will be paid to the transferors and
initially used for the purchase of receivables or repayment of any prior
financing relating to the receivables. Subsequent proceeds from the sale of
notes will be paid to the transferors and used for their general corporate
purposes, which may include the origination or purchase of additional
receivables. A portion of the proceeds of a series of notes may also be used to
fund accounts providing credit enhancement for that series, as may be specified
in each prospectus supplement.
The Conseco Private Label Credit Card Business
Background
The Conseco private label credit card business began in 1996 when Green
Tree Financial Corporation through its affiliates Green Tree Financial
Servicing Corporation and Green Tree Retail Services Bank, Inc., a South Dakota
banking corporation, entered into an agreement to provide private label credit
cards to customers of Menard's Inc., a Wisconsin-based home improvement center
company with stores throughout the midwest. Since that time Green Tree
Financial Corporation, now known as Conseco Finance Corp., has entered into
numerous other merchant agreements and with limited exceptions has assigned the
merchant agreements either to Green Tree Bank or to Conseco Bank which was
previously known as Green Tree Capital Bank, a Utah industrial loan
corporation.
In 1998, Green Tree Financial Corporation was acquired by Conseco, Inc. In
1999, Green Tree Financial Corporation changed its name and became Conseco
Finance, Inc., Green Tree Capital Bank Inc. became Conseco Bank, Inc. and Green
Tree Financial Servicing Corporation became Conseco Finance Servicing Corp.
Conseco Bank is a wholly owned direct subsidiary of Conseco Finance. Green
Tree Bank is a wholly owned subsidiary of Conseco Finance Servicing Corp. which
is a wholly owned subsidiary of Conseco Finance.
Conseco Finance and its subsidiaries have continued to expand its private
label credit card business both through originating new accounts and through
the acquisition of accounts originated by other lenders. Currently accounts are
originated and cards issued by either Green Tree Bank or Conseco Bank. In
addition, Conseco Finance Servicing Corp. has originated and is the account
owner for a small percentage of accounts which are contractor or commercial
accounts originated prior to 1997.
The accompanying prospectus supplement describes the portion of the
accounts which were originated by Conseco Bank, Green Tree Bank and Conseco
Finance Servicing Corp. as of the date specified in the prospectus supplement
but these portions are likely to change over time.
24
Conseco Bank has previously financed some of its private label credit card
operations through the issuance of certificates representing interests in a
pool of receivables in designated accounts. Those certificates were placed with
private commercial paper conduits. At the time of issuance of the first series
of notes by the trust, the outstanding certificates will be paid and the
interest of the certificateholders will be released. Some or all of the
receivables in the current securitization program will be transferred by
Conseco Bank to the trust. Other receivables initially transferred to the trust
will come from those portions of the Conseco private label credit card
portfolio not previously securitized.
Conseco Finance Corp.
Conseco Finance is a Delaware corporation with its principal office in
Saint Paul, Minnesota. Conseco Finance was formerly Green Tree Financial
Corporation. Green Tree Financial Corporation was acquired by Conseco, Inc. on
June 30, 1998. Green Tree Financial Corporation changed its name to Conseco,
Inc. in November 1999. Conseco Finance is a wholly owned subsidiary of Conseco,
Inc., a financial services holding company. The principal executive offices of
Conseco Finance are located at 1100 Landmark Towers, 345 St. Peter Street,
Saint Paul, Minnesota 55102-1639.
Conseco Finance is a diversified financial services company with operations
to originate, purchase, sell and service consumer and commercial finance loans
throughout the United States.
The SEC allows us to incorporate by reference some of the information we
file with it, which means that we can disclose important information to you by
referring you to those documents. The information that Conseco Finance
incorporates by reference is considered to be part of this prospectus, and
later information that Conseco Finance files with the SEC will automatically
update and supersede this information. The accompanying prospectus supplement
will include additional information about Conseco Finance and the information
which is being incorporated by reference.
Description of Originators and Transferors
Conseco Bank, Inc.
Conseco Bank is a Utah industrial loan corporation which was incorporated
in 1996. From December 1996 until December 1998, the name of the bank was Green
Tree Capital Bank, Inc. The deposits of the bank are insured by the FDIC.
Conseco Bank has originated and will continue to originate and transfer
receivables to the trust. In addition, Conseco Bank purchases receivables from
Green Tree Bank and transfers all eligible receivables to the trust. We expect
that Conseco Bank will be the primary transferor to the trust.
Conseco Finance Servicing Corp.
Conseco Finance Servicing Corp. is a Delaware corporation which was
incorporated in December 1994. Until August 1999, Conseco Finance Servicing
Corp. was named Green Tree Financial Servicing Corporation.
25
Conseco Finance Servicing Corp. has originated and will continue to
originate receivables under commercial and contractor accounts created under
specific existing merchant programs.
Conseco Finance Servicing Corp. may provide financing for additional
programs in the future.
Green Tree Retail Services Bank, Inc.
Green Tree Bank is a South Dakota business corporation which was
incorporated in 1995. Under the Articles of Incorporation of Green Tree Bank,
the bank is permitted to engage only in credit card operations. The deposits
of the bank are insured by FDIC. Green Tree Bank has originated and will
continue to originate receivables under accounts created under specific
existing merchant programs.
Eligible receivables originated by Green Tree Bank are transferred on an
ongoing basis to Conseco Bank.
Conseco Finance Credit Card Funding Corp.
Credit Card Funding Corp. is a newly created special purpose Minnesota
corporation.
Credit Card Funding Corp. will transfer to the trust those receivables
which it receives from Conseco Finance Servicing Corp. The receivables
transferred to the trust by Credit Card Funding Corp. are currently only:
. in contractor or commercial accounts owned by Conseco Finance
Servicing Corp. which accounts were originated before 1997; and
. receivables in specific dealer programs which, for regulatory
compliance reasons, Conseco Bank must promptly transfer to Conseco
Finance Servicing Corp.
Description of the Private Label Credit Card Business
The Conseco private label credit card business began in 1996 with one
primary merchant agreement.
The business has grown primarily in the home store and home improvement
industries. Recently Conseco has developed several programs providing
financing for major consumer products such as motorcycles, boats, recreational
vehicles, home spas and pools and musical instruments.
The growth has occurred by the origination of new programs with merchants
and dealers and by the acquisition of credit card accounts and programs
originated by other financial institutions.
Our private label credit card business originates credit card accounts and
receivables under four general types of programs:
. The original or traditional retail credit card program which is store-
based. In this type of program, Conseco enters into an agreement with
a merchant to provide
26
credit to that merchant's customers to finance the purchase of goods
and services at the merchant's stores. In most cases, the credit cards
issued under this program carry the merchant's name and are primarily
to be used to purchase goods and services from that merchant. Some of
the cards issued under these merchant programs can be used to obtain
cash advances from automated teller machines. Also, for some obligors,
we occasionally issue access checks which can be used for any purpose
and when used result in a charge in the amount of the check to the
obligor's credit card account. Currently, under one program, the
credit cards can also be used as telephone cards. We expect that in
the future, more Conseco credit cards will have a broader range of
functions.
. Distributor name program. Under this program Conseco provides
financing to customers of dealers that buy parts and equipment through
specific distributors. The distributor enters into an agreement with
Conseco under which Conseco agrees to provide credit under the terms
set forth in the agreement to customers of dealers selling products
provided by the distributor. Conseco also enters into a merchant
agreement with the dealer.
. Manufacturer name program. This program is similar to the distributor
program, except that the distributor sells equipment for a brand-name
manufacturer to the dealers. The manufacturer enters into an agreement
with Conseco under which Conseco agrees to provide credit under the
terms set forth in the agreement to customers who purchase the
manufacturer's products from participating dealers. Conseco also
enters into a merchant agreement with the dealer. An adjunct to this
is the Totaline program. This is a business to business financing
program where dealers can finance their purchase from the distributor,
then repay their financing when the customer purchases the product
from the dealer.
. Conseco developed programs. These are programs developed by Conseco to
provide industry-wide financing to specific industries. An example of
this type of program is our FUNancing program. The FUNancing program
provides financing to customers of dealers that offer motorcycles,
boats and recreational vehicles. Other Conseco developed programs
include the HID Projectline program which provides financing for home
improvements such as roofing and siding and the Keynotes/Musician's
Express program which provides financing for musical instruments.
Under these programs, Conseco enters into an agreement with each of
the dealers to provide credit to customers who buy these products.
Credit cards issued under most of the Conseco developed programs also
can be used to obtain cash advances or by the use of access checks
which are sent to the obligors from time to time.
We provide credit cards primarily to individual consumers. However, some
of our programs provide commercial cards and/or cards to contractors.
Conseco's private label credit card business is centered in Saint Paul,
Minnesota. Senior management is located in Saint Paul and marketing efforts
and merchant relationship management are centered in Saint Paul.
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The business is serviced through two service centers. The western service
center, located in Rapid City, South Dakota, provides credit risk management
services, customer and merchant services, accounting and funding functions and
acts as a back-up collections center. The Tempe service center, located in
Tempe, Arizona is responsible for collection services and quality assurance.
The Tempe service center also provides administrative support to the private
label credit card business.
Conseco Bank is headquartered and its management offices are located in
Salt Lake City, Utah. The activities of Conseco Bank are subject to regulation
by the Utah Department of Financial Institutions.
Green Tree Bank is located in Rapid City, South Dakota. The activities of
Green Tree Bank are regulated by the Division of Banking of the South Dakota
Department of Commerce and Regulation.
Marketing
Merchants and Dealers
We market our private label credit card programs primarily within specific
target industries. These target industries include the home center industry,
the home improvement industry, the outdoor power equipment industry, the
furniture industry, heating, ventilation and air conditioning industries and in
the musical instrument industry and in the motorcycle, recreational vehicle,
sports vehicle and marine products industries.
We also market to other industries and in the future may, from time to
time, change the target industries on which we focus our marketing efforts.
Marketing includes solicitation of new programs and acquisition of
portfolios originated by other private label credit card providers.
We seek merchant relationships which are limited to the top merchants in
each of our target industries. Our sales approach focuses on partnership and
differentiating our program through effective marketing activities. Most
relationships are structured with marketing money jointly contributed by both
Conseco and the merchant. We provide merchants and dealers with many marketing
opportunities such as in-store signing, billing statement messaging, inserting
bangtails, and print advertising.
Relationships with merchants and dealers are managed through experienced
account managers.
Our marketing approach recently also has emphasized developing
relationships with manufacturers, distributors and dealers of products such as
heating and air conditioning units, motorcycles, musical instruments,
recreational vehicles and boats. Manufacturer or distributor programs include
endorsement of the Conseco private label credit card program. Under these
endorsements, Conseco then enters into agreements with local dealers who sell
the products or services.
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Customers
Marketing to the individual consumer is done primarily through in-store
solicitation. Applications for credit cards are available in the stores of the
individual merchants or dealers. Applicants provide a limited amount of
information which is electronically transmitted to Conseco's service center and
the application is accepted or denied generally within a matter of a few
minutes.
Conseco also engages in telemarketing to encourage card activation and to
provide notice of promotions available by the use of the consumer's private
label credit card.
Marketing strategies for the acquisition of new accounts include "percent-
off" offers and same-as-cash promotions. Marketing to create additional charge
volume for existing accounts includes "percent-off" offers, rebates, and
loyalty programs where customers can earn points for using their credit cards.
Promotional programs include "same as cash" plans with and without payments.
The "same as cash" periods range from 90 days to 360 days. Other promotions
include reduced rate introductory periods, access checks and fixed rate
"Soldier and Sailors" plan. In addition, skip-a-pay programs are offered
periodically.
Servicing
Conseco Bank will be the servicer with respect to all of the receivables in
the trust. Conseco Bank will carry out its servicing functions through
subservicing arrangements. For those accounts which are owned by Green Tree
Bank, Conseco Bank will provide servicing by a subservicing arrangement with
Green Tree Bank and Green Tree Bank will enter into a subservicing agreement
with Conseco Finance Servicing Corp. Conseco Bank will also provide servicing
on the accounts owned by Conseco Bank through a subservicing arrangement with
Conseco Finance Servicing Corp.
The account processing, billing of accounts and embossing is carried out
for Conseco by Fiserv, Inc. See the following caption "--Description of
Fiserv." Customer service in the form of answering customer inquiries and
providing service is provided by Conseco through its customer service facility
in Rapid City, South Dakota.
Collection services are provided from Conseco's service center in Tempe,
Arizona. Efforts to collect delinquent credit card receivables are made
principally by employees of Conseco Finance Servicing Corp. Accounts are
targeted for collection activity based on both behavioral and bankruptcy
scoring models. Customers less than 90 days delinquent are typically contacted
through the use of an autodialer. Accounts which are greater than 90 days
delinquent or which have a higher likelihood of severe delinquency are
contacted directly by collection specialists.
Conseco Bank and Green Tree Bank have adopted servicing guidelines that
will be used in servicing the Conseco private label credit card portfolio,
including the trust portfolio.
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Description of Fiserv
With respect to Conseco's private label credit business, data processing,
billing and administrative functions associated with the servicing of the
receivables which require mainframe processing are performed by Fiserv, Inc.
under the terms of a contract with Conseco Finance Servicing Corp. Fiserv uses
the Vision21 private label platform.
Conseco first contracted with Fiserv in 1995 and is currently negotiating a
renewal of the contract, the term of which will extend to 2006.
Fiserv is headquartered in Brookfield, Wisconsin. Fiserv provides
information management technology and related services to banks, broker-
dealers, credit companies, mortgage lenders and savings institutions.
Merchants and Dealers
Each of the private label credit card accounts is originated under a
specific private label credit card merchant, distributor, manufacturer or
dealer program or is an account opened under a program by another lender and
acquired by Conseco. The programs have been established with merchants,
distributors, manufacturers and dealers which have passed requirements for
selection established by Conseco.
Merchants, distributors, manufacturers and dealers that have private label
credit card programs with Conseco entities as of the date of this prospectus
include home center retailers, home improvement retailers, furniture retailers,
outdoor power equipment retailers, heating, ventilation and air conditioning
retailers, sports vehicle retailers, home spa and pool retailers, musical
instrument retailers and soft goods retailers. As of the date of this
prospectus, the Conseco private label credit card portfolio includes accounts
opened under approximately 37 programs. The prospectus supplement will provide
you with a listing of the primary entities which have entered into merchant
agreements and are then participating in the Conseco private label programs. We
expect to enter into merchant agreements with other merchants, distributors,
manufacturers and dealers in the future and we expect that some of the existing
agreements will be terminated. The industries to which Conseco may provide
credit card financing in the future may vary significantly from those described
in this prospectus.
Under the dealer programs relating to a specific distributor's or
manufacturer's product and under Conseco developed programs for specific
industries, Conseco may enter into contracts with local dealers to provide
financing for sales of the covered goods and services. Therefore, while the
list of private label credit card programs may include approximately 37
programs, the Conseco private label credit card program also includes contracts
with thousands of local dealers who sell the goods and services.
Under the merchant agreements, an account originator provides credit to
customers of the merchant or dealer generally through a credit card. The credit
cards issued for a particular retail merchant may be used to purchase goods and
services at that merchant's stores and, in some cases, may be used to purchase
goods and services at other stores and locations and may be used to obtain cash
advances. Under programs established for specific
30
distributors or manufacturers, customers of dealers which sell the
distributor's or manufacturer's goods and services may use the cards to finance
the purchase of those goods and services. Under Conseco developed programs,
such as "FUNancing", customers who purchase the goods covered by the program,
such as recreational vehicles, from a dealer which has an agreement with
Conseco, may finance the purchase by charging it on the Conseco credit card.
The accounts are opened under the terms of an agreement with an individual
as the obligor or, in limited cases, for contractor or commercial accounts with
a business entity as the obligor.
To be approved for a private label credit card program, a merchant's,
distributor's, manufacturer's or dealer's financial condition is reviewed. An
investigation of the entity is made, consisting of analysis of financial
statements and comparison of financial information to standards in the
particular industry. A Dun & Bradstreet profile which reveals bankruptcy,
lawsuits or other adverse information will generally result in denial of an
application. Better Business Bureau reports and personal credit reports are
also reviewed. Merchants, manufacturers and distributors continue to be
reviewed annually. If merchants or other dealers are approved for a private
label program, they will continue to be evaluated periodically and may also be
reviewed whenever Conseco Bank or Green Tree Bank, as the case may be, believes
the circumstances warrant a review. These circumstances include pending
litigation, portfolio deterioration, an increase in the number of customer
complaints, suspicion of fraudulent activity, rumors of bankruptcy or
insufficient repeat transactions or add-on sales.
Merchant and Dealer Contracts
Each merchant, distributor, manufacturer or dealer accepted into a program
enters into an arrangement with Conseco Finance Servicing Corp., Conseco Bank
or Green Tree Bank. Commonly, the merchant agreement is entered into by Conseco
Finance and then assigned to Conseco Finance Servicing Corp., Conseco Bank or
Green Tree Bank. In this document and in the accompanying prospectus supplement
each agreement between a Conseco entity and a merchant, distributor,
manufacturer or dealer is referred to as a merchant agreement. Merchant
agreements may vary on a contract-by-contract basis, and generally may be
amended from time to time. Merchants and dealers take credit applications from
a customer and submit them to Conseco Bank or Green Tree Bank. If the customer
is approved, the account originator then opens an account for the customer. The
account originator issuing the card owns the underlying account.
Merchant agreements typically provide that the account originator may
charge back any receivable it acquired if customer disputes occur concerning
merchandise or the validity of the charge or if there is fraud or violation of
certain terms of such contract. Under the merchant agreements, the merchants or
dealers are responsible to make Conseco whole for any losses resulting from
fraudulent use of the cards issued under the merchant's or dealer's program.
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Termination of Merchant Agreements
Merchant agreements generally have terms ranging from three to five years,
although some agreements may extend as long as ten years and some have no
stated termination date. Most merchant agreements include ongoing automatic
annual renewals after the initial term until either party elects to terminate
the contract. The Conseco developed programs usually involve small independent
dealers. In most cases the merchant agreements entered into with the dealers
can be terminated with no notice or up to 180 days' notice.
In addition to the stated expiration dates, merchant agreements can be
terminated for numerous other reasons. For example, most agreements permit the
termination of the agreement if an event of default occurs. Events of default
include failure of either party to make any required payment, failure to
observe any term, provisions, condition or covenant in the agreement,
bankruptcy, material adverse changes in operations, financial condition,
business or prospects of the merchant, distributor, manufacturer or dealer or,
in some agreements, of Conseco Finance. In some agreements, an event of default
occurs if performance goals or other objectives of the merchant, distributor,
manufacturer or dealer are not met or if stores are closed or if an adverse
change occurs in the credit quality of the accounts originated under the
agreement which may impair the ongoing operation of the program. If an event of
default occurs, the nondefaulting party has the right to immediately terminate
the agreement.
Some agreements permit either party to terminate the agreement without
cause but with prior notice of typically 180 days.
If an agreement is terminated, the merchant, distributor, manufacturer or
dealer or its designee may have the option and, in some cases, will be required
to purchase the accounts originated under that agreement. The purchase price
varies from one agreement to another and also varies depending upon the
circumstances under which the termination occurred and the time when the
termination occurred. The purchase price may be par or as much as 105%, or in
some limited cases up to 108%, of the unpaid principal balance. In some
agreements the purchase price is left to be mutually agreed upon at the time of
repurchase.
We expect that from time to time merchant agreements will be terminated. In
such case, if the accounts and the receivables are purchased by the terminating
merchant, the failure of the account originators to designate additional
accounts to replace those purchased by a merchant may result in an amortization
event.
Since the Conseco private label credit card program was initiated in 1996,
only one merchant has purchased the accounts generated under a merchant
program.
Cardholder Agreements
Each credit line relating to the accounts is issued in accordance with a
cardholder or other written agreement and disclosure statement provided to the
obligor.
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Subject to applicable law and certain contracts with merchants and dealers,
the account originators have the right, at any time, to modify terms, add new
terms or terminate any terms of the cardholder agreements, including the
ability to periodically or upon request increase or decrease the credit limit
established for an obligor or to modify the finance charge rate.
For many accounts with a fixed payment schedule or other special payment
plan or promotional feature, the customer signs a sales slip which contains
additional account terms.
In the cardholder agreements, the cardholders grant to the account
originator and the account originator retains a purchase money security
agreement under the Uniform Commercial Code in the merchandise purchased on the
account until the purchase price is paid in full. The agreements state, where
applicable, that if the property purchased is a motor vehicle, the account
obligor grants to and the account originator retains a security interest under
state law in the motor vehicle purchased on the account until the purchase
price is paid in full. The agreements make an exception for North Carolina in
which no security interest is granted. The agreements also state that special
limitations on the grant of the security interest apply in specific states. See
the caption "--Accounts--Security Interests" in this prospectus.
Accounts
General
Conseco private label accounts are primarily revolving credit card
accounts. The accounts are primarily retail consumer accounts. A small portion
of the accounts, however, is composed of commercial accounts and contractor
accounts.
We will be permitted to add MasterCard(R) and VISA(R) accounts to the trust
if the accounts constitute eligible accounts under the terms of the transfer
and servicing agreement. We are not obligated to do so, however, and currently
have no plans to do so.
Finance charges are imposed upon the principal amount outstanding in the
accounts. Finance charges may be imposed at different rates for different tiers
of principal amounts incurred for a purchase or outstanding in an account, may
be imposed at different rates on the revolving principal balances and upon the
fixed monthly payment balances and may be imposed at different rates for
amounts incurred to purchase goods and services and amounts incurred through a
cash advance including access checks.
Applications
To open an account, each prospective obligor must complete an application,
usually obtained from the merchant or dealer. The application lists identity,
employment information and income. Most applications are submitted
electronically from the merchant or dealer to an account originator for
processing. All final credit decisions are made by the account originator in
accordance with its underwriting guidelines.
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Less than 5% of all new accounts are originated by direct mail
solicitations such as preapproved or invitation-to-apply offers. Most new
account origination takes place at the point of sale on retail relationships or
through in-home sales on indirect dealer programs.
Credit Evaluation
A specialized credit system is used to determine which applicants should be
granted credit and the limit which should be placed upon the credit.
Information obtained by the merchant or dealer from the applicant is evaluated
through credit scoring. A credit bureau report is obtained in all cases where
the applicant has an address in the United States. This allows us to use credit
scoring in conjunction with other credit bureau characteristics in analyzing
consumer's credit worthiness.
The credit scoring models used in the underwriting process are custom
models, developed by a third party using Conseco's portfolio history. The
models utilize a clustering methodology that categorizes applicants by
attributes in their credit bureau files and scores them using one of several
models that most closely matches their credit profile. A decision is made
automatically by the credit system in the majority of applications. However,
those applications that trigger certain credit policy rules for bankruptcy,
delinquency, or potential fraud are sent to a credit analyst for judgmental
review. Overall, adherence to the scoring models is approximately 99.5%.
Credit limit assignments vary by merchant program and are driven by income
and credit score. Credit limits for programs in the home improvement industry
are generally higher than those in the soft goods industry as average dollar
amount of purchases in these two categories vary significantly. Higher credit
limits correlate to higher credit quality. On a periodic basis, customers'
credit limits can be increased, decreased or terminated based on their payment
performance with Conseco and custom bankruptcy and behavior scores.
Our underwriting policies are constantly reviewed and may change over time
in accordance with the business judgment of Conseco Bank or Green Tree Bank,
applicable law and guidelines established by governing regulatory authorities.
Credit Limits
Credit limits are established for each account based on credit scores,
income and other credit characteristics with consideration given to the type of
product or service to be financed under the account.
We establish maximum credit lines for accounts within a merchant or dealer
program. However, such maximums are only guidelines and higher limits may be
established for individual accounts through review by credit analysts. The
guidelines for maximum credit lines vary from one merchant or dealer program to
another. For example, the maximum credit line available under standard merchant
programs is generally in the $4,000 to $7,000 range, while the maximum credit
line available for outdoor power equipment may be as
34
much as $25,000 and for other programs the guidelines may suggest even higher
maximum credit limits. For commercial and contractor accounts the maximum
credit line may be $20,000 or more.
The maximum credit line available for individual consumer accounts varies
substantially. However, the majority of consumer accounts have a maximum credit
line of less than $5,000. Maximum credit lines are guidelines only and higher
limits may be approved through review by credit analysts.
Finance Charges
Finance charges are assessed on amounts charged to purchase goods and
services and on cash advances and the use of access checks.
The manner in which finance charges are imposed, whether on a fixed or
floating basis, and the finance charge rates are determined under the terms of
the individual merchant agreements and rates vary from one program to another.
Most programs and accounts in the Conseco private label credit card
portfolio impose finance charges on a floating basis indexed to the prime rate
plus an add-on percentage ranging from 3.40% to 19.99%. Within each program,
different finance charge rates apply to the accounts depending upon numerous
factors. For example, in some accounts, the rate imposed upon principal amounts
of from $0.00 to $1499 is prime plus 13.65% and the rate for amounts above
$1499 is a fixed rate of 13.90%. Amounts charged for a cash advance or incurred
by using an access check may incur finance charges at a different rate than
amounts charge for the purchase of goods and services.
Under merchant programs which provide consumer cards and contractor or
commercial cards, different finance charge rates may apply to the consumer
cards and to the contractor cards and commercial cards.
All merchant programs may include promotional programs. See the caption "--
Special Payment Plans" in this section of this prospectus. Under special
payment plans with waived finance charges, no finance charges accrue on
purchases made under the special payment plan until the expiration date of the
promotional period. Under "same as cash" plans, finance charges accrue on the
purchase from the date of the purchase, but if the cash sale price of the
purchase is paid by the last day of the promotion period, all accrued finance
charges will be waived. Under a reduced rate plan, finance charges at a reduced
rate are applied to the balance attributable to a purchase made under the plan
until the expiration of the reduced rate period or payment in full of the
reduced rate purchase balance, whichever occurs first.
Under the terms of the cardholder agreements, finance charges for each
monthly billing cycle are computed by multiplying the daily periodic rates for
(i) regular purchases, (ii) cash advances, including use of access checks,
(iii) ATM cash advances and (iv) special payment plans, if any, by the average
daily balance for each category of transactions and multiplying each result by
the number of days in the cycle. The results of each of these calculations are
then added to determine the total finance charges for a billing cycle.
35
Many of the accounts also have a higher finance charge rate which applies
if the obligor has failed to pay at least the minimum monthly amount for two
consecutive billing cycles.
Finance charges for all purchases, except for those under a plan with a
waived finance charge feature, begin to accrue on the date of the purchase.
Finance charges for purchases under a plan with a waived finance charge feature
begin to accrue on the date the waiver ends. However, if in any billing cycle
the obligor pays the entire balance, except any amounts attributable to special
payment plans with a delayed payment feature, by the payment due date, no
finance charges will be assessed on the balance of regular purchases for that
cycle. Finance charges for all cash advances, including ATM cash advances,
begin to accrue on the date of the advance. There is no grace period for cash
advances.
It is a common practice for an account originator, in cooperation with
merchants and dealers, to reduce interest rates or alter payment terms in
conjunction with promotions.
There can be no assurance that the finance charges, fees and other charges
discussed herein will remain at current levels in the future.
Fees
In addition to finance charges, other fees are imposed upon the accounts.
These fees include late fees, overlimit fees, returned check fees and
transaction fees. The fees imposed and the amount of those fees vary from one
program to another and from one form or account to another within a program. In
addition, in some states fees may be limited by state law or regulation.
Late fees apply if Conseco does not receive at least the minimum monthly
payment on an account by the due date or within a limited grace period
thereafter, if a grace period applies. Late fees vary from program to program,
but generally are in the range of from $20 to $30.
Overlimit fees may be applied if an account balance during a billing cycle
exceeds the applicable credit limit for the account. Overlimit fees for most
accounts are $20.
If payment is made by check or other instrument and is dishonored by the
obligor's bank, we charge a returned check fee which, in most cases, is $20.
In addition, if an account permits cash advances or the use of ATMs or
access checks, transaction fees are imposed for the use of these features.
Billing
Monthly billing statements are sent to obligors for each monthly billing
cycle for each account in which there is any debit or credit balance of $1 or
more on the account on the last day of that cycle or on which account any
finance charge or fee was imposed or in which there is any other activity. The
periodic statement shows:
(i) the unpaid balance of the account at the beginning of the cycle;
(ii) the payments or other credits to the account during the cycle;
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(iii) purchases, cash advances, finance charges, fees and all other
debits to the account during the cycle;
(iv) the balance of the account on the last day of the cycle;
(v) the last day of the cycle;
(vi) the minimum payment due;
(vii) the date payment is due; and
(viii) the credit limit.
The billing statements prepared and mailed for the servicer by Fiserv are
cycled and billed throughout the month.
Minimum Payments
The minimum monthly principal payment due on the accounts is determined by
the terms of the merchant agreement under which the account was originated and
the cardholder agreement. The minimum monthly payment is calculated on the
basis of the account balance at the end of the billing cycle. This balance, for
accounts with major purchase options, will have two components, one of which
will be the amount outstanding for regular puchases and cash advances and the
other will be the amount incurred for major purchases. The minimum monthly
payment will be the sum of the minimum monthly payment due for regular
purchases and cash advances plus the minimum monthly payment due for the major
purchases, if any.
The minimum monthly payment for each component varies from one program to
another and, in some cases, from one cardholder agreement to another within a
program. Under some merchant programs, the minimum payment for regular
purchases and cash advances is the greater of $10 or 2.5% of the balance. For
others it is the greater of $15 or from 2.0% to 3.0% of the balance depending
upon the amount of the balance and for other programs other minimums are
imposed. Under some programs, cardholder agreements provide for special payment
terms. These special payment terms may include fixed monthly payments including
both principal and interest.
In addition to amounts described in the preceding paragraphs, if the
obligor is required to maintain property/casualty insurance on the purchase and
does not do so, Conseco will obtain the insurance for the obligor. An
additional minimum monthly payment will be calculated for the insurance and
added to the total minimum monthly payment due. Such insurance premiums will
not initially be included in the receivables transferred to the trust.
Contractor and commercial accounts generally have substantially higher
minimum monthly payments. On contractor and commercial accounts minimum
payments may be the greater of $50 or 1/12th of the balance or the greater of
$50 or one-third of the balance or may require payment in full each billing
cycle.
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Application of Payments
Customer payments are applied to their accounts according to the type of
charge and whether they relate to regular or promotional purchases. Payments
are generally allocated first to regular purchases in the following order (to
the extent such fees are permitted under applicable law): (a) insurance
charges, (b) finance charges, (c) late payment fee, overlimit fee, and other
fees and charges, as applicable, and (d) all purchases and cash advances in the
order of the date the purchase or cash advance was funded; and second to
promotional purchases in the same order of priority.
Special Payment Plans
Different special payment plans are offered from one program to another and
for different types of accounts within a program. Not all merchants and dealers
participate in all types of plans. Special payment plans include the following:
(a) Delayed Payment--The customer's payment of principal is delayed
for a period of one to 12 months, no minimum monthly payments are due, but
interest accrues during the deferral period.
(b) Waived Finance Charge--Interest on the customer's account is
waived for a period of one to 24 months but minimum monthly payments are
required.
(c) Delayed Payment/Waived Finance Charge--Interest on the customer's
account is waived and no minimum monthly payments are required for a
period of one to 12 months.
(d) Same-as-Cash with Payments--The customer receives a statement
showing interest accruing and the customer is required to make the minimum
monthly payment. If the customer pays off the purchase within a specified
period--from 90 to 360 days--the interest is waived. If the customer does
not pay off the purchase prior to the expiration of the promotional
period, all accrued interest will be added to the customer's account
balance.
(e) Reduced Rate--The customer's annual percentage rate for a specific
purchase is reduced for an established period of time or until the
promotional balance is paid in full, whichever occurs first. The customer
is required to make minimum monthly payments. The reduced rate and the
length of the reduced rate period vary from one program to another.
(f) Same-as-Cash with Delayed Payments--The customer receives a
statement showing interest accruing and no minimum monthly payment due. If
the customer pays off the balance by the end of the promotional period--
from 90 to 360 days--the interest is waived. If the customer does not pay
the balance before the expiration of the promotional period, all accrued
interest will be added to the customer's account balance.
(g) Reduced Rate/Delayed Payment/Waived Finance Charges--The
customer's payment is delayed and interest on the account is waived during
the delay period. When interest begins to accrue, it accrues at a reduced
rate for an established period of time.
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(h) Six Month Introductory Rate--The customer's daily periodic rate is
reduced for a purchase for six months from the date of purchase.
(i) Fixed payment--The customer's aggregate payment of principal and
interest is the same every month until the obligation is repaid.
Skip-a-Payment Promotions
To be eligible for this promotion, accountholders of active merchants are
screened against credit criteria. Accountholders that meet the criteria are
qualified to be offered the option of skipping the minimum monthly payment for
one month. Interest will continue to accrue on the unpaid balance. We have used
this program in very limited cases.
In-Store Payments
Merchants accept in-store payments on a very limited basis. When an in-
store payment is received, the merchant can either forward the check to Green
Tree Bank or Conseco Bank or receive a credit on settlements received from the
account originator.
Security Interests
Under the terms of the cardholder agreement and disclosure agreement
entered into for most accounts, in most states, the obligor grants to the
account originator a purchase money security interest in the merchandise
purchased on the account. If the merchandise purchased is a motor vehicle, the
obligor grants a security interest and the account originator retains a
security interest in the motor vehicle . The cardholder agreement provides
that, if the obligor does not make a minimum monthly payment, the account
originator may repossess the merchandise.
If we repossess merchandise which relates to receivables which have been
charged off, proceeds will be treated as recoveries and included as collections
of finance charge receivables; however, we cannot assure you that we will be
successful in any repossession efforts or that any amounts will be recovered.
You should not rely upon any potential recoveries from the financed merchandise
to be available to pay your notes.
We make no representation concerning the validity or perfection of any
security interests and you should not rely upon the existence of any such
security interest or the ability to realize upon any of the collateral as a
source of payment for the notes.
Delinquency, Charge Offs and Reaging
We review delinquency on a rolling three-month vintage basis for more
accurate measurement, separate receivables by deferred amounts versus actually
billed amounts and detail current performance versus a history of delinquency.
39
Reporting and management is based on contractual delinquency which includes
delinquent interest, principal and some fees up to the point of loss
recognition which occurs at 180 days past due.
In addition to losses from accounts that are determined to be
uncollectible, losses can be incurred on accounts in any state of delinquency
due to bankruptcy, death or other sudden causes.
An account is contractually delinquent if the minimum payment is not
received by the due date indicated on the customer's statement. The credit line
on such accounts is suspended after the account has been delinquent for 30
days. A suspended account can be reactivated only if the delinquency is cured
and the account meets specified credit bureau and behavioral score criteria. In
some cases, the customer is required to complete a new application which is
then reviewed by the credit department for consideration before the account is
reactivated.
Accounts are placed into aging buckets based on the number of days after
billing that have passed since the last payment. Under our curing and reaging
policy, account reages are limited to one occurrence in any 12-month period and
two in any five year period. To qualify for reaging, a customer must make three
payments or 300% of a minimum monthly payment within the three months preceding
reaging.
In addition to charge-offs due to 180-day delinquency, there are three
reasons accounts are charged-off: (a) bankruptcy, which is charged-off within
60 days after filing is confirmed; (b) fraud, which is charged-off upon
recognition and (c) death of the obligor, which accounts are charged off
immediately upon receipt of a death certificate.
Our charge-off policies and collection practices are constantly reviewed
and may change over time in accordance with the business judgment of Conseco
Finance Servicing Corp., Conseco Bank or Green Tree Bank and applicable law and
guidelines established by governing regulatory authorities.
The Trust Portfolio
Conseco Bank, Conseco Finance Servicing Corp. and Green Tree Bank will on
the initial closing date select accounts from their private label credit card
portfolios and designate those accounts to the trust. Receivables then existing
in those accounts and receivables subsequently generated in those accounts
will, directly, or through a series of transfers, be transferred to the trust.
We expect that initially most of the eligible accounts in the Conseco private
label credit card portfolio, with the exception of those accounts which contain
receivables with fixed payment schedules, will be included in the trust
portfolio. More specific information about the accounts designated to the trust
and those excluded is provided in the accompanying prospectus supplement.
From time to time on an on going basis, the account originators may
designate additional accounts from the Conseco private label credit card
portfolio to be added to the trust and the receivables in those additional
accounts to be transferred to the trust.
40
The trust portfolio will consist of the receivables arising from time to
time in each of the accounts designated to the trust.
In addition to the receivables in the trust portfolio, the trust assets
include, to the extent noted below:
. all monies due or to become due in payment of these receivables;
. all proceeds of these receivables;
. all proceeds of any credit insurance policies relating to these
receivables;
. any recoveries allocable to the trust because of these receivables
including any amounts received as a result of repossession of
merchandise;
. any participation interests and the related collections conveyed to
the trust;
. all monies on deposit in specified trust accounts or investments made
with these monies, including any earned investment proceeds if the
prospectus supplement for your series of notes so indicates;
. proceeds of any credit enhancement, as described in the prospectus
supplement for your series of notes;
. the assignment of certain rights under the merchant agreement;
. proceeds of any derivative contracts between the trust and a
counterparty, as described in the prospectus supplement for your
series of notes; and
. any other amounts so specified in the prospectus supplement.
Receivables in the trust consist of:
. principal receivables; and
. finance charge receivables.
The trust considers recoveries, including any amounts received as a result
of repossession or foreclosure on a financed asset which relates to receivables
which have been charged off, as collections of finance charge receivables. In
addition, principal receivables include the principal portion of
participations, as determined under the terms and provisions of the
participation agreements.
The transferors have elected to exercise the discount option at the time of
the initial issuance of notes. Unless the transferors suspend the exercise of
the discount option, a portion of the principal receivables will be considered
finance charge receivables and principal receivables will be reduced by that
amount. See "Description of the Transfer and Servicing Agreement--Discount
Option" for a description of the manner of and the conditions to changing the
discount option.
Each of the account originators and the transferors has indicated and, in
connection with each future transfer of receivables to the trust, the account
originators or any other account owner and the transferors, including any
additional transferor, will indicate in its computer files or books and records
that the receivables have been conveyed to the trust. In addition,
41
each of the account originators and the transferors, including any additional
transferor, has provided or caused to be provided to the trust on the required
delivery date computer files or microfiche lists, containing a true and
complete list showing each account, identified by merchant or dealer program,
by account number and by total outstanding balance on the date of transfer.
None of the account originators or any other account owner or the transferors,
including any additional transferor, will deliver to the trust any other
records or agreements relating to the accounts or the receivables, except in
connection with additions or removals of accounts. Except as stated above, the
records and agreements relating to the accounts and the receivables maintained
by any account originator or any other account owner and the transferors,
including any additional transferor, are not and will not be segregated from
other documents and agreements relating to other credit card accounts and
receivables and are not and will not be stamped or marked to reflect the
transfers described above, but the computer records of each of the account
originators or any other account owner and the transferors, including any
additional transferor, are and will be required to be marked to evidence these
transfers. Each of the account originators and the transferors has filed in all
appropriate jurisdictions Uniform Commercial Code financing statements with
respect to the receivables meeting the requirements of applicable law. See
"Risk Factors--Some liens may be given priority over your notes which could
cause your receipt of payments to be delayed or reduced" and "Material Legal
Aspects of the Receivables" in this prospectus.
All trust assets will initially be in a pool of assets designated as pool
one. All series of notes offered by this prospectus will be backed by the
assets in pool one unless the prospectus supplement for a series specifies a
different pool of assets for that series. In the event that assets are
deposited into the trust and designated as being in a pool of assets other than
pool one, a separate collection account and special funding account will be
created for that pool. Series of notes which are issued to finance assets in a
different pool will be backed solely by those assets and not by assets in pool
one. All references in this prospectus to receivables, accounts and notes shall
refer to pool one only, unless otherwise stated.
Initially, a group of accounts was selected on the initial cut-off date and
designated as trust accounts. In the future, additional accounts may be
designated for inclusion in the trust as well as participations in lieu of, or
in addition to, additional accounts. Accounts initially designated as trust
accounts and any future accounts designated for inclusion in the trust must
meet eligibility criteria set forth in the transfer and servicing agreement.
Receivables conveyed to the trust must also meet eligibility criteria set forth
in the transfer and servicing agreement. If receivables conveyed to the trust
are found to have been ineligible when created or designated for inclusion, the
transferor that transferred them must accept retransfer of these receivables.
Each transferor has the right, and may be required to, designate additional
accounts for inclusion in the trust portfolio, as described under "Description
of the Transfer and Servicing Agreement--Addition of Trust Assets" in this
prospectus.
Each transferor also has the right to remove accounts from the trust
portfolio, as described under "Description of the Transfer and Servicing
Agreement--Removal of Trust
42
Assets" in this prospectus. If a transferor does so, the trust will reconvey
all receivables in these removed accounts, whether existing or to be created,
to that transferor.
When the trust issues a new series of notes, each transferor will represent
and warrant to the trust that, as of the closing date for the new series, the
accounts designated as trust accounts met the eligibility criteria set forth in
the transfer and servicing agreement at their time of designation. See
"Description of the Transfer and Servicing Agreement--Representations and
Warranties of the Transferors" in this prospectus for more information on
eligibility criteria for accounts and receivables.
From time to time, Conseco Bank or Green Tree Bank may establish
MasterCard(R) or VISA(R) credit card programs. Accounts originated under these
programs and receivables under those accounts may be designated to the trust if
they meet eligibility criteria. We are not obligated to establish such
programs, however, and currently have no plans to do so.
The prospectus supplement relating to each series of notes will provide
information about the trust portfolio as of the date specified. This
information will include:
. the amount of principal receivables;
. the amount of finance charge receivables;
. the range and average of principal balances of the accounts;
. the range and average of credit limits of the accounts;
. the range and average of ages of the accounts;
. the geographic distribution of the accounts;
. the principal merchants and dealers;
. the concentration of principal receivables by industry; and
. delinquency statistics relating to the accounts.
Description of the Notes
The notes will be issued in series. Each series will represent an
obligation of the trust. Each series of notes will be issued from the
indenture, as supplemented by an indenture supplement, in each case entered
into by the trust and the indenture trustee. The following summaries describe
the material provisions common to each series of notes. The accompanying
prospectus supplement gives you additional information specific to the notes of
your series.
General
The notes will be secured by and paid from the assets of the trust. Each
series will be allocated collections of principal receivables and finance
charge receivables based on the investor percentage. The investor percentage
will be based on the invested amount for a series. References to a series in
this prospectus include any subseries of a series.
43
Each series of notes may consist of one or more classes, one or more of
which may be senior notes and/or one or more of which may be subordinated
notes. Each class of a series will evidence the right to receive a specified
portion of each distribution of principal or interest or both. Each class of a
series may differ from other classes in some aspects, including:
. note rating;
. availability and amount of enhancement;
. priority of entitled payments;
. amounts allocated to interest and principal payments;
. interest rate; and
. maturity date.
Payments and deposits of interest and principal will be made on payment
dates to noteholders in whose names the notes were registered on the record
dates specified in the accompanying prospectus supplement. Interest will be
distributed to noteholders in the amounts, for the periods and on the dates
specified in the accompanying prospectus supplement.
The transferors initially will own the transferors' interest. The holders
of the transferors' interest, subject to limitations, will have the right to
the transferor percentage of all payments from the receivables in the trust.
The transferors' interest may be transferred, in whole or in part, subject to
the limitations and conditions set forth in the trust agreement and the
transfer and servicing agreement, and, at the discretion of the transferors,
the transferors' interest may be held either in an uncertificated form or in
the form of a transferor certificate. See "Description of the Transfer and
Servicing Agreement--Matters Regarding the Servicer and the Transferors" in
this prospectus.
During the revolving period, the invested amount of a series will remain
constant except under limited circumstances. See "--Defaulted Receivables;
Investor Charge-Offs" in this prospectus. The amount of principal receivables
in the trust, however, will vary each day as new principal receivables are
created and others are paid. The amount of the transferors' interest will
fluctuate each day, therefore, to reflect the changes in the amount of the
principal receivables in the trust. When a series is amortizing, the invested
amount of that series will decline as principal receivables are collected and
distributed, or accumulated for distribution, to the noteholders. As a result,
the transferors' interest will generally increase to reflect reductions in the
invested amount for that series and will also change to reflect the variations
in the amount of principal receivables in the trust. The transferors' interest
may also be reduced as the result of new issuances. See "--New Issuances" in
this prospectus.
If the servicer adjusts the amount of any principal receivable because of
transactions occurring in respect of a rebate or refund to an obligor, or
because that principal receivable was created in respect of merchandise or
services which was refused or returned by an
44
obligor, then the transferors' interest will be reduced by the amount of the
adjustment. In addition, the transferors' interest will be reduced as a result
of transactions in respect of any principal receivable which was discovered as
having been created through a fraudulent or counterfeit charge.
Book-Entry Registration
Generally, notes offered through the prospectus and the accompanying
prospectus supplement:
. will be represented by notes registered in the name of a DTC nominee;
. will be available for purchase in minimum denominations of $1,000 and
multiples of $1,000 in excess of that amount; and
. will be available for purchase in book-entry form only.
The accompanying prospectus supplement will specify if your notes have
different characteristics from those listed above.
DTC has informed the transferors that its nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the holder of record of each series
of notes. As an owner of beneficial interests in the notes, you will generally
not be entitled to a definitive note representing your interest in the issued
notes because you will own notes through a book-entry record maintained by DTC.
References in this prospectus and the accompanying prospectus supplement to
distributions, reports, notices and statements to noteholders refer to DTC or
Cede & Co., as registered holder of the notes, for distribution to you in
accordance with DTC procedures. All references in this prospectus and the
accompanying prospectus supplement to actions by noteholders shall refer to
actions taken by DTC upon instructions from DTC participants.
The accompanying prospectus supplement may state that application will be
made to list your series or class of notes on the Luxembourg Stock Exchange or
another exchange.
Following is a description of the form your notes will take. We also
describe how your notes may be transferred and how payments will be made to
you.
The information in this section concerning DTC and DTC's book-entry system
has been provided by DTC. The transferors have not independently verified the
accuracy of this information.
You may hold your notes through DTC in the U.S., Clearstream Luxembourg or
Euroclear in Europe or in any other manner described in the accompanying
prospectus supplement. You may hold your notes directly with one of these
systems if you are a participant in the system, or indirectly through
organizations which are participants.
Cede & Co., as nominee for DTC, will hold the global notes. Clearstream
Luxembourg and Euroclear will hold omnibus positions on behalf of the
Clearstream customers and the Euroclear participants, respectively, through
customers' securities accounts in Clearstream's
45
and Euroclear's names on the books of their respective depositaries which in
turn will hold those positions in customers' securities accounts in the
depositaries' names on the books of DTC.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered under the provisions of Section 17A of the
Securities Exchange Act of 1934. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, who may
include the underwriters of any series, banks, trust companies and clearing
corporations and may include other organizations. Indirect access to the DTC
system also is available to others such as banks, brokers, dealers and trust
companies, as indirect participants, that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
Transfers between DTC participants will occur in accordance with DTC rules.
Transfers between Clearstream customers and Euroclear participants will occur
in the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
customers or Euroclear participants, on the other, will be effected through DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its depositary; however, those cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in that system in accordance with its rules
and procedures and within its established deadlines, European time. The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Clearstream
customers and Euroclear participants may not deliver instructions directly to
the depositaries.
Because of time-zone differences, credits of securities in Clearstream
Luxembourg or Euroclear as a result of a transaction with a participant will be
made during the subsequent securities settlement processing, dated the business
day following the DTC settlement date, and those credits or any transactions in
those securities settled during the subsequent securities settlement processing
will be reported to the relevant Clearstream customer or Euroclear participant
on that business day. Cash received in Clearstream Luxembourg or Euroclear as a
result of sales of securities by or through a Clearstream customer or a
Euroclear participant to a DTC participant will be received with value on the
DTC settlement date but will be available in the relevant Clearstream or
Euroclear cash account only as of the business day following settlement in DTC.
46
Note owners that are not participants or indirect participants but desire
to purchase, sell or otherwise transfer ownership of, or other interest in,
notes may do so only through participants and indirect participants. In
addition, note owners will receive all distributions of principal of and
interest on the notes from the indenture trustee through the participants who
in turn will receive them from DTC. Under a book-entry format, note owners may
experience some delay in their receipt of payments, since those payments will
be forwarded by the indenture trustee to Cede & Co., as nominee for DTC. DTC
will forward those payments to its participants, which thereafter will forward
them to indirect participants or note owners. It is anticipated that the only
"noteholder" will be Cede & Co., as nominee of DTC. Note owners will not be
recognized by the indenture trustee as noteholders, as that term is used in the
indenture, and note owners will only be permitted to exercise the rights of
noteholders indirectly through the participants who in turn will exercise the
rights of noteholders through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among participants
on whose behalf it acts with respect to the notes and is required to receive
and transmit distributions of principal and interest on the notes. Participants
and indirect participants with which note owners have accounts with respect to
the notes similarly are required to make book-entry transfers and receive and
transmit those payments on behalf of their respective note owners. Accordingly,
although note owners will not possess notes, note owners will receive payments
and will be able to transfer their interests.
Because DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and banks, the ability of a note owner to
pledge notes to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of those notes, may be limited due to the
lack of a physical certificate for those notes.
DTC has advised the transferors that it will take any action permitted to
be taken by a noteholder under the indenture only at the direction of one or
more participants to whose account with DTC the notes are credited.
Additionally, DTC has advised the transferors that it will take those actions
with respect to specified percentages of the invested amount only at the
direction of and on behalf of participants whose holdings include interests
that satisfy those specified percentages. DTC may take conflicting actions with
respect to other interests to the extent that those actions are taken on behalf
of participants whose holdings include those interests.
Clearstream Banking, societe anonyme, was incorporated in 1970 as "Cedel
S.A.," a company with limited liability under Luxembourg law, a societe
anonyme. Clearstream Luxembourg holds securities for its customers and
facilitates the clearance and settlement of securities transactions between
Clearstream customers through electronic book-entry changes in accounts of
Clearstream customers, thereby eliminating the need for physical movement of
certificates. Transactions may be settled by Clearstream Luxembourg in any of
36 currencies, including United States Dollars. Clearstream Luxembourg provides
to its customers, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing.
47
Clearstream Luxembourg also deals with domestic securities markets in over 30
countries through established depository and custodial relationships.
Clearstream Luxembourg is registered as a bank in Luxembourg. Clearstream
Luxembourg is subject to regulation by the Commission de Surveillance du
Secteur Financier, which supervises Luxembourg banks. Clearstream's customers
are world-wide financial institutions including underwriters, securities
brokers, and dealers, banks, trust companies and clearing corporations.
Clearstream U.S. customers are limited to securities brokers and dealers, and
banks. Currently, Clearstream Luxembourg has approximately 2,000 customers
located in over 80 countries, including all major European countries, Canada,
and the United States. Indirect access to Clearstream Luxembourg is available
to other institutions that clear through or maintain a custodial relationship
with an account holder of Clearstream Luxembourg.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System and to clear and settle transactions between Euroclear
participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of notes and any
risk from lack of simultaneous transfers of securities and cash. Transactions
may now be settled in any of 27 currencies, including United States dollars.
The Euroclear System includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. The Euroclear System is operated by Euroclear Bank S.A./N.V.
as the Euroclear operator. All operations are conducted by the Euroclear
operator, and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear operator, not the cooperative. The
cooperative establishes policy for the Euroclear System on behalf of Euroclear
participants. Euroclear participants include banks, including central banks,
securities brokers and dealers and other professional financial intermediaries
and may include the underwriters of any series of notes. Indirect access to the
Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear participant, either directly
or indirectly.
Securities clearance accounts and cash accounts with the Euroclear operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian
law. These rules and laws govern transfers of securities and cash within the
Euroclear System, withdrawal of securities and cash from the Euroclear System,
and receipts of payments with respect to securities in the Euroclear System.
All securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under these rules and laws only on behalf of
Euroclear participants and has no record of or relationship with persons
holding through Euroclear participants.
Distributions with respect to notes held through Clearstream Luxembourg or
Euroclear will be credited to the cash accounts of Clearstream customers or
Euroclear participants in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. Distributions with
respect to notes held through Clearstream Luxembourg or
48
Euroclear will be subject to tax reporting in accordance with relevant United
States tax laws and regulations. See "Material Federal Income Tax Consequences"
in this prospectus. Clearstream Luxembourg or the Euroclear operator, as the
case may be, will take any other action permitted to be taken by a noteholder
under the indenture on behalf of a Clearstream customer or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to its depositary's ability to effect those actions on its behalf
through DTC.
Although DTC, Clearstream Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of notes among
participants of DTC, Clearstream Luxembourg and Euroclear, they are under no
obligation to perform or continue to perform those procedures and those
procedures may be discontinued at any time.
Definitive Notes
The notes of each series will be issued as definitive notes to note owners
or their nominees, rather than to DTC or its nominee, only if:
. the administrator advises the indenture trustee for that series in
writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to a given class of
notes, and the administrator is unable to locate a qualified
successor;
. the administrator, at its option, advises the indenture trustee in
writing that it elects to terminate the book-entry system through DTC;
or
. after the occurrence of a servicer default or an event of default,
note owners of a class representing more than 50% of the outstanding
principal amount of that class of notes advise the indenture trustee
and DTC through participants in writing that the continuation of a
book-entry system through DTC, or a successor thereto, is no longer in
the best interest of the note owners of that class of notes.
If any of these events occur, DTC must notify all participants of the
availability through DTC of definitive notes. Upon surrender by DTC of the
definitive instrument representing the notes and instructions for re-
registration, the indenture trustee will issue the notes as definitive notes,
and thereafter the indenture trustee will recognize the registered holders of
those definitive notes as noteholders under the indenture.
Distribution of principal and interest on the notes will be made by the
indenture trustee directly to holders of definitive notes in accordance with
the procedures set forth in this prospectus and in the indenture. Interest
payments and any principal payments on each payment date will be made to
holders in whose names the definitive notes were registered at the close of
business on the related record date. Distributions will be made by check mailed
to the address of the noteholders as it appears on the register maintained by
the indenture trustee. The final payment on any note, whether definitive notes
or the notes registered in the name of Cede & Co. representing the notes,
however, will be made only upon presentation and surrender of that note at the
office or agency specified in the notice of final distribution to noteholders.
The indenture trustee will provide this notice to registered noteholders not
later than the fifth day of the month of the final distributions.
49
Definitive notes will be transferable and exchangeable at the offices of
the transfer agent and registrar, which will initially be the indenture
trustee. No service charge will be imposed for any registration of transfer or
exchange, but the transfer agent and registrar may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
with the transfer or exchange. The transfer agent and registrar will not be
required to register the transfer or exchange of definitive notes for a period
of fifteen days preceding the due date for any payment on those definitive
notes.
New Issuances
The indenture provides that, under any one or more indenture supplements,
the transferors may cause the trust to issue one or more new series of notes
and may define all principal terms of those series. Each series issued may have
different terms and enhancements than any other series. Upon the issuance of an
additional series of notes, the transferors, the servicer, the indenture
trustee or the trust are not required and do not intend to obtain the consent
of any noteholder of any other series previously issued by the trust. However,
as a condition of a new issuance, the indenture trustee must receive written
confirmation that the new issuance will not result in the reduction or
withdrawal by any rating agency of its rating of any outstanding series or
class. The trust may offer any series under a prospectus or other disclosure
document in offerings under this prospectus or in transactions either
registered under the Securities Act, or exempt from registration under the
Securities Act directly, through one or more other underwriters or placement
agents, in fixed-price offerings or in negotiated transactions or otherwise.
Unless otherwise specified in the accompanying prospectus supplement, a new
issuance may only occur upon the satisfaction of conditions provided in the
indenture. The transferors may cause the trust to issue new series of notes by
notifying the trust, the indenture trustee, the servicer and each rating agency
at least five days in advance of the date upon which the new issuance is to
occur. The notice will state the date upon which the new issuance is to occur.
The obligation of the indenture trustee to authenticate and deliver the
notes of any series (other than the first series) is subject to the
satisfaction of the following conditions, among others:
(1) receipt of an indenture supplement specifying the principal terms of
the new series;
(2) receipt of a tax opinion;
(3) if required by the related indenture supplement, receipt of the form
of credit enhancement and an appropriate credit enhancement agreement
with respect to that credit enhancement executed by the transferors
and the issuer of the credit enhancement;
(4) receipt of written confirmation from each rating agency that the new
issuance will not result in a reduction or withdrawal of its rating
of any outstanding series or class;
50
(5) receipt of a certificate of an authorized officer of each transferor
to the effect that it reasonably believes the new issuance will not
have an Adverse Effect; and
(6) after giving effect to the new issuance, the total amount of
principal receivables plus the principal amount of any participation
interests previously transferred to the trust exceeds the required
minimum principal balance.
To the extent set forth in the prospectus supplement, additional notes of
the same series may be issued subject to the conditions set forth in the
applicable indenture supplement.
Funding Period
For any series of notes, the total amount of principal receivables in the
trust available to that series may be less than the total principal amount of
the notes of that series. If this occurs, the initial invested amount for that
series of notes will be less than the principal amount of that series of notes.
In this case, the related prospectus supplement will set forth the terms of the
funding period.
During the funding period, the portion of the series amount not invested in
receivables will be maintained in a pre-funding account. On the closing date
for that series of notes, this amount may be up to 100% of the principal
balance of that series of notes. The invested amount for that series will
increase as new receivables are transferred to the trust or as the invested
amounts of other outstanding series are reduced. The invested amount may
decrease due to charge-offs allocated to the series.
During the funding period, funds on deposit in the pre-funding account will
be paid to the transferors as the invested amount increases. If the invested
amount for that series is not increased so that it equals the principal balance
of the notes of that series by the end of the funding period, any amount
remaining in the pre-funding account will be repaid to noteholders. This type
of event may also cause repayment of other amounts to noteholders, as set forth
in the related prospectus supplement.
If so specified in the related prospectus supplement, funds on deposit in
the pre-funding account will be invested by the indenture trustee in eligible
investments or will be subject to a guaranteed rate or investment agreement or
other similar arrangement. On each distribution date during the funding period,
earnings on funds in the pre-funding account during the related monthly period
will be withdrawn from the pre-funding account and deposited, together with any
applicable payment under a guaranteed rate or investment agreement or other
similar arrangement, into the collection account as finance charge collections
to make interest payments on the notes of the related series in the manner
specified in the related prospectus supplement.
The prospectus supplement for a series with a funding period will set
forth:
. the series' initial invested amount;
. the series' full invested amount, which is the initial principal
balance of the series of notes;
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. the date on which the series' invested amount is expected to equal the
full invested amount;
. the date by which the funding period will end; provided that the
funding period will not exceed one year; and
. what other events, if any, will occur if the end of the funding period
is reached before the full invested amount is funded.
Paired Series
The prospectus supplement for a series of notes will specify whether that
series may be paired with a previously or later issued series so that a
decrease in the invested amount of the previously issued series results in a
corresponding increase in the invested amount of the later issued series. In
general, a series may be issued as a paired series so the trust can fund the
amount by which the previously issued series has amortized and will amortize in
the future.
If an amortization event occurs for the previously issued series or its
paired series when the previously issued series is amortizing, the investor
percentage for the allocation of collections of principal receivables for the
previously issued series may be reset to a lower percentage as described in the
prospectus supplement for that series and the period over which it will
amortize may be lengthened as a result. The extent to which the period over
which it amortizes is lengthened will depend on many factors, only one of which
is the reduction of its investor percentage. For a discussion of these factors,
see "Risk Factors-- Issuance of additional series by the trust may affect the
timing of payments to you" in this prospectus and "Description of Series
Provisions--Principal Payments--Controlled Accumulation Period" and "--Early
Amortization Period" in the accompanying prospectus supplement.
Interest Payments
For each series of notes and each related class, interest will accrue from
the relevant closing date on the applicable principal balance at the applicable
interest rate. The interest rate on any note may be a fixed, floating or any
other type of rate as specified in the accompanying prospectus supplement.
Interest on the notes, other than zero coupon notes, will generally be paid, or
deposited for later payment, to noteholders on the distribution payment dates.
Interest payments or deposits on any payment date will be funded from:
. collections of finance charge receivables allocated to the invested
amount during the preceding monthly period or periods;
. investment earnings, if any, on any funds held in trust accounts;
. any credit enhancement, to the extent described in the accompanying
prospectus supplement;
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. any derivative counterparty, to the extent described in the
accompanying prospectus supplement; and
. other amounts specified in the prospectus supplement.
If interest payments will be made less frequently than monthly, an interest
funding account may be established to accumulate the required interest amount.
If a series has more than one class of notes, that series may have more than
one interest funding account.
Your class of notes will pay interest on the dates and at the interest rate
specified in the accompanying prospectus supplement. If your notes bear
interest at a floating or variable rate, the accompanying prospectus supplement
will describe how that rate is calculated.
Principal Payments
Generally, each series will begin with a revolving period during which no
principal payments will be made to the noteholders of that series, except that,
if described in the prospectus supplement for your series, a partial
amortization may occur under the terms described in the prospectus supplement.
Following the termination of its revolving period, each series of notes is
expected to begin to accumulate principal or begin to distribute principal to
noteholders. The accompanying prospectus supplement describes the conditions
under which an accumulation or amortization period will begin for your class of
notes.
Principal payments for any series or the related class will be funded from
collections of principal receivables and other trust assets received during the
related monthly period or periods as specified in the accompanying prospectus
supplement and allocated to that series or class. Principal payments may also
be funded from proceeds from the issuance of notes in the same principal
sharing group, subject to the consent of the noteholders of a series or class
representing a majority of the outstanding principal amount of the notes of
that series or class.
Principal will accumulate in a principal funding account if your series
features a controlled accumulation period or an early accumulation period and
one of these accumulation periods begins. As described in the accompanying
prospectus supplement, during a controlled accumulation period, on each payment
date an amount of principal, up to the amount specified, will be set aside in a
principal funding account. If an amortization event occurs and your series
features an early accumulation period after that amortization event, the full
amount of principal available to your series will be deposited in the principal
funding account, up to the amount specified in the related prospectus
supplement. This accumulated principal is expected to be paid to those
noteholders on the date specified in the prospectus supplement for that class
or series, or earlier if an amortization period begins before your expected
principal payment date. Note that although your series may feature an
accumulation period, your class of notes might not make use of it.
Funds on deposit in any principal funding account for a series may be
subject to a guaranteed rate agreement or guaranteed investment contract or
other arrangement specified
53
in the accompanying prospectus supplement intended to assure a minimum rate of
return on the investment of those funds. In order to enhance the likelihood of
the payment in full of the principal amount of a series or a related class of
notes at the end of an accumulation period, that series or class of notes may
be subject to a principal guaranty or other similar arrangement specified in
the accompanying prospectus supplement.
If your series features a controlled amortization period and this
amortization period begins, principal will be paid to you in increments, up to
the amount specified in the accompanying prospectus supplement. Your class of
notes might also begin to pay principal to you if the accompanying prospectus
supplement specifies that your class will begin early amortization and an
amortization event occurs.
If the series described in the accompanying prospectus supplement features
multiple classes, different classes of your series may have differing
priorities for the accumulation or payment of principal. This means that
noteholders of other classes could begin to receive payments of principal
before you do. The accompanying prospectus supplement will specify the manner,
timing and priority of principal payments to noteholders of each class.
We cannot assure you that principal will be available when expected, either
to accumulate or to pay to you. The expected principal payment date for your
class of notes is based upon assumptions about payment rates on the
receivables, as detailed in the accompanying prospectus supplement. We cannot
assure you that these payment rate assumptions will be correct. Payment rates
depend on collections of receivables. Collections can vary seasonally and are
also affected by general economic conditions, the payment habits of individual
obligors, promotional programs and fixed payment plans. The accompanying
prospectus supplement will provide historical payment rates, total charge-offs
and other information relating to the Conseco private label credit card
portfolio. We cannot assure you that future events will be consistent with this
historical performance. The life of your notes might be longer than expected if
principal is collected more slowly. Alternatively, the occurrence of any
amortization event may substantially shorten the average life of your notes.
Credit Enhancement
General
For any series, credit enhancement may be provided by one or more of the
related classes or one or more other series. Credit enhancement may be in the
form of the subordination of one or more classes of the notes of that series or
one or more other series, a letter of credit, the establishment of a cash
collateral guaranty or account, a surety bond, an insurance policy, a spread
account, a reserve account, the use of cross support features or another method
of credit enhancement described in the accompanying prospectus supplement, or
any combination of these. If so specified in the accompanying prospectus
supplement, any form of credit enhancement may be structured so as to be drawn
upon by more than one class or series to the extent described in that
accompanying prospectus supplement.
54
Unless otherwise specified in the accompanying prospectus supplement for a
series, the credit enhancement will not provide protection against all risks of
loss and will not guarantee repayment of the entire principal balance of the
notes and interest thereon. If losses occur which exceed the amount covered by
the credit enhancement or which are not covered by the credit enhancement,
noteholders will bear their allocable share of deficiencies.
If credit enhancement is provided with respect to a series, the
accompanying prospectus supplement will include a description of:
. the amount payable under that credit enhancement;
. any conditions to payment not described here;
. the conditions, if any, under which the amount payable under that
credit enhancement may be reduced and under which that credit
enhancement may be terminated or replaced; and
. any material provision of any agreement relating to that credit
enhancement.
Additionally, the accompanying prospectus supplement may set forth
information with respect to any credit enhancement provider, including:
. a brief description of its principal business activities;
. its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business;
. if applicable, the identity of regulatory agencies which exercise
primary jurisdiction over the conduct of its business; and
. its total assets, and its stockholders' or policy holders' surplus, if
applicable, and other appropriate financial information as of the date
specified in the prospectus supplement.
If so specified in the accompanying prospectus supplement, credit
enhancement with respect to a series may be available to pay principal of the
notes of that series following the occurrence of specified amortization events
with respect to that series. In this event, the credit enhancement provider
will have an interest, called a collateral invested amount, in specified cash
flows in respect of the receivables to the extent described in that prospectus
supplement.
Subordination
If so specified in the accompanying prospectus supplement, a series or one
or more classes of any particular series will be subordinated as described in
the accompanying prospectus supplement to the extent necessary to fund payments
with respect to other series or to the senior notes within that series. The
rights of the holders of these subordinated notes to receive distributions of
principal and/or interest on any distribution date for that series will be
subordinate in right and priority to the rights of the holders of other senior
series or senior notes within that series, but only to the extent set forth in
the accompanying prospectus
55
supplement. If so specified in the accompanying prospectus supplement,
subordination may apply only in the event of specified types of losses not
covered by another credit enhancement.
The accompanying prospectus supplement will also set forth information
concerning:
. the amount of subordination of a series or a class or classes of
subordinated notes within a series;
. the circumstances in which that subordination will be applicable;
. the manner, if any, in which the amount of subordination will decrease
over time; and
. the conditions under which amounts available from payments that would
otherwise be made to holders of those subordinated notes will be
distributed to holders of other senior series or senior notes of that
series.
If collections of receivables otherwise distributable to holders of a
subordinated class of a series will be used as support for another series or
another class in that series, the accompanying prospectus supplement will
specify the manner and conditions for applying that cross-support feature.
Cash Collateral Guaranty or Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by a guaranty,
referred to as the cash collateral guaranty, secured by the deposit of cash or
permitted investments in an account, referred to as the cash collateral
account, reserved for the beneficiaries of the cash collateral guaranty or by
a cash collateral account alone. The amount available under the cash
collateral guaranty or the cash collateral account will be the lesser of
amounts on deposit in the cash collateral account and an amount specified in
the accompanying prospectus supplement. The accompanying prospectus supplement
will set forth the circumstances under which payments are made to
beneficiaries of the cash collateral guaranty from the cash collateral account
or from the cash collateral account directly.
Spread Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by the periodic
deposit of available excess cash flow from the trust assets into an account,
referred to as the spread account, intended to assist with subsequent
distribution of interest and principal on the notes of that class or series in
the manner specified in the accompanying prospectus supplement.
Reserve Account
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes or any related enhancement will
be provided by the establishment of an account, referred to as the reserve
account. The reserve account may be
56
funded, to the extent provided in the accompanying prospectus supplement, by an
initial cash deposit, the retention of specified periodic distributions of
principal or interest or both otherwise payable to one or more classes of
notes, including the subordinated notes, or the provision of a letter of
credit, guarantee, insurance policy or other form of credit or any combination
of these arrangements. The reserve account will be established to assist with
the subsequent distribution of principal or interest on the notes of that
series or the related class or any other amount owing on any related
enhancement in the manner provided in the accompanying prospectus supplement.
Letter of Credit
If so specified in the accompanying prospectus supplement, support for a
series or one or more of the related classes will be provided by one or more
letters of credit. A letter of credit may provide limited protection against
specified losses in addition to or in lieu of other credit enhancement. The
issuer of the letter of credit, referred to as the L/C bank, will be obligated
to honor demands with respect to that letter of credit, to the extent of the
amount available thereunder, to provide funds under the circumstances and
subject to any conditions as are specified in the accompanying prospectus
supplement.
The maximum liability of an L/C bank under its letter of credit will
generally be an amount equal to a percentage specified in the accompanying
prospectus supplement of the initial invested amount of a series or a class of
that series. The maximum amount available at any time to be paid under a letter
of credit will be set forth in the accompanying prospectus supplement.
Surety Bond or Insurance Policy
If so specified in the accompanying prospectus supplement, insurance with
respect to a series or one or more of the related classes will be provided by
one or more insurance companies. The insurance policy will guarantee, with
respect to one or more classes of the related series, distributions of interest
or principal in the manner and amount specified in the accompanying prospectus
supplement.
If so specified in the accompanying prospectus supplement, a surety bond
will be purchased for the benefit of the holders of any series or class of that
series to assure distributions of interest or principal with respect to that
series or class of notes in the manner and amount specified in the accompanying
prospectus supplement.
Amortization Events
Unless otherwise specified in the accompanying prospectus supplement, as
described above, the revolving period will continue through the date specified
in the accompanying prospectus supplement unless an amortization event occurs
prior to that date.
An amortization event may be either a trust amortization event which is
described in the indenture and affects all series or a series amortization
event which is described in one or more series supplements to the indenture and
affects only specific series. If a specific event
57
is described as an amortization event in all series supplements, then the
occurrence of that series amortization event will affect all series.
The events which constitute a trust amortization event are listed in the
glossary to this prospectus in the definition of trust amortization event. Each
of the events which will constitute a series amortization event for your series
will be described in the accompanying prospectus supplement.
On the date on which an amortization event is deemed to have occurred, the
early amortization period or, if so specified in the accompanying prospectus
supplement, the early accumulation period will commence. If, because of the
occurrence of an amortization event, the early amortization period begins
earlier than the scheduled commencement of an amortization period or prior to
an expected principal payment date, noteholders will begin receiving
distributions of principal earlier than they otherwise would have, which may
shorten the average life of the notes.
In addition to the consequences of an amortization event discussed above,
unless otherwise specified in the accompanying prospectus supplement, if
bankruptcy, insolvency or similar proceedings under the Bankruptcy Code or
similar laws occur with respect to a transferor or account owner, on the day of
that event the affected transferor or account owner will immediately cease to
transfer principal receivables to the trust or in the case of an account owner
which is not a transferor, will cease transferring principal receivables under
its receivables purchase agreement and the affected party will promptly give
notice to the indenture trustee and the trust of this event. Any principal
receivables transferred to the trust prior to the event, as well as collections
on those principal receivables and finance charge receivables accrued at any
time with respect to those principal receivables, will continue to be part of
the trust assets and will be applied as specified below in "--Application of
Collections" and in the accompanying prospectus supplement.
If the only amortization event to occur is either the insolvency of a
transferor or an account owner or the commencement of a bankruptcy case by or
against a transferor or an account owner, the bankruptcy court may have the
power to require the continued transfer of principal receivables to the trust.
See "Risk Factors--If a conservator or receiver were appointed for Conseco
Bank, Green Tree Bank or another account owner or transferor, or a transferor
or account owner became a debtor in a bankruptcy case, delays or reductions in
payment of your notes could occur" in this prospectus.
Final Payment of Principal; Termination
For each series, the transferors have the option to cause the trust to
prepay the notes at any time after the remaining outstanding principal amount
of that series, excluding any portion of a class of notes held by a transferor
or an affiliate, is reduced to the amount set forth in the applicable
prospectus supplement. This amount may be 10% or such lesser percentage of the
initial principal amount as is set forth in the related indenture supplement.
The prepayment price will equal:
(1) the outstanding principal amount of the notes of that series, plus
58
(2) any accrued and unpaid interest through the day preceding the
distribution date on which the payment occurs or, if the payment
occurs on any other date, through the day preceding the distribution
date immediately following the payment date.
Any amounts on deposit in the principal funding account for that series
will be applied toward the prepayment price on behalf of the trust.
For any series of notes, the related prospectus supplement may specify
different conditions to the exercise of the prepayment option and a different
method for determining the prepayment price; provided, that:
. the prepayment price of a series of notes will never be less than the
outstanding principal amount of the notes of that series and accrued
and unpaid interest through the payment date; and
. the trust may only exercise its prepayment option if noteholders will
receive an amount equal to the outstanding principal amount of their
notes together with accrued and unpaid interest thereon through the
payment date.
The notes of each series will be retired on the day following the date on
which the final payment of principal is scheduled to be made to the
noteholders, whether as a result of optional prepayment or otherwise. Each
prospectus supplement will specify the latest date by which principal and
interest for the series of notes can be paid, known as the series final
maturity date. However, the notes may be subject to prior redemption as
provided above. For any series the failure to pay principal of the related
notes on the series final maturity date will be an event of default and the
indenture trustee or holders of a specified percentage of the notes of that
series will have the rights described under "Description of the Indenture--
Events of Default; Rights upon Event of Default" in this prospectus.
Unless the servicer and the holder or holders of the transferors' interest
instruct the indenture trustee otherwise, the trust will terminate on the trust
termination date. Upon the termination of the trust and the surrender of the
transferor certificates, the indenture trustee shall convey to the holders of
the transferors' interest all right, title and interest of the trust in and to
the receivables and other funds of the trust. Upon termination of the trust,
the trust or noteholders as sellers of the trust receivables back to the
holders of the transferors' interest will not retain any direct or indirect
liability to the holders of the transferors' interest with respect to those
receivables.
Defeasance
If so specified in the prospectus supplement relating to a series, the
trust may discharge its substantive obligations in respect of that series by
depositing with the indenture trustee money or eligible investments sufficient
to make all remaining scheduled interest and principal payments on that series
or all outstanding series of notes of the trust, as the case may be, on the
dates scheduled for those payments and paying all amounts owing to any credit
enhancement provider with respect to that series or all outstanding series, as
the case may be, if that action would not result in an amortization event for
any series. Prior to its
59
first exercise of its right to substitute money or eligible investments for
receivables, the trust, will deliver to the indenture trustee:
. a statement from a firm of nationally recognized independent public
accountants, who may also render other services to the trust, to the
effect that the deposit is sufficient to make all the payments
specified above;
. a certificate from an officer of each transferor stating that the
transferor reasonably believes that the deposit and termination of
obligations will not, based on the facts known to that officer at the
time of the certification, then cause an event of default or an
amortization event with respect to any series;
. written confirmation from each rating agency that the deposit and
termination of obligations will not result in a reduction or
withdrawal of its rating of any outstanding series or class; and
. an opinion of counsel to the effect that:
. for federal income tax purposes, the deposit and termination of
obligations will not cause the trust, or any portion of the trust,
to be deemed to be an association, or publicly traded partnership,
taxable as a corporation; and
. the deposit and termination of obligations will not result in the
trust being required to register as an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
Reports to Noteholders
Noteholders of each series will receive reports with information on their
series and the trust. The paying agent will forward to each noteholder of
record a report, prepared by the servicer, for its series on the payment dates
for that series. The report will set forth information as specified in the
related prospectus supplement. If a series has multiple classes, information
will be provided for each class, as specified in the related prospectus
supplement.
Periodic information to noteholders generally will include:
. the total amount distributed;
. the amount of principal and interest for distribution;
. if the series or a class of the series bears interest at a floating or
variable rate, information relating to that rate;
. collections of principal receivables and finance charge receivables
allocated to the series;
. the aggregate investor default amount allocated to the series;
. investor charge-offs for the series and any reimbursements of previous
investor charge-offs;
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. the monthly servicing fee for that series;
. the aggregate amount of principal receivables, the outstanding
principal amount of the notes and the outstanding principal amount of
the notes as a percentage of the aggregate amount of the principal
receivables in the trust portfolio;
. the invested amount and the adjusted invested amount for that series;
. the amount available under any enhancement and credit enhancement, if
any, for the series or each class of the series;
. the base rate and the series portfolio yield, each as defined in the
accompanying prospectus supplement, for the series; and
. the aggregate outstanding balance of accounts broken out by
delinquency status.
In addition, with respect to a series that incorporates a funding period,
as described under "Description of the Notes--Funding Period" periodic
information to noteholders will include:
. the series' initial invested amount, the series' full invested amount,
and the series' current invested amount; and
. the amount on deposit in the pre-funding account.
By January 31 of each calendar year, the paying agent will also provide to
each person who at any time during the preceding calendar year was a noteholder
of record a statement, prepared by the servicer, containing the type of
information presented in the periodic reports, aggregated for that calendar
year or the portion of that calendar year that the notes were outstanding,
together with other information that is customarily provided to holders of
debt, to assist noteholders in preparing their United States tax returns.
In addition, noteholders will receive reports with information regarding
the indenture trustee. See "Description of the Indenture--Indenture Trustee's
Annual Report" in this prospectus.
Investor Percentage, Transferor Percentage and Credit Enhancement Percentage
The servicer will allocate all collections of finance charge receivables,
all collections of principal receivables and all defaulted amounts among:
(1) each series issued and outstanding;
(2) the transferors' interest; and
(3) if the related prospectus supplement so states, to any credit
enhancement providers.
All allocations of these amounts will be made through the respective investor
percentages for each series, the transferor percentage and, where applicable,
the credit enhancement percentage. The related prospectus supplements will set
forth how the investor percentages are calculated.
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Groups
General
The notes of a series may be included in one or more groups of series that
share specified collections of finance charge receivables and/or principal
receivables. The prospectus supplement will identify whether your series has
been included in one or more of the following groups.
Excess Finance Charge Sharing Group
If a series is identified in the prospectus supplement for that series as
included in an excess finance charge sharing group, collections of finance
charge receivables in the trust portfolio allocated to the series in excess of
the amount needed to make deposits or payments may be shared with other series
identified in the prospectus supplements as included in the same group. If one
series requires more collections of finance charge receivables than allocated
through its investor percentage, it will have access to all of these shared
excess finance charge collections in other series in its group. If two or more
series require more collections of finance charge receivables, excess finance
charge collections in the group will be shared among the series in the manner
and priority set forth in the related prospectus supplements.
Reallocation Group
If a series is identified in the prospectus supplement for that series as
included in a reallocation group, collections of finance charge receivables
which would otherwise be allocated to each series in the reallocation group
will instead be combined and will be available for specified required payments
to all series in that group. Any issuance of a new series in a reallocation
group may reduce or increase the amount of collections of finance charge
receivables allocated to any other series of notes in that group. See "Risk
Factors--Issuance of additional series by the trust may affect the timing of
payments to you." The prospectus supplement with respect to a series offered
hereby will specify whether that series will be included in a reallocation
group or another type of group and whether any previously issued series have
been included in that group. Any series offered hereby may, if so specified in
the related prospectus supplement, be included in a reallocation group. Other
series issued in the future may also be included in that reallocation group.
Shared Enhancement Group
If a series is identified in the prospectus supplement for that series as
included in a shared enhancement group, that series may share collections of
finance charge receivables and other amounts and share in the same credit
enhancement for each series in that group. Any issuance of a new series in a
shared enhancement group may reduce or increase the amount of collections of
finance charge receivables allocated to any other series of notes in that
group. See "Risk Factors--Issuance of additional series by the trust may affect
the timing of payments to you." Sharing may take the form, among others, of
classes of notes of one or more series in a particular shared enhancement group
issued from time to time which
62
are subordinate to other classes issued at the same or a different time in
different series in that group. In addition, if specified in its prospectus
supplement a series may consist of one or more classes of notes issued in one
or more subseries. All subseries of that series would share collections of
finance charge receivables and other amounts and share in the same credit
enhancement for that series.
Principal Sharing Group
If a series is identified in the prospectus supplement for that series as
included in a principal sharing group, to the extent that principal allocated
to that series is in excess of the amount needed for deposit or distribution
for that series, this excess amount will be available to make principal
payments or deposits required by other series, if any, in the same principal
sharing group. If collections of principal receivables in the trust portfolio
allocated to a series are shared with another series, the invested amount for
the series from which collections were shared will not be reduced.
Shared Transferor Principal Collections
If a series is identified in its prospectus supplement as being entitled to
receive shared transferor principal collections, collections of principal
receivables in the trust portfolio otherwise payable to the holders of the
transferors interest may be available to make principal payments or deposits
required by noteholders of one or more series. These shared transferor
principal collections will be limited to those series identified in the
prospectus supplements as being entitled to receive shared transferor principal
collections. If two or more series require more collections of principal
receivables, transferor principal collections will be shared among the series
in the manner and priority set forth in the related prospectus supplements.
Trust Bank Accounts
The servicer will establish and maintain in the name of the indenture
trustee, for the benefit of noteholders of all series, a collection account,
which shall be a qualified account. The servicer will also establish and
maintain with a securities intermediary in the name of the indenture trustee, a
special funding account, which also is required to be a qualified account.
Funds in the collection account and the special funding account will be assets
of the trust and will be invested, at the direction of the servicer, in
eligible investments.
The paying agent will have the revocable power to withdraw funds from the
collection account for the purpose of making payments to the noteholders of any
series under the related indenture supplement.
Application of Collections
Except in the circumstance described in this section, the servicer must
deposit into the collection account, no later than two business days after
processing, all payments made on receivables in the trust portfolio. The
servicer must also allocate these deposits between accounts and to various
parties. However, the servicer will be permitted to make these
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deposits on a monthly or other periodic basis rather than a daily basis if one
of the following is true:
(1) Conseco Bank remains the servicer under the transfer and servicing
agreement and maintains a commercial paper rating of not less than A-
1 by Standard & Poor's and P-1 by Moody's;
(2)(a) Conseco Bank remains the servicer under the transfer and servicing
agreement;
(b) no amortization event, reinvestment event or event of default has
occurred;
(c) Conseco Finance maintains a commercial paper rating of not less
than A-1 by Standard & Poor's and P-1 by Moody's;
(d) Conseco Bank remains a wholly owned subsidiary of Conseco Finance
directly or indirectly; and
(e) in the event of a material change in the financial relationship
between them:
(1) Conseco Bank notifies each rating agency; and
(2) written confirmation is received from each rating agency that
the material change will not result in a reduction or
withdrawal of its rating of any outstanding series or class;
or
(3) any other arrangements are made and written confirmation is received
from each rating agency that the arrangements will not result in a
reduction or withdrawal of its rating of any outstanding series or
class.
The servicer must make daily or periodic deposits into the collection
account of the applicable investor percentage of collections of finance charge
receivables; however, the collections of finance charge receivables allocable
to the transferors' interest and the collections of principal receivables
allocable to the transferors' interest and the applicable investor percentage
of collections of principal receivables to the extent that these amounts would
be released to the transferors upon deposit into the collection account, as
described in the following provisions, are not required to be deposited into
the collection account, but may be released directly to the transferors.
The servicer may retain its servicing fee and administration fee for any
series and will not be required to deposit that amount into the collection
account if the servicer has first notified each rating agency of the proposal
to retain the fees and the indenture trustee and the servicer have received
written confirmation from each rating agency that the retention of the
servicing fee and administration fee will not result in a reduction or
withdrawal of its rating of any outstanding series or class.
Each time a collection account deposit is made, the servicer will withdraw
from, or retain in, the collection account, as applicable, the following
amounts and apply them as indicated:
(1) the collections of finance charge receivables allocable to the
transferors' interest will be released to the transferors;
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(2) the applicable investors' percentage of collections of finance charge
receivables for any monthly period will be held in the collection
account until the applicable payment date and on that date will be
allocated among the series and the amount allocated to a series will
be used to make payments of interest and for other purposes as
described in the applicable prospectus supplement; provided that the
amount of the investors' percentage of collections of finance charge
receivables which is required to be deposited into or retained in the
collection account for any monthly period may be reduced to the
amount which is required to make payments and deposits due on the
next payment date if this change has been submitted to the rating
agencies in advance and the indenture trustee and the servicer have
received written confirmation from each rating agency that the
retention of such lesser amount in the collection account will not
result in a reduction or withdrawal of its rating of any outstanding
series or class.
(3) collections of principal receivables in the trust portfolio allocable
to the holders of the transferors' interest will be:
(a) released to the transferors only if (i) the transferor amount is
greater than the required transferor amount, (ii) the balance of
principal receivables in the trust is greater than the required
minimum principal balance and (iii) those collections are not
required to be used as shared transferor principal collections;
(b) deposited in the special funding account; or
(c) available to make principal payments or deposits required by
noteholders of one or more series if those collections are
required to be treated as shared transferor principal
collections;
(4) if the series is in its revolving period, the applicable investor
percentage of collections of principal receivables in the trust
portfolio allocated to the series will be:
(a) released to the transferors only if (i) the transferor amount is
greater than the required transferor amount, (ii) the balance of
principal receivables in the trust is greater than the required
minimum principal balance and (iii) such amounts are not needed as
shared principal collections;
(b) deposited in the special funding account; or
(c) retained in the collection account to the extent needed as shared
principal collections for other series then in an accumulation
period or amortization period.
(5) if the series is in its controlled accumulation period, controlled
amortization period or early accumulation period, as applicable, the
applicable investor percentage of collections of principal
receivables in the trust portfolio allocated to the series up to the
amount, if any, specified in the accompanying prospectus supplement
will be retained in the collection account or deposited in a
principal funding account, as applicable, for allocation and payment
to noteholders or distributed to the paying agent to be paid to the
noteholders as described in the accompanying prospectus
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supplement; provided that if collections of principal receivables
exceed the principal payments to be allocated or distributed to
noteholders, the excess will be released to the transferors, held in
the special funding account or made available as shared principal
collections as described in (4) above; and
(6) if the series is in its early amortization period, the applicable
investor percentage of collections of principal receivables in the
trust portfolio will be retained in the collection account for
application and payment as provided in the accompanying prospectus
supplement.
In the case of a series of notes having more than one class, the amounts in
the collection account will be allocated and applied to each class in the
manner and order of priority described in the accompanying prospectus
supplement.
Any amounts collected in respect of principal receivables and not released
to the transferors because the transferor amount is less than the required
transferor amount or the balance of principal receivables in the trust is less
than the required minimum principal balance will be paid to and held in the
special funding account. Collections and deposits into the special funding
account from other sources will be released to the transferors only to the
extent that, the transferor amount is greater than the required transferor
amount and the balance of principal receivables in the trust is equal to or
greater than the required minimum principal balance and any other conditions
provided in a supplemental indenture are satisfied. If an amortization period
or accumulation period commences for any series or all series, amounts in the
special funding account will be treated as shared principal collections and
allocated among the series on the basis of each series' principal shortfall, if
any. The principal shortfall for a series will be determined in accordance with
the terms of the indenture supplement for that series.
If the servicer determines, based upon the yield of special funding account
investments during the previous monthly period, that by decreasing the amount
on deposit in the special funding account, any outstanding series which permits
the partial amortization of the principal balance of its notes may be prevented
from experiencing an amortization event based upon insufficiency of yield, the
servicer will on the next payment date instruct the indenture trustee to apply
funds on deposit in the special funding account as partial amortization special
funding account amounts to that series, and if more than one series, to each on
a pro rata basis according to each invested amount, in an amount such that the
special funding account is reduced to an amount which, based on the then
current investment yield, would not cause a yield insufficiency amortization
event for any series then outstanding.
Defaulted Receivables; Investor Charge-Offs
Unless otherwise specified in the accompanying prospectus supplement, for
each series of notes, on the determination date, the servicer will calculate
the aggregate investor default amount for the preceding monthly period, which
will be equal to the aggregate amount of the investor percentage of defaulted
amounts. If so provided in the accompanying prospectus supplement, an amount
equal to the investor default amount for any monthly period may be paid from
collections of finance charge receivables allocable to that series and other
amounts
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specified in the accompanying prospectus supplement, including from credit
enhancement, and applied to pay principal to noteholders or, subject to
limitations, the holder of the transferors' interest, as appropriate.
With respect to each series of notes, the invested amount of that series
will be reduced by investor charge-offs. Investor charge-offs will be
reimbursed on any payment date to the extent amounts on deposit in the
collection account and otherwise available exceed the interest, the investor
default amount and any other fees specified in the accompanying prospectus
supplement which are payable on that date. This reimbursement of investor
charge-offs will result in an increase in the invested amount with respect to
that series.
Description of the Indenture
The following summarizes the material terms of the indenture.
Events of Default; Rights upon Event of Default
With respect to the notes of any series, "events of default" under the
indenture will be any of the following:
(1) the trust fails to pay principal of any note of that series when the
same becomes due and payable;
(2) the trust fails to pay interest on any note of that series when it
becomes due and payable and the default continues for a period of 35
days;
(3) bankruptcy, insolvency, conservatorship, receivership, liquidation or
similar events relating to the trust; or
(4) the trust fails to observe or perform covenants or agreements made in
the indenture and the failure continues, or is not cured, for 60 days
after notice to the trust by the indenture trustee or to the trust
and the indenture trustee by noteholders representing 25% or more of
the outstanding principal amount of the affected series.
Failure to pay the full principal amount of a note on its expected or
scheduled principal payment date will not constitute an event of default.
An event of default with respect to one series of notes will not
necessarily be an event of default with respect to any other series of notes.
If an event of default, other than with respect to clause (3) above, should
occur and be continuing for a series, the indenture trustee or noteholders
holding more than 50% of the outstanding principal amount of the notes of the
affected series may declare all the notes of that series to be immediately due
and payable. This declaration may, under limited circumstances, be rescinded by
noteholders holding more than 50% of the outstanding principal amount of the
notes of that series. If an event of bankruptcy, insolvency, conservatorship,
receivership, liquidation, or similar events relating to the trust should occur
and be continuing, all of the notes will automatically become immediately due
and payable. Upon any such acceleration the unpaid principal of the notes,
together with accrued and unpaid interest thereon through the date of
acceleration, shall become immediately due and payable.
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Generally, in the case of any event of default, the indenture trustee will
be under no obligation to exercise any of the rights or powers under the
indenture if requested or directed by any of the holders of the notes of the
affected series if the indenture trustee reasonably believes it will not be
adequately indemnified against the costs, expenses and liabilities which might
be incurred by it in complying with that request. Subject to those provisions
for indemnification and limitations contained in the indenture, noteholders
holding more than 50% of the outstanding principal amount of the notes of the
affected series will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the indenture trustee.
Also, noteholders holding more than 50% of the outstanding principal amount of
the notes of the affected series may, in limited cases, waive any default with
respect to the notes, except a default in the payment of principal or interest
or a default relating to a covenant or provision of the indenture that cannot
be modified without the waiver or consent of all noteholders of the affected
series.
After acceleration of a series of notes, principal collections and finance
charge collections allocated to those notes will be applied to make monthly
principal and interest payments on the notes until the earlier of the date the
notes are paid in full or the final maturity date of the notes. Funds in the
collection account and other trust accounts for an accelerated series of notes
will be applied immediately to pay principal of and interest on those notes.
Upon acceleration of the maturity of a series of notes following an event
of default, the indenture trustee will have a lien on the collateral for those
notes for its unpaid fees and expenses that ranks senior to the lien of those
notes on the collateral.
In general, the indenture trustee will enforce the rights and remedies of
the holders of the accelerated series of notes. However, noteholders will have
the right to institute any proceeding with respect to the indenture if the
following conditions are met:
(1) the noteholders of at least 25% of the aggregate outstanding
principal amount of all series--or, for any action suit, or
proceeding that does not relate to all series, holder of at least 25%
of the aggregate outstanding principal amount of all series to which
the action or proceeding relates--make a written request to the
indenture trustee to institute a proceeding in its own name as
indenture trustee;
(2) the noteholders give the indenture trustee written notice of a
continuing event of default;
(3) the noteholders offer reasonable indemnification to the indenture
trustee against the costs, expenses and liabilities of instituting a
proceeding;
(4) the indenture trustee has not instituted a proceeding within 60 days
after receipt of the notice, request and offer of indemnification;
and
(5) the indenture trustee has not received, during the 60-day period
described in clause (4) above, from noteholders holding more than 50%
of the outstanding principal amount of the notes of that series--or
all series, if applicable--a direction inconsistent with the request;
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provided, however, you may, at any time, institute a proceeding to enforce your
right to receive all amounts of principal and interest due and owing to you
under your note.
If any series of notes has been accelerated following an event of default,
and the indenture trustee has not received any valid directions from the
noteholders regarding the time, method and place of conducting any proceeding
for any remedy available to the indenture trustee, the indenture trustee may
elect to continue to hold the portions of the trust assets that secure those
notes and apply distributions on the trust assets to make payments on those
notes to the extent funds are available.
Subject to the provisions of the indenture relating to the duties of the
indenture trustee, in case any event of default occurs and is continuing with
respect to the notes, the indenture trustee:
(1) may institute proceedings in its own name for the collection of all
amounts then payable on the notes of the affected series; or
(2) subject to the limitations, conditions and restrictions described in
the following paragraph, sell all or a portion of the trust's
interest in the principal receivables, in an amount not to exceed the
amount allocated for the accelerated series, and the related finance
charge receivables at one or more public or private sales called and
conducted in any manner permitted by law.
The indenture trustee may not exercise the remedy in subparagraph (2) above
unless (A) the holders of 100% of the outstanding principal amount of the Notes
of the accelerated series consent to the sale, (B) the indenture trustee
determines that the proceeds of the sale distributable to the noteholders are
sufficient to discharge in full all amounts then due and unpaid upon the notes
of the affected series for principal and interest or (C) the indenture trustee
determines that the trust assets may not continue to provide sufficient funds
for the payment of principal of and interest on the affected notes as they
would become due if those notes had not been declared due and payable, and the
indenture trustee obtains the consent of the holders of not less than 66 2/3%
of the outstanding principal amount of the notes of each class of the affected
series.
In addition to the remedies listed in (1) and (2) above in this section,
the indenture trustee may take any other appropriate action to protect and
enforce the rights and remedies of the indenture trustee or the noteholders of
the accelerated series, except that, under the indenture, the indenture trustee
and the noteholders expressly waive any other remedy that may be available
under the applicable UCC.
Following the foreclosure and sale of the collateral, or portion of the
collateral, for the notes of a series and the application of the proceeds of
that sale to that series and the application of the amounts then held in the
collection account, the special funding account and any series accounts for
that series and any amounts available under the series enhancement for that
series, that series will no longer be entitled to any allocation of collections
or other property constituting the collateral for the notes of that series
under the indenture and the notes of that series will no longer be outstanding.
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None of the transferors, the administrator, the owner trustee, the
indenture trustee, the servicer, Green Tree Bank, Conseco Finance, Conseco
Finance Servicing Corp. or the trust, nor any of their respective owners,
beneficiaries, agents, officers, directors, managers, employees, successors or
assigns shall, in the absence of an express agreement to the contrary, be
personally liable for the payment of the principal of or interest on the notes
or for the agreements of the trust contained in the indenture. The notes will
represent obligations solely of the trust, and the notes will not be insured or
guaranteed by the transferors, the servicer, the administrator, the owner
trustee, the indenture trustee, Green Tree Bank, Conseco Finance, Conseco
Finance Servicing Corp. or any other person or entity.
Material Covenants
The indenture provides that the trust may not consolidate with, merge into
or sell its business to, another entity, unless:
. the entity formed by or surviving the consolidation or merger, or that
acquires the trust's business, is organized under the laws of the
United States, any state of the United States or the District of
Columbia;
. the entity expressly assumes, by supplemental indenture, the trust's
obligation to make due and punctual payments upon the notes and the
performance of every covenant of the trust under the indenture;
. no amortization event or event of default shall have occurred and be
continuing immediately after the merger, consolidation or sale;
. written confirmation is received from each rating agency that the
transaction will not result in a reduction or withdrawal of its rating
of any outstanding series or class;
. the trust has received an opinion of counsel to the effect that the
consolidation, merger or sale would have no material adverse federal
income tax consequence to any noteholder;
. any action as is necessary to maintain the lien and security interest
created by the indenture shall have been taken; and
. the trust has delivered to the indenture trustee an opinion of counsel
and officer's certificate each stating that the consolidation, merger
or sale satisfies all requirements under the indenture and that the
supplemental indenture is duly authorized, executed and delivered and
is valid, binding and enforceable.
The trust will not, among other things:
. except as expressly permitted by the indenture, the transfer and
servicing agreement or related documents, sell, transfer, exchange or
otherwise dispose of any of the assets of the trust;
. claim any credit on or make any deduction from payments in respect of
the principal of and interest on the notes, other than amounts
withheld under the Code
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or applicable state law, or assert any claim against any present or
former noteholders because of the payment of taxes levied or assessed
upon the trust;
. incur, assume or guarantee any direct or contingent indebtedness other
than as contemplated by the transaction document;
. voluntarily dissolve or liquidate in whole or in part; or
. permit (1) the validity or effectiveness of the indenture to be
impaired, or permit the lien under the indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any
person to be released from any covenants or obligations with respect
to the notes under the indenture except as may be expressly permitted
by the indenture, (2) any lien, charge, excise, claim, security
interest, mortgage or other encumbrance to be created on or extend to
or otherwise arise upon or burden the assets of the trust or any part
of the trust, except as may be created by the terms of the indenture;
or (3) the lien of the indenture not to constitute a valid first
priority perfected security interest in the assets of the trust that
secure the notes.
The trust may not engage in any activity other than as specified under "The
Issuer" in this prospectus.
Modification of the Indenture
No Consent of Noteholders Required; Rating Agency Confirmation Required
The trust, the servicer and the indenture trustee may, without the consent
of any noteholders, enter into one or more supplemental indentures, upon
receiving written confirmation from each rating agency that the action will not
result in a reduction or withdrawal of its rating of any outstanding series or
class, for any of the following purposes:
. to correct or enhance the description of any property subject to the
lien of the indenture, or to take any action that will enhance the
indenture trustee's lien under the indenture, or to add to the
property pledged to secure the notes;
. to reflect the agreement of another person to assume the role of the
trust;
. to add to the covenants of the trust, for the benefit of the
noteholders, or to surrender any right or power of the trust;
. to transfer or pledge any property to the indenture trustee;
. to appoint a successor to the indenture trustee with respect to the
notes and to add to or change any of the provisions of the indenture
to allow more than one indenture trustee to act under the indenture;
. to modify, eliminate or add to the provisions of the indenture as
necessary to qualify the indenture under the Trust Indenture Act of
1939, as amended, or any similar federal statute later enacted;
. to permit the issuance of one or more new series of notes in
accordance with the indenture;
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. to terminate any interest rate swap agreement or other credit
enhancement in accordance with the related indenture supplement;
. to prevent the transfer of assets from being treated as a sale for
accounting purposes or, if the transferors so determine, to cause the
transfer to qualify for sale treatment under generally accepted
accounting principles; or
. to make any other provisions with respect to matters or questions
arising under the indenture or in any supplemental indenture.
The trust, the servicer and the indenture trustee may also, without the
consent of any noteholders, enter into one or more supplemental indentures to
add provisions to, change in any manner or eliminate any provision of the
indenture, or to change the rights of the noteholders under the indenture,
upon:
. receipt of written confirmation from each rating agency that the
action will not result in a reduction or withdrawal of its rating of
any outstanding series or class;
. receipt of a certificate of an authorized officer of each transferor
to the effect that, in the transferor's reasonable belief, the action
will not have an Adverse Effect; and
. receipt of a tax opinion.
The trust, the servicer and the indenture trustee may also, without the
consent of the noteholders of any series or the series enhancers for any
series, enter into one or more supplemental indentures to add, modify or
eliminate any provisions necessary or advisable in order to enable the trust or
any portion of the trust to qualify as, and to permit an election to be made
for the trust to be treated as, a "financial asset securitization investment
trust" under the Internal Revenue Code of 1986, as amended and to avoid the
imposition of state or local income or franchise taxes on the trust's property
or its income. The following conditions apply for the amendments described in
this paragraph:
. delivery to the owner trustee and the indenture trustee of a
certificate of an authorized officer of each transferor to the effect
that the requirements under the indenture applicable to the proposed
amendments have been met;
. receipt of written confirmation from each rating agency that the
action will not result in a reduction or withdrawal of its rating of
any outstanding series or class; and
. the amendment must not affect the rights, duties or obligations of the
indenture trustee or the owner trustee under the indenture.
No Noteholder Consent Required; No Rating Agency Consent Required
The trust, the servicer and the indenture trustee may also, without the
consent of any noteholders and without receiving confirmation of its rating
from any rating agency but with prior notice to each rating agency, enter into
one or more supplemental indentures in order to cure any ambiguity, to correct
or supplement any provision in the indenture or in any
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supplemental indenture that may be inconsistent with any other provision in the
indenture or in any supplemental indenture. As a condition to an amendment
described in the preceding sentence, an authorized officer of each transferor
shall deliver a certificate to the effect that, in the transferor's reasonable
belief, the action will not have an Adverse Effect.
Noteholder Consent Required; Notice to Rating Agencies
The trust, the servicer and the indenture trustee may otherwise, with prior
notice to each rating agency and with the consent of noteholders holding 66
2/3% or more of the outstanding principal amount of the notes of each series
adversely affected, enter into one or more supplemental indentures to add
provisions to, change in any manner or eliminate any provision of the
indenture, or to change the rights of the noteholders under the indenture.
Unanimous Affected Noteholder Consent Required; Notice to Rating Agencies
The trust, the servicer and the indenture trustee will not, without prior
notice to each rating agency and without the consent of each noteholder
affected, enter into any supplemental indenture to:
. change the date of payment of any installment of principal of or
interest on any note or reduce the principal amount of a note, the
note interest rate or the redemption price of the note or change any
place of payment where, or the currency in which, any note is payable;
. impair the right to institute suit for the enforcement of specified
payment provisions of the indenture;
. reduce the percentage of the outstanding principal amount of the notes
of any series or all series, whose consent is required for execution
of any supplemental indenture or for any waiver of compliance with
specified provisions of the indenture or of some defaults under the
indenture and their consequences provided in the indenture;
. reduce the percentage of the outstanding principal amount of the notes
required to direct the indenture trustee to sell or liquidate the
trust assets if the proceeds of the sale would be insufficient to pay
the principal amount and interest due on those notes;
. decrease the percentage of the outstanding principal amount of the
notes required to amend the sections of the indenture that specify the
percentage of the aggregate principal amount of the notes of a series
necessary to amend the indenture or other related agreements;
. modify any provisions of the indenture regarding the voting of notes
held by the trust, any other party obligated on the notes, a
transferor, or any of their affiliates; or
. permit the creation of any lien superior or equal to the lien of the
indenture with respect to any of the collateral for any notes or,
except as otherwise permitted or
73
contemplated in the indenture, terminate the lien of the indenture on
the collateral or deprive any noteholder of the security provided by
the lien of the indenture.
Annual Compliance Statement
The trust will be required to present to the indenture trustee each year a
written statement as to the performance of its obligations under the
indenture.
List of Noteholders
Upon the issuance of definitive notes, unless otherwise specified in the
prospectus supplement, holders of 10% of the outstanding amount of the notes
may obtain access to the list of noteholders the indenture trustee maintains
for the purpose of communicating with other noteholders.
Satisfaction and Discharge of Indenture
An indenture will be discharged with respect to the notes upon the
delivery to the indenture trustee for cancellation of all the notes or, with
specific limitations, upon deposit with the indenture trustee of funds
sufficient for the payment in full of all the notes.
Resignation and Removal of the Indenture Trustee
The indenture trustee may resign at any time, in which event the trust
will appoint a successor indenture trustee for your series. The holders of a
majority of the outstanding principal amount of the notes may remove the
indenture trustee by so notifying the indenture trustee and may appoint a
successor indenture trustee. The indenture trustee shall be removed by the
trust if the indenture trustee ceases to be eligible to continue as an
indenture trustee under the indenture or if the indenture trustee becomes
insolvent or becomes incapable of acting. If the trust removes the indenture
trustee, the trust shall then appoint a successor indenture trustee. If an
event of default occurs under the indenture and the accompanying prospectus
supplement provides that a given class of notes of your series is subordinated
to one or more other classes of notes of your series, under the Trust
Indenture Act of 1939, as amended, the indenture trustee may be deemed to have
a conflict of interest and be required to resign as indenture trustee for one
or more of those classes of notes. In that case, a successor indenture trustee
will be appointed for one or more of those classes of notes and may provide
for rights of senior noteholders to consent to or direct actions by the
indenture trustee which are different from those of subordinated noteholders.
Any resignation or removal of the indenture trustee and appointment of a
successor indenture trustee for any series of notes will not become effective
until the successor indenture trustee accepts its appointment for your series.
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Description of the Transfer and Servicing Agreement
General
On the initial closing date, Conseco Bank and Credit Card Funding Corp.
will transfer the existing receivables in a designated portfolio of accounts to
the trust under the transfer and servicing agreement. In the transfer and
servicing agreement, Conseco Bank will agree to service the receivables for the
trust. The following summarizes the material terms of the transfer and
servicing agreement. A form of this agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
Representations and Warranties of the Transferors
When the trust issues a new series of notes, each transferor will for
itself make several representations and warranties to the trust in the transfer
and servicing agreement including the following:
Regarding No Conflict
. the execution and delivery by the transferor of the transfer and
servicing agreement and each other document relating to the issuance
of notes to which it is a party will not conflict with any law or any
other agreement to which the transferor is a party; and
. all required governmental approvals in connection with the execution
and delivery by the transferor of the transfer and servicing agreement
and each other document relating to the issuance of notes have been
obtained and remain in force and effect.
If a representation or warranty is breached it may result in a series
amortization event for your notes. Unless the prospectus supplement for your
series states otherwise, if a representation or warranty made by a transferor
in the transfer and servicing agreement is later found to be materially
incorrect when made, and:
. continues to be materially incorrect for 60 days after notice to the
affected transferor by the indenture trustee, or to the transferor and
the indenture trustee by a noteholder; and
. as a result an Adverse Effect occurs and continues during the 60-day
period,
then the indenture trustee or noteholders holding more than 50% of the
outstanding principal amount of the notes of the affected series may give
notice to the transferors and the servicer, and to the indenture trustee if
given by the noteholders, declaring that a series amortization event has
occurred. Declaring an amortization event for your series will, unless the
transferor has accepted reassignment of the related receivables, begin early
amortization of your series or, if specified in the accompanying prospectus
supplement, early accumulation of principal.
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Regarding Enforceability
Each transferor will make other representations and warranties to the trust
in the transfer and servicing agreement including the following:
. as of the closing date, the transferor is duly incorporated and in
good standing and has the authority to consummate the issuance;
. the transfer and servicing agreement and each other document relating
to the issuance to which it is a party constitutes a legal, valid and
binding obligation enforceable against the transferor; and
. the trust has all right, title and interest in the receivables in the
trust portfolio or has a first priority perfected security interest in
these receivables.
In the event:
. any representation or warranty described immediately above is not true
and correct in any material respect; and
. as a result, the interests of noteholders in the receivables in the
trust portfolio are materially and adversely affected;
then any of the indenture trustee or noteholders representing 50% or more of
the outstanding principal amount of all of the trust's outstanding series may
give notice to the affected transferor and the servicer, and to the indenture
trustee if given by the noteholders, directing each transferor which is in
breach to accept reassignment of the portion of the trust portfolio which was
transferred by that transferor and to pay into the trust's collection account a
cash deposit equal to that transferor's portion of the sum of the amounts
specified with respect to each outstanding series in the related indenture
supplement. However, no reassignment will be required if:
. within 60 days, or up to 120 days if specified in the notice, the
transferor cures the breach and any material adverse effect caused by
the breach; or
. on any day within the applicable 60-day to 120-day period the relevant
representation and warranty is then true and correct in all material
respects and the transferor delivers to the indenture trustee a
certificate of an authorized officer describing the nature of the
breach and the manner in which the relevant representation and
warranty became true and correct.
Reassignment of the required portion of the trust portfolio and the
transferor's obligation to make the cash deposit in the trust's collection
account are the only remedies to any breach of the representations and
warranties described above.
Regarding the Accounts and the Receivables
The transferors make representations and warranties in the transfer and
servicing agreement concerning the accounts and the receivables in the trust
portfolio. Only eligible
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accounts can be designated as accounts for the trust portfolio. We can give you
no assurance that eligible accounts will remain eligible once added to the
trust.
The transferors also represent that each receivable in the trust portfolio
is an eligible receivable when created. If it is found that a receivable in the
trust portfolio was ineligible when created, and, as a result, the interests of
noteholders in any receivable in the trust portfolio are materially and
adversely affected, the transferor that transferred such receivable must accept
reassignment of all receivables in the affected account in which the ineligible
receivable exists. However, such transferor may have 60 days, or up to 120 days
if agreed to by the indenture trustee and the servicer, from the earlier to
occur of discovery of the breach by such transferor or receipt by the
transferor of written notice of the breach given by the owner trustee, the
indenture trustee or the servicer, to cure the ineligibility before
reassignment is required.
A transferor will accept reassignment of an ineligible receivable by
directing the servicer to deduct the principal amount of the ineligible
receivable from the transferor amount. If this would reduce the transferor
amount below the required transferor amount or cause the balance of principal
receivables in the trust to be less than the required minimum principal
balance, the transferors will make a cash deposit in the trust's special
funding account in the amount by which the transferor amount would have been
reduced below the required transferor amount or the amount by which the balance
of principal receivables in the trust was less than the required minimum
principal balance. Any deduction or deposit is considered a repayment in full
of the ineligible receivable. The obligation of the transferring transferor to
accept reassignment of any ineligible receivable is the only remedy for any
breach of a representation concerning eligibility of receivables.
The indenture trustee is not required to make periodic examinations of
receivables in the trust portfolio or any records relating to them. However,
the servicer will deliver to the indenture trustee once each year an opinion of
counsel affirming, among other things, that no further action is necessary to
maintain the trust's perfected security interest in the receivables.
Additional Representations and Warranties in the Prospectus Supplement
The accompanying prospectus supplement may specify additional
representations and warranties made by the transferors when your notes are
issued.
Additional Transferors
Conseco Bank may, from time to time, designate another entity or entities
as additional transferors under the transfer and servicing agreement. In
connection with this designation, if the transferors' interest is then
represented by a certificate, the then existing transferors will exchange the
transferors' certificate for a newly issued transferors' certificate modified
to reflect the additional transferor. The transfer and servicing agreement may
be amended to permit the designation of these additional transferors and the
exchange of the transferor certificate without noteholder consent if written
confirmation is received from each rating
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agency that the additional transferor will not result in a reduction or
withdrawal of any outstanding rating.
Eligible Accounts
An "eligible account" means, as of the initial cut-off date, or with
respect to additional accounts, as of their cut-off date, each private label
credit account owned by Conseco Bank, Green Tree Bank, Conseco Finance
Servicing Corp. or other account owner:
. which is in existence and maintained by Conseco Bank, Green Tree Bank,
Conseco Finance Servicing Corp. or other account owner, as applicable;
. which is payable in United States dollars;
. the obligor of which has provided, as his or her most recent billing
address, an address located in the United States or its territories,
possessions or military bases; provided, however, that as of any date
of determination, up to 1% of the accounts (calculated by number of
accounts) may have account obligors who have provided as their billing
addresses, addresses located outside of such jurisdictions;
. except as described in the following paragraph, has an obligor who has
not been identified by the servicer in its computer files as currently
being involved in a bankruptcy proceeding;
. which has not been classified as an account with respect to which the
related card, if any, has been lost or stolen or the related account
number has been stolen;
. which has not been sold or pledged to any other party except for any
sale to the trust or to a transferor pursuant to a receivables
purchase agreement;
. does not have any receivables that are defaulted receivables; and
. which does not have any receivables that have been identified by the
servicer or the relevant obligor as having been incurred as a result
of fraudulent use of any related credit card, if any, or related
account number.
Eligible accounts may include accounts with respect to which the servicer
believes the related obligor is bankrupt as of the initial cut-off date, with
respect to the initial accounts, and as of the related additional cut-off date,
with respect to additional accounts; provided, that (a) the balance of all
receivables included in these accounts is reflected on the books and records of
the servicer, the appropriate transferor and the account owner and is treated
for purposes of the transfer and servicing agreement as "zero" and (b)
borrowing and charging privileges with respect to all these accounts have been
canceled in accordance with the relevant credit guidelines.
Under the transfer and servicing agreement, the definition of eligible
account may be changed by amendment to the agreement without the consent of the
noteholders if a transferor delivers to the indenture trustee a certificate of
an authorized officer to the effect
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that, in the reasonable belief of the transferor, the amendment will not have
an Adverse Effect and evidence that the amendment will not result in a
withdrawal or reduction of the rating of any outstanding series or class of
notes.
Eligible Receivables
An "eligible receivable" means each receivable:
. which has arisen in an eligible account;
. which was created in compliance, in all material respects, with all
requirements of law applicable to the institution that owned the
receivable at the time of its creation, and under the terms of a
cardholder or other credit agreement which complies in all material
respects with all requirements of law applicable to Conseco Bank,
Green Tree Bank or Conseco Finance Servicing Corp. or other account
owner, as applicable;
. with respect to which all material consents, licenses or
authorizations of, or registrations with, any governmental authority
required to be obtained or given in connection with the creation of
the receivable or the execution, delivery and performance by Conseco
Bank, Green Tree Bank or Conseco Finance Servicing Corp. or other
account owner or transferor, as applicable, of the related credit
agreement have been duly obtained or given and are in full force and
effect;
. as to which, at the time of its transfer to the trust, a transferor or
the trust has good title, free and clear of all liens and security
interests arising under or through the transferor, other than some tax
liens for taxes not then due or which a transferor is contesting;
. which has been the subject of either a valid transfer and assignment
from a transferor to the trust of all of the transferor's right, title
and interest in the receivable, including any proceeds of the
receivable, or the grant of a first priority perfected security
interest in the receivable, and in the proceeds of the receivable,
effective until the termination of the trust;
. which is the legal, valid and binding payment obligation of the
obligor under the receivable, legally enforceable against that obligor
in accordance with its terms, subject to some bankruptcy-related
exceptions;
. which, at the time of transfer to the trust, has not been waived or
modified except as permitted under the customary policies and
procedures, as amended from time to time, of Conseco Bank, Green Tree
Bank, Conseco Finance Servicing Corp. or other account owner or
transferor, as applicable, and then only if the waiver or modification
is reflected in the servicer's computer file of revolving credit
accounts;
. which, at the time of transfer to the trust, is not subject to any
right of rescission, setoff, counterclaim or any other defense,
including defenses arising out of violations of usury laws, of the
obligor, other than defenses arising out of
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bankruptcy, insolvency or other similar laws affecting the enforcement
of creditors' rights in general;
. which, at the time of transfer to the trust, Conseco Bank, Green Tree
Bank, Conseco Finance Servicing Corp. or other account owner or
transferor, as applicable, has satisfied all of its obligations
required to be satisfied by that time;
. which, at the time of transfer to the trust, none of the transferors,
Conseco Bank, Green Tree Bank, Conseco Finance Servicing Corp. or any
other account owner or transferor, as applicable, has taken any
action, or omitted to take any action, that would impair the rights of
the trust or the noteholders; and
. which constitutes an "account" or "general intangible" or "chattel
paper" under Article 9 of the UCC as then in effect in the States of
South Dakota, Utah and Minnesota with respect to those accounts
originated by Green Tree Bank and in the State of Utah with respect to
those accounts originated by Conseco Bank or any other state where the
filing of a financing statement is required to perfect the trust's
interest in the receivables and the proceeds of those receivables.
Addition of Trust Assets
As described above under "The Trust Portfolio," each transferor will have
the right to designate, from time to time, additional accounts to be included
as accounts for the trust. In addition, the transferor will be required to
designate additional accounts under the circumstances described in this
section. Each transferor will convey to the trust its interest in all
receivables of those additional accounts, whether the receivables are then
existing or subsequently created.
Each additional account will be selectively or randomly chosen from
eligible accounts in the Conseco private label portfolio. However, additional
accounts may not be of the same credit quality as the initial accounts, may not
be established under the same programs as the initial accounts and may not
related to the same industries as the initial accounts. Additional accounts may
have been originated by Conseco Bank, Green Tree Bank, Conseco Finance
Servicing Corp., or other account owner, as applicable, using credit criteria
different from those which were applied to the initial accounts or may have
been acquired from an institution which may have had different credit criteria.
The transferors are also permitted to add, from time to time,
participations and related collections to the trust. These participations shall
represent undivided interests in a pool of assets primarily consisting of
credit card receivables and any interests in any of the foregoing.
Participations may be issued under separate agreements that are similar to the
agreements governing the issuance of the notes and that entitle the holder of
the participation to receive percentages of collections generated by the pool
of assets supporting the participation. Participations may have their own
credit enhancement, amortization events, servicing obligations and servicer
defaults, all of which are likely to be enforceable by a separate trustee under
these participation agreements and may be different from those specified in
this prospectus. The rights and remedies of the trust as the holder of a
participation, and,
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therefore, the noteholders, will be subject to all the terms and provisions of
those participation agreements.
Required Additions
If, on any business day, as of the close of business on the preceding
business day, either the transferor amount is less than the required transferor
amount or the amount of principal receivables in the trust is less than the
required minimum principal balance, the transferors will be required to add
eligible accounts to the trust by the 10th business day following the date of
calculation unless, prior to that 10th business day, the trust has been
restored to required levels. If the transferors are required to add accounts,
they will be required to add sufficient eligible accounts so that giving effect
to such addition, the transferor amount will be equal to or greater than the
required transferor amount and the amount of principal receivables in the trust
will be equal to or greater than the required minimum principal balance.
The transferors are permitted in lieu of or in addition to causing the
designation of additional accounts to satisfy the requirements of the trust, to
add participation interests.
Conditions to Additions
When a transferor or transferors, as applicable, transfer receivables in
additional accounts or participations, except under the automatic account
addition provision described below under the heading "--Automatic Account
Additions," they must satisfy several conditions, including, as applicable:
. a transferor or transferors, as applicable, must deliver to the
indenture trustee, the servicer and each rating agency notice, unless
the notice requirement is waived, that the addition of accounts or
participation interests is to occur;
. as of the applicable cut-off date, the accounts must be eligible
accounts;
. as of the required delivery date, the transferor or transferors, as
applicable, must deliver to the indenture trustee evidence that the
trust's interest in the receivables in such accounts has been
perfected and a schedule of such additional accounts;
. to the extent required by the indenture, the transferor or
transferors, as applicable, must have deposited into the collection
account all collections with respect to such accounts as of the cut-
off date;
. as of the cut-off date and the addition date, no insolvency event with
respect to any account owner of any of the accounts or participation
interests to be added or with respect to any transferor transferring
receivables or participation interests on such date shall have
occurred nor shall the addition have been made in contemplation of the
occurrence thereof;
. solely for additional accounts added at the option of the transferors
and not for required account additions and for all additions of
participation interests, the transferors must have received evidence
from the rating agencies to the effect that the addition will not
cause the withdrawal or reduction of the ratings then assigned to any
class or series of notes;
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. the addition must not result in an Adverse Effect and the transferors
or the applicable transferor must deliver a certificate stating that
the transferors or transferor, as applicable, reasonably believe that
the addition will not have an Adverse Effect; and
. the transferor or transferors, as applicable, must deliver to the
indenture trustee and the rating agencies an opinion of counsel
relating to the perfection of the security interest in the receivables
in the additional accounts.
Automatic Account Additions
The transferors are also permitted to designate, from time to time,
additional accounts to be included as accounts for the trust without being
required to comply with all of the conditions described in the preceding
section. These additions are referred to as automatic account additions. When
we transfer receivables in additional accounts in an automatic account
addition, we will be required to comply with all of the conditions described in
the prior section except that:
. we will not be required to deliver an opinion of counsel with each
addition; and
. we will not be required to obtain confirmation from the rating
agencies that the addition will not cause a reduction or withdrawal of
any outstanding rating.
In addition, we can only add automatic account additions if the number of
automatic additional accounts designated with respect to any of the three
consecutive monthly periods commencing in January, April, July and October of
each calendar year did not exceed 5% of the number of accounts or 5% of the
amount of principal receivables in the trust as of the first day of the
calendar year during which such monthly periods commence (or the initial
closing date, in the case of 2001) and the number of automatic additional
accounts designated during any such calendar year did not exceed 10% of the
number of accounts or 10% of the amount of principal receivables in the trust
as of the first day of such calendar year (or the initial closing date, in the
case of 2001); provided, however, automatic additional accounts may be
designated in excess of such 5% and 10% limitations if each rating agency then
rating the notes shall have notified the transferors, the servicer and the
indenture trustee in writing that such action will not result in a reduction or
withdrawal of the then existing rating of any outstanding series or class.
Accounts containing receivables payable on a fixed monthly payment schedule
will not be permitted to be added under the automatic account addition
provisions.
If we add accounts under the automatic account addition provisions, we will
be required to obtain an opinion of counsel concerning the perfection of the
security interest in the receivables in the additional accounts at the end of
each calendar quarter in which such an addition occurred.
Removal of Trust Assets
On any day of any monthly period, each transferor has the right to remove
any accounts and any participations from the trust and to require the indenture
trustee to transfer all receivables in the removed accounts and to transfer the
removed participations back to the transferor, whether the receivables already
exist or arise after the designation. As long as the
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removal of accounts satisfies the conditions listed below, the removed accounts
may, individually or in the aggregate, be of higher credit quality than the
accounts that remain in the trust. The removal of accounts from the trust will
reduce the transferors' interest. A transferor's rights to remove accounts or
participation interests are, except as described in the following paragraph,
subject to satisfaction of several conditions, including:
. written notice to the indenture trustee, the servicer, each rating
agency and each series enhancer;
. delivery to the trust for execution a written reassignment of
receivables in the removed accounts and removed participations to the
transferor or its designee;
. delivery on the required delivery date to the trust of a computer file
or microfiche list with an accurate list of all removed accounts;
. written confirmation from each rating agency that the removal will not
result in the reduction or withdrawal of its rating of any outstanding
series or class;
. delivery to the indenture trustee of a certificate of an authorized
officer to the effect that, in the transferor's reasonable belief:
. the removal will not have an Adverse Effect; and
. the accounts to be removed were not chosen through a selection
process believed to be materially adverse to the interests of the
noteholders; and
. any other conditions specified in the accompanying prospectus
supplement.
The conditions described above relating to rating agency confirmation and
the delivery of an officer's certificate will not apply if (i) the removed
accounts are zero balance accounts or (ii) the removal of accounts results from
the termination of a merchant agreement by action of the merchant or by failure
of the merchant to act to renew the agreement and this termination gives the
merchant or its designee the right to repurchase the accounts and receivables.
In addition, any receivable that becomes a defaulted receivable will be
automatically removed from the trust and will be transferred to the transferor
that transferred such receivable to the trust without any further action or
consideration by the indenture trustee, provided that recoveries with respect
to those accounts will be applied as collections of finance charge receivables.
In addition to the removal of accounts provisions described above, in the
event of the insolvency or bankruptcy of a transferor or originator of
receivables and the termination of a merchant agreement, if the merchant elects
to purchase the receivables existing in the accounts created under the
terminated agreement, the trust may, upon receipt by the indenture trustee of
the purchase price for the receivables originated under the terminated
agreement, transfer the receivables directly to the merchant or its designee
and remove the accounts from the trust. Removal of accounts and receivables
under these circumstances will not be subject to satisfaction of the conditions
to the removal of accounts described above except that the trust shall give
written notices of the removal to the indenture trustee, the servicer and each
rating agency and appropriate documentation of the removal will be required.
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Discount Option
The transferors have the option, which will be exercised as of the initial
cut-off date, to reclassify a percentage, called the discount percentage, of
principal receivables in the trust portfolio as finance charge receivables.
Initially the discount percentage will be 4.0%. This option is referred to as
the discount option. The principal receivables that are reclassified as finance
charge receivables are referred to as discount option receivables. Exercise of
the discount option will result in a smaller amount of principal receivables
being included in the trust and it will result in a larger amount of
collections of finance charge receivables. By exercising the discount option,
the transferors increase the portfolio yield. This reduces the likelihood that
an amortization event will occur as a result of an insufficient portfolio yield
and, at the same time, will increase the likelihood that the transferors will
have to add principal receivables to the trust.
Collections of discount option receivables will be considered collections
of finance charge receivables in the trust portfolio and allocated with all
other collections of finance charge receivables in the trust portfolio.
The transferors may increase, reduce or withdraw the discount percentage,
at any time and from time to time. To increase, reduce or withdraw the discount
option, the transferors must satisfy the conditions in the transfer and
servicing agreement. Those conditions include receipt of certificates of an
authorized officer of each transferor to the effect that, in the transferor's
reasonable belief, the action will not have an Adverse Effect and receipt of
written confirmation from each rating agency that a change in the discount
percentage will not result in a reduction or withdrawal of its rating of any
outstanding series or class.
Servicing Compensation and Payment of Expenses
For each series of notes, the servicer will be responsible for servicing
and administering the receivables in accordance with the servicer's policies
and procedures for servicing revolving credit receivables comparable to the
receivables.
The servicer receives a fee for its servicing activities and reimbursement
of expenses incurred in administering the trust. This servicing fee accrues for
each outstanding series in the amounts and is calculated on the balances set
forth in the related prospectus supplement. Each series' servicing fee is
payable each period from collections of finance charge receivables allocated to
the series. Neither the trust nor the noteholders are responsible for any
servicing fee allocable to the transferors' interest.
Matters Regarding the Servicer and the Transferors
The servicer may not resign from its obligations and duties under the
transfer and servicing agreement, except:
. upon a determination that performance of its duties is no longer
permissible under applicable law and there is no reasonable action
which the servicer could take to make the performance of its duties
permissible under applicable law; or
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. upon assumption of its obligations and duties by one of its affiliates
or by appointment of any other eligible successor if written
confirmation is received from each rating agency that the appointment
will not result in a reduction or withdrawal of its rating of any
outstanding series or class.
If within 120 days of the determination that the servicer is no longer
permitted to act as servicer and the indenture trustee is unable to appoint a
successor, the indenture trustee will act as servicer. If the indenture trustee
is unable or unwilling to act as servicer, it will petition an appropriate
court to appoint an eligible successor.
The servicer may not resign until the indenture trustee or another
successor has assumed the servicer's obligations and duties. Conseco Bank is
permitted to assign part or all of its obligations and duties as servicer to
one of its affiliates if it guarantees its affiliates performance. Conseco Bank
is also permitted to and expects to service the receivables originated by Green
Tree Bank through a subservicing arrangement with Green Tree Bank and may, at
its option, enter into other subservicing arrangements with other affiliates of
Conseco Bank. These subservicing arrangements are not considered an assignment
of Conseco Bank's obligations and duties.
The servicer will indemnify the trust, the owner trustee and the indenture
trustee for any losses suffered as a result of its actions or omissions as
servicer or the administration by the owner trustee of the trust, except in
each case, for losses resulting from the negligence or willful misconduct of
the owner trustee or the indenture trustee, as applicable.
Neither the servicer nor any of its directors, officers, employees or
agents will be under any other liability to the trust, the owner trustee, the
indenture trustee, the noteholders, any series enhancer or any other person for
any action taken, or for refraining from taking any action, in good faith under
the transfer and servicing agreement. However, none of them will be protected
against any liability resulting from willful wrongdoing, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of obligations and duties under the transfer and servicing agreement. In
addition, the transfer and servicing agreement provides that the servicer is
not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the transfer
and servicing agreement and which in its opinion may expose it to any expense
or liability.
Each transferor will be severally, but not jointly, liable for all of its
obligations, covenants, representations and warranties under the transfer and
servicing agreement. No transferor nor any of its directors, managers,
officers, employees, incorporators or agents will be liable to the trust, the
owner trustee, the indenture trustee, the noteholders, any series enhancer or
any other person for any action taken, or for refraining from taking any
action, in good faith under the transfer and servicing agreement. However, none
of them will be protected against any liability resulting from willful
wrongdoing, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of obligations and duties under the transfer
and servicing agreement.
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The trust agreement provides that a transferor may transfer all or a
portion of its interest in the transferors' interest and if the transferors'
interest is then represented by a certificate, the transferor shall cause a
supplemental certificate to be issued to the transferee. Before the transferors
may transfer all or a fraction of the transferors' interest, the following must
occur:
. notice of the transfer to each rating agency; and
. delivery to the owner trustee and the indenture trustee of an executed
supplement to the trust agreement.
If all or a fraction of the transferors' interest has been transferred to
an entity other than a transferor, that interest may not be further transferred
unless a tax opinion is delivered to the trust and the indenture trustee
regarding the subsequent transfer.
Each transferor or the servicer may consolidate with, merge into, or sell
its business to, another entity, in accordance with the transfer and servicing
agreement and the surviving entity will be the successor to such transferor or
servicer, as the case may be, on the following conditions:
. execution of an agreement relating to the succession that supplements
the transfer and servicing agreement;
. in the case of a succession relating to a transferor, delivery to the
trust and the indenture trustee of a certificate of an authorized
officer of such transferor and an opinion of counsel, each addressing
compliance with the applicable provisions of the transfer and
servicing agreement and the validity and enforceability of the
supplemental agreement, and written confirmation from each rating
agency that the succession will not result in a reduction or
withdrawal of its rating of any outstanding series or class;
. in the case of a succession relating to the servicer, delivery to the
trust and the indenture trustee of a certificate of an authorized
officer of the servicer and an opinion of counsel, each addressing
compliance with the applicable provisions of the transfer and
servicing agreement, notification of the succession to each rating
agency, and that the successor is eligible to act as servicer; and
. receipt of written confirmation from each rating agency that the
action will not result in a reduction or withdrawal of its rating of
any outstanding series or class.
Servicer Default
The transfer and servicing agreement specifies the duties and obligations
of the servicer. A failure by the servicer to perform its duties or fulfill its
obligations can result in a servicer default.
A "servicer default" includes each of the following:
(1) failure by the servicer to make any payment, transfer or deposit, or
to give instructions or to give notice to the indenture trustee to do
so, on the required date
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under the transfer and servicing agreement, the indenture or any
indenture supplement or within the applicable grace period not
exceeding five business days;
(2) failure on the part of the servicer to observe or perform in any
material respect any of its other covenants or agreements if the
failure:
(a) has an Adverse Effect; and
(b) continues unremedied for a period of 60 days after written notice
to the servicer by the owner trustee or the indenture trustee, or
the servicer, the owner trustee and the indenture trustee by
noteholders of 10% or more of the outstanding principal amount of
all of the trust's outstanding series or, where the servicer's
failure does not relate to all series, 10% or more of the
outstanding principal amount of all series affected; or the
assignment or the delegation by the servicer of its duties,
except as specifically permitted under the transfer and servicing
agreement; or
(3) any representation, warranty or certification made by the servicer in
the transfer and servicing agreement, or in any certificate delivered
as required by the transfer and servicing agreement, proves to have
been incorrect when made if it:
(a) has an Adverse Effect; and
(b) continues to be incorrect and to materially adversely affect
those noteholders for a period of 60 days after written notice to
the servicer by the owner trustee or the indenture trustee, or
the servicer, the owner trustee and the indenture trustee by
noteholders of 10% or more of the outstanding principal amount of
all notes or, where the servicer's inaccuracy does not relate to
all series, 10% or more of the outstanding principal amount of
all series affected; or
(4) specific bankruptcy, insolvency, liquidation, conservatorship,
receivership or similar events relating to the servicer.
A delay in or failure of performance referred to in clause (1) above for a
period of 10 business days after the applicable grace period, or referred to
under clause (2) or (3) for a period of 60 business days after the applicable
grace period, will not constitute a servicer default if the delay or failure
could not be prevented by the exercise of reasonable diligence by the servicer
and the delay or failure was caused by an act of God or other similar
occurrence. Upon the occurrence of any of these events, the servicer shall not
be relieved from using all commercially reasonable efforts to perform its
obligations in a timely manner in accordance with the terms of the transfer and
servicing agreement and the servicer must provide the indenture trustee, the
trust, each transferor and any series enhancer with an officer's certificate
giving prompt notice of its failure or delay, together with a description of
its efforts to perform its obligations.
If a servicer default occurs, for as long as it has not been remedied, the
indenture trustee or noteholders representing a majority of the outstanding
principal amount of all of notes outstanding may give a notice to the servicer
and the trust, and to the indenture trustee
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if given by the noteholders, terminating all of the rights and obligations of
the servicer under the transfer and servicing agreement and the indenture
trustee may appoint a new servicer. The indenture trustee will as promptly as
possible appoint an eligible successor to the servicer. If no successor has
been appointed or has accepted the appointment by the time the servicer ceases
to act as servicer, the indenture trustee will automatically become the
successor. If the indenture trustee is unable to obtain bids from eligible
servicers and the servicer delivers a certificate of an authorized officer to
the effect that it cannot in good faith cure the servicer default which gave
rise to a transfer of servicing, and if the indenture trustee is legally unable
or is unwilling to act as successor, then the indenture trustee will give the
transferors a right of first refusal to purchase the trust assets on the
distribution date in the next calendar month at a price equal to the sum of the
amounts specified for each series outstanding in the related indenture
supplement.
The rights and obligations of the transferors will be unaffected by any
change in servicer.
In the event of the bankruptcy of the servicer, the bankruptcy court may
have the power to prevent either the indenture trustee or the noteholders from
appointing a successor servicer.
The transfer and servicing agreement provides that if within 60 days of
receipt of a termination notice the indenture trustee does not receive any bids
from eligible servicers to act as a successor servicer and receives a
certificate from the servicer to the effect that the servicer cannot in good
faith cure the servicer default, then the indenture trustee shall grant a right
of first refusal to the transferors to acquire the notes on the payment date in
the next calendar month.
The price for the notes will be equal to the sum of the amounts specified
therefor with respect to each outstanding series in the related indenture
supplement. If the transferors exercise such right of first refusal, the
transferors shall deposit the price into the collection account on that payment
date in immediately available funds. The price shall be allocated and
distributed to noteholders in accordance with the terms of the indenture and
each indenture supplement.
Evidence of Compliance
The transfer and servicing agreement provides that on or before March 31 of
each calendar year, commencing March 31, 2002, the servicer will have a firm of
independent certified public accountants furnish a report showing that, for the
prior calendar year:
. based upon the performance of agreed upon procedures, nothing has come
to their attention to cause them to believe that the servicing was not
conducted in compliance with the terms and conditions of the transfer
and servicing agreement and the indenture except for exceptions
stated; and
. based upon the application of certain agreed upon procedures, the
accounting firm has compared amounts set forth in the periodic reports
prepared by the servicer for
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the prior calendar year with the servicer's computer reports and that,
in the accounting firm's opinion, the amounts are in agreement, except
for any discrepancies disclosed.
The transfer and servicing agreement also provides that by March 31 of each
calendar year, commencing March 31, 2002, the servicer will deliver to the
owner trustee, the indenture trustee and each rating agency a certificate of an
authorized officer to the effect that the servicer has fully performed its
obligations under the transfer and servicing agreement during the preceding
year, or, if there has been a default in the performance of any of its
obligations, specifying the nature and status of default.
Assumption of a Transferor's Obligations
Notwithstanding other restrictions on the transfer of all or substantially
all of its assets, a transferor may transfer its interest in the accounts which
have been designated to the trust and its interest in the receivables in the
trust which may include all, but not less than all, of the transferor's
accounts designated to the trust and the transferor's interest in the
receivables in the accounts and the transferor's interest in the receivables in
the trust and that transferor's share of the transferor amount, collectively
referred to as the assigned assets, together with all servicing functions, if
any, and other obligations under the transfer and servicing agreement or
relating to the transactions contemplated thereby, collectively referred to as
the assumed obligations, to another entity. The entity to which the assignment
is made is called the assuming entity, and may be an entity that is not
affiliated with the transferor. Each transferor is permitted to assign, convey
and transfer assigned assets and assumed obligations to the assuming entity
without the consent or approval of the holders of any outstanding notes if the
following conditions, among others, are satisfied:
(1) the assuming entity, the transferor and the trust shall have entered
into an assumption agreement providing for the assuming entity to
assume the assumed obligations, including the obligation under the
transfer and servicing agreement to transfer the transferor's
interest in the receivables arising under the accounts and the
receivables arising under any additional accounts to the trust;
(2) all UCC filings required to perfect the interest of the trust and the
indenture trustee in the receivables arising under those accounts
shall have been duly made and copies of all UCC filings shall have
been delivered by each transferor to the trust and the indenture
trustee;
(3) if the assuming entity shall be eligible to be a debtor in a case
under the bankruptcy code, that transferor shall have delivered to
the rating agencies, with a copy to the servicer and the indenture
trustee, notice of the transfer and assumption, and that each rating
agency that has rated an outstanding series of notes confirm in
writing that the transfer will not result in a reduction or
withdrawal of its rating of any class of any outstanding series of
notes or, if the assuming entity shall not be eligible to be a debtor
under the bankruptcy code, that transferor shall have delivered to
the rating agencies notice of the transfer and assumption;
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(4) the trust and the indenture trustee shall have received an opinion of
counsel to the effect that
(a) the transfer of the receivables by the assuming entity shall
constitute either a sale of, or the granting of a security
interest in, the receivables by the assuming entity to the trust,
(b) the condition specified in clause (2) shall have been satisfied,
and
(c) if the assuming entity shall be subject to the FDIA, the interest
of the trust in the receivables should not be subject to
avoidance by the FDIC if the FDIC were to become the receiver or
conservator of the assuming entity;
(5) the transferor shall have received notice from each rating agency
then rating any outstanding notes that the transfer will not result
in a reduction or withdrawal of any existing rating for any series or
class; and
(6) the indenture trustee shall have received a tax opinion.
The transferor, the assuming entity and the trust may enter into amendments
to permit the transfer and assumption described above without the consent of
the holders of any outstanding notes. After any permitted transfer and
assumption, the assuming entity will be considered to be a "transferor" for all
purposes hereof, and that transferor will have no further liability or
obligation under the transfer and servicing agreement other than those
liabilities that arose prior to that transfer.
Amendments
The transfer and servicing agreement may be amended by the transferors, the
servicer and the trust, without the consent of the indenture trustee or the
noteholders of any series, on the following conditions:
. the transferors deliver to the trust and the indenture trustee a
certificate of an authorized officer stating that, in the transferors'
reasonable belief, the amendment will not have an Adverse Effect; and
. written confirmation from each rating agency that the amendment will
not result in a reduction or withdrawal of its rating of any
outstanding series or class.
The transfer and servicing agreement may also be amended by the servicer,
the transferors and the trust, without the consent of any noteholders but (a)
with prior notice to each rating agency, in order to cure any ambiguity, to
correct or supplement any provision in the transfer and servicing agreement or
in any amendment to the transfer and servicing agreement that may be
inconsistent with any other provision in the transfer and servicing agreement
or in any amendment to the transfer and servicing agreement or (b) upon receipt
of written confirmation from each rating agency that the amendment will not
result in a reduction or withdrawal of its rating of any outstanding series or
class in order to (i) make any other provisions with respect to matters or
questions arising under the transfer and servicing agreement or in any
amendment to the transfer and servicing agreement or (ii) prevent the transfer
of assets from being treated as a sale for accounting purposes or, if the
transferors so determine, to cause the transfer to qualify for sale treatment
under
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generally accepted accounting principles, provided that the amendment will not
have an Adverse Effect and, in the case of (b)(ii), the receipt of a tax
opinion.
The transfer and servicing agreement may also be amended by the servicer
and the trust at the direction of Conseco Bank and Credit Card Funding Corp.,
without the consent of the indenture trustee, the noteholders of any series or
the series enhancers for any series to add, modify or eliminate any provisions
necessary or advisable in order to enable the trust or any portion of the trust
to
(1) qualify as, and to permit an election to be made for the trust to be
treated as, a "financial asset securitization investment trust" under
the Internal Revenue Code of 1986, as amended and
(2) avoid the imposition of state or local income or franchise taxes on
the trust's property or its income.
The following conditions apply to the amendments described in (1) and (2)
above:
. delivery to the indenture trustee and the owner trustee of a
certificate of an authorized officer of Conseco Bank and Credit
Card Funding Corp. to the effect that the requirements under the
transfer and servicing agreement applicable to the proposed
amendments have been met;
. receipt of written confirmation from each rating agency that the
amendment will not result in a reduction or withdrawal of its
rating of any outstanding series or class; and
. the amendment must not affect the rights, duties or obligations of
the indenture trustee or the owner trustee under the transfer and
servicing agreement.
The amendments which Conseco Bank and Credit Card Funding Corp. may make
without the consent of the noteholders of any series or the series enhancers
for any series in accordance with the preceding paragraph may include, without
limitation, the addition of a sale of receivables in the trust portfolio.
The transfer and servicing agreement may also be amended by the
transferors, the servicer and the trust with prior notice to each rating agency
and the consent of noteholders representing at least 66 2/3% of the outstanding
principal amount of the notes of all series adversely affected by the
amendment. Even with consent, no amendment may occur if it:
(1) reduces the amount of, or delays the timing of:
(a) any distributions to be made to noteholders of any series;
however, changes in amortization events that decrease the
likelihood of the occurrence of those events will not be
considered delays in the timing of distributions for purposes of
this clause;
(b) deposits of amounts to be distributed; or
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(c) the amount available under any series enhancement, without the
consent of each affected noteholder;
(2) changes the definition of or the manner of calculating the interests
of any noteholder, without the consent of each affected noteholder;
(3) reduces the percentage of the outstanding principal amount of the
notes required to consent to any amendment, without the consent of
each affected noteholder; or
(4) adversely affects the rating of any series or class by any rating
agency, without the consent of noteholders representing at least 66
2/3% of the outstanding principal amount of the notes of each
affected series or class.
Description of the Receivables Purchase Agreements
Green Tree Bank and Conseco Bank have entered into a receivables purchase
agreement pursuant to which Green Tree Bank has sold and will continue to sell
receivables to Conseco Bank. Conseco Bank will transfer to the trust under the
transfer and servicing agreement substantially all of the receivables purchased
from Green Tree Bank.
In addition, Conseco Bank has also entered into a receivables purchase
agreement with Conseco Finance Servicing Corp. Under this agreement, Conseco
Bank has sold and will continue to sell receivables in specific accounts to
Conseco Finance Servicing Corp.
Conseco Finance Servicing Corp. will, on the date of issuance of the first
series of notes under the indenture, enter into a receivables purchase
agreement with Credit Card Funding Corp. Under that agreement, Conseco Finance
Servicing Corp. will transfer to Credit Card Funding Corp. receivables
purchased from Conseco Bank as described in the preceding paragraph and
receivables originated by Conseco Finance Servicing Corp. under a limited
number of contractor and commercial accounts. Credit Card Funding Corp. will
transfer to the trust under the transfer and servicing agreement the
receivables received from Conseco Finance Servicing Corp.
Sale from Green Tree Bank to Conseco Bank
Green Tree Bank and Conseco Bank have entered into a receivables purchase
agreement pursuant to which Green Tree Bank has designated to Conseco Bank
credit accounts and sold to Conseco Bank all receivables existing or arising in
those accounts. Green Tree Bank may, under the terms of the receivables
purchase agreement, designate additional accounts and sell the receivables in
those accounts to Conseco Bank. In addition to the receivables existing and
arising in the designated accounts, Green Tree Bank has sold to Conseco Bank,
all of Green Tree Bank's right, title and interest in the merchant termination
payments, if any, paid or due with respect to the purchase by a merchant or its
designee, of receivables which Green Tree Bank has sold to Conseco Bank.
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The purchase price for the receivables sold on an ongoing basis under the
agreement between Green Tree Retail Bank and Conseco Bank is to be paid within
20 days after the end of the month in which the receivables are conveyed to
Conseco Bank and is to be in the amount of 100% of the aggregate balance of the
principal receivables conveyed, as adjusted to reflect such factors as Green
Tree Bank and Conseco Bank mutually agree will result in a purchase price equal
to the fair market value of the receivables.
The agreement states that following the sale of the receivables, Green Tree
Bank will remain the owner of the accounts and Conseco Bank will be the
servicer of the accounts, but Conseco Bank shall be entitled to enter into
subservicing arrangements with Green Tree Bank or an affiliate of Conseco Bank
and that Green Tree Bank may, in turn, contract with third parties, including
affiliates, to perform the subservicing functions. Conseco Bank agrees to pay a
servicing fee to Green Tree Bank for subservicing the accounts.
Green Tree Bank makes representations and warranties concerning itself as
well as concerning the receivables. However, Green Tree Bank is not obligated
to repurchase any of the receivables in the event of a breach of
representations or warranties or for any other reason.
If an event of bankruptcy or insolvency occurs concerning Green Tree Bank,
it will stop transferring principal receivables to Conseco Bank.
Sale from Conseco Bank to Conseco Finance Servicing Corp.
Conseco Bank and Conseco Finance Servicing Corp. have entered into an
agreement relating to the sale on an ongoing basis by Conseco Bank to Conseco
Finance Servicing Corp. of receivables arising in specific accounts owned by
Conseco Bank. The accounts are private label credit card accounts or open end
credit accounts which have been used by the obligor to purchase goods from a
merchant for whom any affiliate or parent of Conseco Bank has provided
floorplan financing.
Conseco Bank sells the receivables on a weekly basis and without recourse
to Conseco Finance Servicing Corp. and each week transfers those receivables
which have arisen (i) on the creation of an account for the purpose of
financing the purchase of merchandise for which a Conseco entity had provided
floorplan financing to the merchant, (ii) on each day in that week when a
purchase was made through the account and (iii) new receivables are otherwise
created in the account.
The purchase price for the receivables is payable on the date the account
is created, a purchase is made through the account or otherwise when new
receivables are created. The purchase price is 100% of the receivables sold
plus a premium which may be adjusted from time to time.
Conseco Bank remains the owner of the accounts and the servicer of the
accounts. Conseco Finance Servicing Corp. agrees to pay a servicing fee to
Conseco Bank for servicing the accounts. Conseco Bank may contract with third
parties, including its affiliates, to perform the servicing functions.
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In addition, Conseco Bank will transfer to Conseco Finance Servicing Corp.
all of Conseco Bank's right, title and interest in the merchant termination
payments, if any, paid or due with respect to the purchase by a merchant or
its designee of receivables which Conseco Bank has sold to Conseco Finance
Servicing Corp.
Conseco Bank makes representations and warranties concerning itself as
well as concerning the receivables transferred. However, Conseco Bank is not
obligated to repurchase any of the receivables in the event of a breach of the
representations or warranties or for any other reason.
If an event of bankruptcy or insolvency occurs concerning Conseco Bank, it
will stop transferring principal receivables to Conseco Finance Servicing
Corp.
The agreement may be terminated at any time by either party upon 30 days'
notice.
Sale from Conseco Finance Servicing Corp. to Credit Card Funding Corp.
Under a receivables purchase agreement between Conseco Finance Servicing
Corp. and Credit Card Funding Corp., Conseco Finance Servicing Corp. will sell
receivables to Credit Card Funding Corp.
In addition to the receivables, Conseco Finance Servicing Corp. agrees to
transfer to Credit Card Funding Corp. all of Conseco Finance Servicing Corp.'s
right, title and interest in the merchant termination payments, if any, paid
or due with respect to the purchase by a merchant or its designee, of
receivables which have been sold under the agreement.
The purchase price for the receivables is 100% of the aggregate balance of
principal receivables transferred, as adjusted to reflect such factors as
Conseco Finance Servicing Corp. and Credit Card Funding Corp. mutually agree
will result in a purchase price determined to be the fair market value of the
receivables.
Conseco Finance Servicing Corp. represents and warrants in the receivables
purchase agreement that, among other things,
(i) as of the cut-off date for the accounts designated at the time of
issuance of the initial series of notes and as of the related cut-off
date with respect to accounts designated at a later time, the list
delivered to Credit Card Funding Corp. is an accurate and complete
listing in all material respects of all the accounts the receivables
in which were transferred under the agreement;
(ii) each receivable has been conveyed free and clear of any encumbrance;
(iii) all required authorizations, consents, orders or approvals of or
registrations with any governmental authority required in
connection with the conveyance of the receivables to Credit Card
Funding Corp. have been obtained and are in full force and effect;
(iv) the transfer constitutes a valid sale, transfer and assignment of
the receivables or a grant of a first priority perfected security
interest in the receivables;
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(v) on the cut-off date for the initial accounts designated under the
agreement and the cut-off date for each addition of accounts under
the agreement, each account to which such cut-off date applies is an
eligible account;
(vi) as of the date of the creation of any new receivable in any account
designated under the receivables purchase agreement, that receivable
is an eligible receivable; and
(vii) no selection procedures believed by Conseco Finance Servicing Corp.
to be materially adverse to the interests of the noteholders were
used in selecting the accounts.
In the event any representation or warranty is not true and correct in any
material respect with respect to any receivable or the related account and as a
result of such breach Credit Card Funding Corp. is required to accept
reassignment of receivables pursuant to the transfer and servicing agreement,
Conseco Finance Servicing Corp. shall accept reassignment of those ineligible
receivables and pay Credit Card Funding Corp. for those ineligible receivables.
If a bankruptcy or insolvency event occurs concerning Conseco Finance
Servicing Corp., then Conseco Finance Servicing Corp. will stop transferring
principal receivables to Credit Card Funding Corp.
Note Ratings
Any rating of the notes by a rating agency will indicate:
. its view on the likelihood that noteholders will receive required
interest and principal payments; and
. its evaluation of the receivables and the availability of any credit
enhancement for the notes.
Among the things a rating will not indicate are:
. the likelihood that interest or principal payments will be paid on a
scheduled date;
. the likelihood that an amortization event will occur;
. the likelihood that a U.S. withholding tax will be imposed on non-U.S.
noteholders;
. the marketability of the notes;
. the market price of the notes; or
. whether the notes are an appropriate investment for any purchaser.
A rating will not be a recommendation to buy, sell or hold the notes. A
rating may be lowered or withdrawn at any time by a rating agency.
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The transferors will request a rating of the notes offered by this
prospectus and the accompanying prospectus supplement from at least one rating
agency. Rating agencies other than those requested could assign a rating to the
notes and, if so, that a rating could be lower than any rating assigned by a
rating agency chosen by the transferor.
Material Legal Aspects of the Receivables
Certain Matters Relating to the Transfer of the Receivables
Each of Green Tree Bank and Conseco Finance Servicing Corp. will represent
and warrant that its transfer of receivables is an absolute sale of all of
those receivables. In addition, Conseco Bank will represent and warrant that
its transfer of receivables to Conseco Finance Servicing Corp. is an absolute
sale of those receivables. Each of Conseco Bank and Credit Card Funding Corp.
will represent and warrant that its transfer of receivables to the trust is
either (1) an absolute sale of those receivables or (2) the grant of a security
interest in those receivables. For a description of the trust's rights if these
representations and warranties are not true, see "Description of the Transfer
and Servicing Agreement--Representations and Warranties of the Transferors."
Each of Green Tree Bank, Conseco Bank, Conseco Finance Servicing Corp., and
Credit Card Funding Corp. will take steps under the UCC to perfect its
transferee's interest in the receivables. The UCC, however, may not govern
these transfers, and if some other action is required under applicable law and
has not been taken, payments to you could be delayed or reduced.
Each of Green Tree Bank, Conseco Bank, Conseco Finance Servicing Corp., and
Credit Card Funding Corp. will represent, warrant, and covenant that its
transfer of receivables is perfected and free and clear of the lien or interest
of any other entity, except the indenture trustee. If this is not true, the
trust's interest in the receivables could be impaired, and payments to you
could be delayed or reduced. For instance,
. a prior or subsequent transferee of receivables could have an interest
in the receivables superior to the interest of the trust;
. a tax, governmental, or other nonconsensual lien that attaches to the
property of any of these entities could have priority over the
interest of the trust in the receivables;
. the administrative expenses of a conservator, receiver, or bankruptcy
trustee for any of these entities could be paid from collections on
the receivables before the trust receives any payments; and
. if insolvency proceedings were commenced by or against Conseco Bank,
or if certain time periods were to pass, the trust may lose its
perfected interest in collections held by Conseco Bank and commingled
with its other funds.
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Certain Matters Relating to Conservatorship, Receivership, and Bankruptcy
Green Tree Bank is chartered as a South Dakota banking corporation and is
regulated and supervised by the South Dakota Department of Commerce and
Regulation, which is authorized to appoint the Federal Deposit Insurance
Corporation (the "FDIC") as conservator or receiver for Green Tree Bank if
certain events occur relating to Green Tree Bank's financial condition or the
propriety of its actions.
Conseco Bank is chartered as a Utah industrial loan corporation and is
regulated and supervised by the Utah Department of Financial Institutions,
which is authorized to appoint the FDIC as conservator or receiver for Conseco
Bank if similar events occur relating to Conseco Bank. In addition, the FDIC
could appoint itself as conservator or receiver for Green Tree Bank or Conseco
Bank.
The Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (the "FDIA"), provides that
certain agreements and transfers of property by a financial institution cannot
be enforced against the FDIC. Opinions and policy statements issued by the FDIC
suggest that, because of the manner in which these transactions are structured,
the FDIC would respect the transfer of receivables by each of Green Tree Bank
and Conseco Bank. Nevertheless, if the FDIC were to assert a contrary position,
or were to require the trust and the indenture trustee to go through the
administrative claims procedure established by the FDIC in order to obtain
payments on the receivables, or were to request a stay of any actions by the
trust or the indenture trustee to enforce the related receivables purchase
agreement or the notes against Green Tree Bank or Conseco Bank, delays in
payments on the notes and possible reductions in the amounts of those payments
could occur.
In addition, the FDIC as conservator or receiver for Green Tree Bank or
Conseco Bank could repudiate the related receivables purchase agreement. The
FDIA would limit the damages for any such repudiation to "actual direct
compensatory damages" determined as of the date that the FDIC was appointed as
conservator or receiver. The FDIC, moreover, could delay its decision whether
to repudiate the related receivables purchase agreement for a reasonable period
following its appointment as conservator or receiver. Therefore, if the FDIC as
conservator or receiver for Green Tree Bank or Conseco Bank were to repudiate
the related receivables purchase agreement, the amount payable to you could be
lower than the outstanding principal and accrued interest on the notes, thus
resulting in losses to you.
If Conseco Finance, Conseco Finance Servicing Corp., or any of their
affiliates were to become a debtor in a bankruptcy case, the court could
exercise control over the receivables on an interim or a permanent basis.
Although steps have been taken to minimize this risk, Conseco Finance, Conseco
Finance Servicing Corp., or any of their affiliates as debtor-in-possession, or
another interested party, could argue that--
. Conseco Finance Servicing Corp. did not sell the receivables to Credit
Card Funding Corp. but instead borrowed money from Credit Card Funding
Corp. and granted a security interest in the receivables;
97
. Credit Card Funding Corp. and its assets (including the receivables)
should be substantively consolidated with the bankruptcy estate of
Conseco Finance Servicing Corp. or any of its affiliates; or
. the receivables are necessary for Conseco Finance Servicing Corp. or
any of its affiliates to reorganize.
If these or similar arguments were made, whether successfully or not,
payments to you could be delayed or reduced.
If Conseco Finance, Conseco Finance Servicing Corp., or any of their
affiliates were to enter bankruptcy, moreover, the indenture trustee and the
noteholders could be prohibited from taking any action to enforce the related
receivables purchase agreement against Conseco Finance Servicing Corp., or its
affiliates without the permission of the bankruptcy court. Noteholders also may
be required to return payments already received if Conseco Finance or Conseco
Finance Servicing Corp. were to become a debtor in a bankruptcy case.
Regardless of any ruling made by a court in the bankruptcy of Conseco Finance,
Conseco Finance Servicing Corp., or any of their affiliates, the fact that a
bankruptcy case has been commenced could have an adverse effect on the
liquidity and value of the notes.
In addition, regardless of the terms of any receivables purchase agreement,
the transfer and servicing agreement, or the indenture, and regardless of the
instructions of those authorized to direct the indenture trustee's actions, the
FDIC as conservator or receiver for Green Tree Bank or Conseco Bank or a court
overseeing the bankruptcy case of Conseco Finance Servicing Corp., or any of
their affiliates may have the power (i) to prevent or require the commencement
of an early amortization period or early accumulation period, (ii) to prevent,
limit, or require the early liquidation of receivables and termination of the
trust, or (iii) to require, prohibit, or limit the continued transfer of
receivables. Futhermore, regardless of the terms of the transfer and servicing
agreement, the FDIC or a bankruptcy court (i) could prevent the indenture
trustee or the noteholders from appointing a successor servicer or (ii) could
authorize the servicer to stop servicing the receivables. If any of these
events were to occur, payments to you could be delayed or reduced.
Consumer Protection Laws
The relationship of the consumer and the provider of consumer credit is
extensively regulated by federal and state consumer protection laws. With
respect to credit accounts issued by Conseco Bank or Green Tree Bank, the most
significant federal laws include the Federal Truth-in-Lending, Equal Credit
Opportunity, Fair Credit Reporting and Fair Debt Collection Practices Acts.
These statutes impose various disclosure requirements either before or when an
account is opened, or both, and at the end of monthly billing cycles, and, in
addition, limit account holder liability for unauthorized use, prohibit
particular discriminatory practices in extending credit, and regulate practices
followed in collections. In addition, account holders are entitled under these
laws to have payments and credits applied to the revolving credit account
promptly and to request prompt resolution of billing errors.
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Congress and the states may enact new laws and amendments to existing laws to
regulate further the consumer revolving credit industry.
The trust may be liable for violations of consumer protection laws that
apply to the receivables, either as assignee from a transferor with respect to
obligations arising before transfer of the receivables to the trust or as the
party directly responsible for obligations arising after the transfer.
In addition, an account holder may be entitled to assert those violations
by way of set-off against the obligation to pay the amount of receivables
owing.
All receivables that were not created in compliance in all material
respects with the requirements of applicable consumer protection laws, if
noncompliance has an Adverse Effect, will be reassigned to the applicable
transferor. The servicer has also agreed in the transfer and servicing
agreement to indemnify the trust, among other things, for any liability arising
from violations described in the preceding sentence. For a discussion of the
trust's rights if the receivables were not created in compliance in all
material respects with applicable laws, see "The Transfer and Servicing
Agreement--Representations and Warranties of the Transferor" in this
prospectus.
Application of federal and state bankruptcy and debtor relief laws would
affect the interests of the noteholders if those laws result in any receivables
being charged-off as uncollectible. See "Description of the Notes--Defaulted
Receivables; Investor Charge-Offs" in this prospectus.
Material Federal Income Tax Consequences
General
The following summary describes the material United States federal income
tax consequences of the purchase, ownership and disposition of notes offered by
this prospectus. Additional federal income tax considerations relevant to a
particular series may be set forth in the accompanying prospectus supplement.
The following summary is based on the Internal Revenue Code of 1986, as
amended as of the date hereof, and existing final, temporary and proposed
Treasury regulations, revenue rulings and judicial decisions, all of which are
subject to changes, which may be retroactive. The summary is addressed only to
original purchasers of the notes, deals only with notes held as capital assets
within the meaning of Section 1221 of the Code and, except as specifically set
forth below, does not address tax consequences of holding notes that may be
relevant to investors in light of their own investment circumstances or their
special tax situations, such as partnerships, particular financial
institutions, tax-exempt organizations, life insurance companies, dealers in
securities, non-U.S. persons or investors holding the notes as part of a
conversion transaction, as part of a hedge or hedging transaction or as a
position in a straddle for tax purposes. Further, this discussion does not
address alternative minimum tax consequences or any tax consequences to holders
of interests in a noteholder.
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Dorsey & Whitney LLP, counsel to the issuer, is delivering its opinion that
the following summary of federal income tax consequences is correct in all
material respects. Counsel to the issuer is also delivering its opinion
regarding certain federal income tax matters discussed below. The opinion of
counsel specifically addresses only those issues specifically identified below
as being covered by that opinion. An opinion of counsel is not binding on the
IRS or the courts, and no ruling on any of the issues discussed below will be
sought from the IRS. The opinions of counsel are subject to finalization of
documents, including those which are exhibits to the registration statement of
which this prospectus forms a part, in a form which is satisfactory to counsel
and which is not inconsistent with the descriptions in the body of this
prospectus and the related prospectus supplement. Moreover, there are no
authorities on similar transactions involving interests issued by an entity
with terms similar to those of the notes described in this prospectus.
Accordingly, persons considering the purchase of notes are encouraged to
consult their own tax advisors with regard to the United States federal income
tax consequences of an investment in the notes and the application of United
States federal income tax laws, as well as the laws of any state, local or
foreign taxing jurisdictions, to their particular situations.
Treatment of the Trust as an Entity not Subject to Tax
For each series of notes, counsel will deliver its opinion that the trust
will not be an association or publicly traded partnership taxable as a
corporation for federal income tax purposes. As a result, in the opinion of
counsel, the trust itself will not be subject to federal income tax. This
opinion will be based on the assumption that the terms of the indenture,
supplemental indenture and related documents will be complied with. There are
no cases or IRS rulings on transactions involving a trust with terms similar to
those of the notes and the transferor interests. As a result, the IRS may
disagree with all or a part of this discussion.
If the trust were taxable as a corporation for federal income tax purposes,
the trust would be subject to corporate income tax on its taxable income. The
trust's taxable income would include all its income on the receivables,
possibly reduced by its interest expense on the notes. Any corporate income tax
could materially reduce cash available to make payments on the notes.
Tax Consequences to Noteholders
Treatment of the Notes as Indebtedness. The issuer will agree, and the
noteholders will agree by their purchase of notes offered by this prospectus,
to treat those notes as debt for federal income tax purposes. Counsel will
deliver its opinion that the notes offered by this prospectus will be
classified as debt for federal income tax purposes. The discussion below
assumes that the notes will be characterized as debt for federal income tax
purposes.
Interest Income on the Notes. Interest on the notes will be taxable as
ordinary interest income when received by noteholders utilizing the cash-basis
method of accounting and when accrued by noteholders utilizing the accrual
method of accounting. Under the applicable regulations, the notes would be
considered issued with original issue discount if the stated redemption price
at maturity of a note, generally equal to its principal amount as
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of the date of issuance plus all interest other than qualified stated interest
payable prior to or at maturity, exceeds the original issue price. In this
case, original issue price will be the initial offering price at which a
substantial amount of the notes are sold to the public. Any OID would be
considered de minimis under the OID regulations if it does not exceed 1/4% of
the stated redemption price at maturity of a note multiplied by the weighted
average life of the note (determined by taking into account only the number of
complete years following issuance until payment is made for any partial
principal payments). It is anticipated that the notes will not be considered
issued with more than de minimis OID. Under the OID regulations, an owner of a
note issued with a de minimis amount of OID must include the OID in income, on
a pro rata basis, according to such owner's method of tax accounting.
While it is not anticipated that the notes will be issued with more than de
minimis OID, it is possible that they will be so issued or will be deemed to be
issued with OID. This deemed OID could arise, for example, if interest payments
on the notes are not deemed to be qualified stated interest because the notes
do not provide for default remedies ordinarily available to holders of debt
instruments or do not contain terms and conditions that make the likelihood of
late payment or nonpayment a remote contingency. Based upon existing authority,
the trust will treat interest payments on the notes as qualified stated
interest under the OID regulations. If the notes are issued or are deemed to be
issued with OID, all or a portion of the taxable income to be recognized with
respect to the notes would be includible in the income of noteholders as OID.
Any amount treated as OID would not, however, be includible again when the
amount is actually received. If the yield on a class of notes were not
materially different from its coupon, this treatment would have no significant
effect on noteholders using the accrual method of accounting. However, cash
method noteholders may be required to report income for the notes in advance of
the receipt of cash attributable to that income.
A noteholder must include OID in income as interest over the term of the
notes under a constant yield method. In general, OID must be included in income
in advance of the receipt of cash representing that income. Each noteholder is
encouraged to consult its own tax advisor regarding the impact of the OID rules
if the notes are issued with OID.
Market Discount. The notes, whether or not issued with original issue
discount, will be subject to the market discount rules of Section 1276 of the
Internal Revenue Code. In general, these rules provide that if a noteholder
purchases the note at a market discount, and thereafter recognizes gain upon a
disposition, the lesser of the gain or the accrued market discount will be
taxed as ordinary interest income. Market discount is defined for this purpose
as a discount from the sum of the original issue price of the note plus any
accrued original issue discount that exceeds a de minimis amount specified in
the Internal Revenue Code. Market discount also will be recognized and taxable
as ordinary interest income as payments of principal are received on the notes
to the extent that the amount of the payments does not exceed the accrued
market discount. Generally, the accrued market discount will be the total
market discount on the note multiplied by a fraction, the numerator of which is
the number of days the noteholder held the note and the denominator of which is
the number of days after the date the noteholder acquired the note until and
including its
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maturity date. The noteholder may elect, however, to determine accrued market
discount under the constant-yield method, which election shall not be revoked
without the consent of the IRS.
Limitations imposed by the Internal Revenue Code which are intended to
match deductions with the taxation of income may defer deductions for interest
on indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a note with accrued market discount. A noteholder may elect
to include market discount in gross income as it accrues and, if the noteholder
makes such an election, will be exempt from this rule. The adjusted basis of a
note subject to the election will be increased to reflect market discount
included in gross income, thereby reducing any gain or increasing any loss on a
sale or taxable disposition. Any election to include market discount in gross
income as it accrues applies to all debt instruments with market discount
acquired by the noteholder on or after the first day of the first taxable year
to which the election applies and is irrevocable without the consent of the
IRS.
Amortizable Bond Premium. In general, if a noteholder purchases a note at a
premium (i.e., an amount in excess of the amount payable upon the maturity
thereof), the noteholder will be considered to have purchased the note with
amortizable bond premium equal to the amount of the excess. The noteholder may
elect to deduct the amortizable bond premium as it accrues under a constant-
yield method over the remaining term of the note. The noteholder's tax basis in
the note will be reduced by the amount of the amortizable bond premium
deducted. Amortizable bond premium for a note will be treated as an offset to
interest income on that note, and a noteholder's deduction for amortizable bond
premium will be limited in each year to the amount of interest income derived
for that note for that year. Any election to deduct amortizable bond premium
shall apply to all debt instruments (other than instruments the interest on
which is excludible from gross income) held by the noteholder at the beginning
of the first taxable year to which the election applies or thereafter acquired
and is irrevocable without the consent of the IRS. Bond premium on a note held
by a noteholder who does not elect to deduct the premium will decrease the gain
or increase the loss otherwise recognized on the disposition of the note.
Disposition of Notes. If a noteholder sells a note, the noteholder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the noteholder's adjusted tax basis in the note. A
taxable exchange of a note could also occur as a result of the transferor's
substitution of money or investments for receivables. See "Description of the
Notes--Defeasance" in this prospectus. The adjusted tax basis of a note to a
particular noteholder generally will equal the noteholder's cost for the note,
increased by any market discount, OID and gain previously included by that
noteholder in income for the note and decreased by principal payments
previously received by that noteholder and the amount of bond premium
previously amortized for the note. Any gain or loss will be capital gain or
loss if the note was held as a capital asset, except for gain representing
accrued interest and accrued market discount not previously included in income,
and will be short-term or long-term capital gain or loss depending upon whether
the note was held for more or less than one year. Capital losses generally may
be used only to offset capital gains.
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Foreign Holders. Generally, interest paid to a noteholder who is a
nonresident alien individual or a foreign corporation and who does not hold the
note in connection with a United States trade or business will be treated as
portfolio interest and will be exempt from the 30% withholding tax. The foreign
noteholder will accordingly be entitled to receive interest payments on the
notes free of United States federal income tax withholding provided that the
noteholder satisfies the requirements set forth in the Internal Revenue Code
concerning the portolio interest exemption, including the requirement that the
noteholder provides a statement on IRS Form W-8BEN or other applicable form
depending on the noteholder's individual circumstances, certifying under
penalty of perjury that the noteholder is not a United States person. Such
statement shall also provide the name and place of permanent residence of the
noteholder, the noteholder's Taxpayer Identification Number (if required), and
any other information as may be required by such form or applicable treasury
regulations. The noteholder is required to provide this statement prior to any
payment and periodically thereafter.
Tax Administration and Reporting. The indenture trustee will furnish to
each noteholder with each distribution a statement showing the amount of the
distribution allocable to principal and to interest. Information reports will
be made annually to the IRS and to holders of record that are not excepted from
the reporting requirements regarding interest paid or accrued on the notes and
original issue discount, if any, accruing on the notes.
Backup Withholding. In general, a 31% backup withholding tax will apply
with respect to payments to United States noteholders of interest (including
original issue discount), principal and disposition proceeds on the notes only
if the United States noteholder fails to provide a correct taxpayer
identification number, fails to report properly interest or dividend income or
otherwise fails to comply with applicable certification requirements.
Information reporting and the 31% backup withholding tax may apply to
payments on the notes made to nonresident alien individuals and foreign
corporations unless they certify their status as a foreign person on Form W-
8BEN or other applicable form as required by the Internal Revenue Service or
otherwise establish an exemption. Treasury regulations that took effect January
1, 2001 provide presumptions under which a foreign holder is subject to
information reporting and backup withholding unless the issuer or its paying
agent receives the required certification from that holder. Because the
regulations are fact-specific and complex, noteholders are urged to consult
their own tax advisors regarding withholding, backup withholding and
information reporting rules applicable to payments received by them on a note.
Possible Alternative Treatment of the Notes. If, contrary to the opinion of
counsel, the IRS were to successfully assert that the notes offered by this
prospectus do not represent debt for federal income tax purposes, the notes
might be treated as equity interests in the trust. If so treated, the trust
could be treated as a publicly traded partnership not taxable as a corporation.
Treatment of the notes as equity interests in that type of partnership could
have adverse tax consequences to some noteholders. For example, in that case
income to foreign holders generally would be subject to federal income tax and
federal tax return filing and
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withholding requirements, income to some tax-exempt entities would be unrelated
business taxable income and individual holders might be subject to some
limitations on their ability to deduct their share of trust expenses.
If, contrary to the opinion of counsel, the IRS recharacterized the notes
as equity interests in an association taxable as a corporation or a publicly
traded partnership taxable as a corporation, the trust would be subject to
corporate income tax on its taxable income. Imposition of a corporate level
income tax could materially reduce the cash available to make payments on the
notes, as discussed above in the section entitled "--Treatment of the Trust as
an Entity not Subject to Tax." In addition, treatment of the notes as equity
interests in an association taxable as a corporation or in a publicly traded
partnership taxable as a corporation could have adverse tax consequences to
some noteholders. For example, in that case a foreign noteholder would
generally be subject to withholding on the gross amount of payments on the
notes, to the extent they are treated as dividends, at the rate of 30% or lower
applicable treaty rate.
The United States federal income tax discussion set forth above is included
for general information only, may not be applicable depending upon a holder's
particular tax situation and does not purport to address the issues described
with the degree of specificity that would be provided by a taxpayer's own tax
advisor. Prospective purchasers should consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the notes and the possible effects of changes in federal tax
laws.
State and Local Tax Consequences
The discussion above does not address the taxation of the trust or the tax
consequences of the purchase, ownership or disposition of an interest in the
notes under any state or local tax law. Each investor should consult its own
tax adviser regarding state and local tax consequences.
ERISA Considerations
Subject to the considerations and restrictions described under this heading
and in the accompanying prospectus supplement, the notes may be purchased by,
on behalf of, or with "plan assets" of any employee benefit or other plan that
is subject to ERISA, or Section 4975 of the Internal Revenue Code of 1986, as
amended (each, a "Plan"). Any Plan fiduciary that proposes to cause a Plan to
acquire any of the notes should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Certificates. See "ERISA Considerations" in the accompanying
prospectus supplement.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans from
engaging in specified transactions involving "plan assets" with persons that
are "parties in interest" under ERISA or "disqualified persons" under the Code
(collectively, "Parties in Interest") with respect to the Plan. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and Section 4975 of the Code for such persons, unless a
statutory, regulatory or administrative exemption is available.
104
Some employee benefit plans, such as governmental plans (as defined in
Section 3(32) of ERISA) and most church plans (as defined in Section 3(33) of
ERISA), are not subject to the requirements of ERISA or Section 4975 of the
Code. Accordingly, assets of such plans may be invested in the notes without
regard to the ERISA considerations described herein, subject to the provisions
or other applicable federal and state law. However, any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Fiduciaries or other persons contemplating purchasing the notes on behalf
or with "plan assets" of any Plan should consult their own counsel regarding
whether the trust assets represented by the notes would be considered "plan
assets," the consequences that would apply if the trust's assets were
considered "plan assets," and the availability of exemptive relief from the
prohibited transaction rules.
Finally, Plan fiduciaries and other Plan investors should consider the
fiduciary standards under ERISA or other applicable law in the context of the
Plan's particular circumstances before authorizing an investment of a portion
of the Plan's assets in the notes. Accordingly, among other factors, Plan
fiduciaries and other Plan investors should consider whether the investment
(1) satisfies the diversification requirement of ERISA or other
applicable law,
(2) is in accordance with the Plan's governing instruments, and
(3) is prudent in light of the "Risk Factors" and other factors discussed
in the accompanying prospectus supplement.
Plan of Distribution
Subject to the terms and conditions set forth in an underwriting agreement
to be entered into with respect to each series of notes, the transferors will
cause the notes to be sold by the trust to each of the underwriters named in
that underwriting agreement and in the accompanying prospectus supplement, and
each of those underwriters will severally agree to purchase from the trust, the
principal amount of notes set forth in that underwriting agreement and in the
accompanying prospectus supplement, subject to proportional adjustment on the
terms and conditions set forth in the related underwriting agreement in the
event of an increase or decrease in the aggregate amount of notes offered by
this prospectus and by the accompanying prospectus supplement.
In each underwriting agreement, the several underwriters will agree,
subject to the terms and conditions set forth in that underwriting agreement,
to purchase all the notes offered by this prospectus and by the accompanying
prospectus supplement if any of those notes are purchased. In the event of a
default by any underwriter, each underwriting agreement will provide that, in
particular circumstances, purchase commitments of the nondefaulting
underwriters may be increased or the underwriting agreement may be terminated.
Each prospectus supplement will set forth the price at which each series of
notes or class being offered initially will be offered to the public and any
concessions that may be offered to dealers participating in the offering of
those notes. After the initial public offering, the public offering price and
such concessions may be changed.
105
Each underwriting agreement will provide that the transferors will
indemnify the related underwriters against some liabilities, including
liabilities under the Securities Act of 1933, as amended.
The place and time of delivery for any series of notes in respect of which
this prospectus is delivered will be set forth in the accompanying prospectus
supplement.
Reports to Noteholders
The servicer will prepare monthly and annual reports that will contain
information about the trust. The financial information contained in the reports
will not be prepared in accordance with generally accepted accounting
principles. Unless and until definitive notes are issued, the reports will be
sent to Cede & Co. which is the nominee of The Depository Trust Company and the
registered holder of the notes. No financial reports will be sent to you. See
"Description of the Notes--Book-Entry Registration," "--Reports to Noteholders"
and "The Transfer and Servicing Agreement--Evidence of Compliance" in this
prospectus.
Where You Can Find More Information
We filed a registration statement relating to the notes with the SEC. This
prospectus is part of the registration statement, but the registration
statement includes additional information.
The servicer, on behalf of the trust will file with the SEC all required
annual, monthly and special SEC reports and other information about the trust.
You may read and copy any reports, statements or other information the
servicer files on behalf of the trust at the SEC's public reference room in
Washington, D.C. You can request copies of these documents, upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at (800) SEC-0330
for further information on the operation of the public reference rooms. The SEC
filings relating to the trust are also available to the public on the SEC
Internet site (http://www.sec.gov).
The SEC allows us to "incorporate by reference" information filed with the
SEC on behalf of the trust, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus.
Information filed later with the SEC, on our behalf, will automatically update
the information in this prospectus. In all cases, you should rely on the later
information over different information included in this prospectus or the
accompanying prospectus supplement. We incorporate by reference any future
annual, monthly and special SEC reports and proxy materials filed by or on
behalf of the trust until we terminate our offering of the notes.
As a recipient of this prospectus, you may request a copy of any document
incorporated by reference, except exhibits to the documents, unless the
exhibits are specifically incorporated by reference, at no cost, by writing or
calling us at: Tammy Hill, Senior Vice President, Investor Relations, 11825
Pennsylvania Street, Carmel, Indiana, 46032, telephone number (317) 817-6100.
106
Glossary
"addition date" means:
(1) with respect to additional accounts, the date from and after which
such additional accounts are to be included as accounts; and
(2) with respect to participation interests, the date from and after
which such participation interests are to be included as assets of
the trust.
"Adverse Effect" means any action, the result of which:
(1) causes an amortization event, reinvestment event or an event of
default; or
(2) materially and adversely effects the amount or timing of payments to
be made to the noteholders of any series or class.
"amortization event" means either a trust amortization event or a series
amortization event.
"Clearstream Luxembourg" means Clearstream Banking, societe anonyme.
"Code" means the Internal Revenue Code of 1986, as amended.
"controlled accumulation period" means the period during which principal is
accumulated in specified amounts per month and paid on an expected principal
payment date. The controlled accumulation period will commence at the close of
business on the date or dates specified in the prospectus supplement and ends
when any of the following occur:
(1) the notes of that series or class are paid in full;
(2) the early amortization or early accumulation period starts; or
(3) the series final maturity date.
"controlled amortization period" means the period during which principal is
paid in fixed amounts at scheduled intervals. The controlled amortization
period will commence at the close of business on the date or dates specified in
the prospectus supplement and ends when any of the following occur:
(1) the notes of that series or class are paid in full;
(2) the early amortization or early accumulation period starts; or
(3) the series final maturity date.
107
"credit enhancement percentage" means the percentage interest of credit
enhancement providers.
"cut-off date" means May 1, 2001.
"defaulted amounts" means, for any monthly period, an amount equal to:
(1) the amount of principal receivables which became defaulted
receivables in such monthly period, minus
(2) the amount of any defaulted receivables of which the transferor or
the servicer became obligated to accept reassignment or assignment,
as described under "Description of the Transfer and Servicing
Agreement--Representations and Warranties of the Transferors--
Regarding the Accounts and the Receivables."
"definitive notes" means notes issued in fully registered, certificated
form.
"determination date" means the earlier of the third business day and the
fifth calendar day, or if the fifth calendar day is not a business day the
preceding business day, preceding the fifteenth day of each calendar month.
"depositaries" Citibank, N.A., as depositary for Clearstream Luxembourg,
and Euroclear Bank S.A./N.V., as depositary for Euroclear.
"discount option" means the transferors' option to designate a specified
portion of principal receivables to be treated as finance charge receivables.
"discount option receivables" means any principal receivables designated by
the transferors to be treated as finance charge receivables.
"discount percentage" means the percentage designated by the transferors by
which the principal receivables will be discounted, which percentage may be a
fixed or variable percentage.
"DTC" The Depository Trust Company.
"early accumulation period" means the period following an amortization
event during which principal is accumulated in varying amounts each month based
on the amount of principal receivables collected. The early accumulation period
for a series or class starts on the day an amortization event occurs and ends
when any of the following occurs:
(1) the notes of that series or class are paid in full;
(2) an early amortization period for that series begins;
(3) the series final maturity date; or
(4) the trust termination date.
"early amortization period" means the period following an amortization
event during which principal is paid in varying amounts each month based on the
amount of principal
108
receivables collected. The early amortization period for a series or class
starts on the day an amortization event occurs and ends when any of the
following occurs:
(1) the notes of that series or class are paid in full;
(2) the series final maturity date; or
(3) the trust termination date.
"eligible account" has the meaning set forth on page 78 of this prospectus.
"eligible institution" means:
(1) (a) a depository institution, which may include the owner trustee or
the indenture trustee;
(b) an entity organized under the laws of the United States or any
one of the states of the United States, including the District of
Columbia, or any domestic branch of a foreign bank; and
(c) which at all times is a member of the FDIC and has either a long-
term unsecured debt rating or a certificate of deposit rating
acceptable to each rating agency selected by the transferors to
rate a series or class of notes; or
(2) any other institution acceptable to each rating agency selected by
the transferors to rate a series or class of notes.
"eligible investments" means securities, instruments, security entitlements
or other investment property which evidence:
(1) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America;
(2) demand deposits in, time deposits in, certificates of deposit, having
original maturities of no more than 365 days, of, bankers acceptances
issued by or federal funds sold by any, depository institutions or
trust companies, including the indenture trustee or any affiliate of
the indenture trustee, incorporated under the laws of the United
States or any state of the United States, including the District of
Columbia, or domestic branches of foreign banks, and subject to
supervision and examination of federal or state banking or depository
institution authorities; provided that at the time of the trust's
investment or contractual commitment to invest, the short-term debt
rating of that depository institution or trust company shall be in
the highest rating category of Standard & Poor's and Moody's and in
the highest rating category of Fitch, if the institution or trust
company is rated by Fitch;
(3) commercial paper, having original or remaining maturities of no more
than 30 days, having, at the time of the trust's investment or
contractual commitment to invest, a rating in the highest rating
category of Standard & Poor's and Moody's and the highest rating
category of Fitch, if rated by Fitch;
(4) demand deposits, time deposits and certificates of deposit which are
fully insured by the FDIC having, at the time of the trust's
investment, a rating in the highest rating category of Standard &
Poor's and Moody's and the highest rating category of Fitch, if rated
by Fitch;
109
(5) bankers' acceptances, having original maturities of no more than 365
days, issued by any depository institution or trust company referred
to in clause (2) above;
(6) money market funds having, at the time of the trust's investment, a
rating in the highest rating category of Standard & Poor's and
Moody's and the highest rating category of Fitch, if rated by Fitch,
including funds for which the indenture trustee or any of its
affiliates is investment manager or advisor;
(7) time deposits, having maturities not later than the next payment
date, other than those referred to in clause (4) above, with a person
whose commercial paper has a credit rating satisfactory to Standard &
Poor's and Moody's; or
(8) any other investment upon receipt of written confirmation from each
rating agency that the additional form of investment will not result
in a reduction or withdrawal of its rating of any outstanding series
or class.
"eligible receivable" has the meaning set forth on page 79 of this
prospectus.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"expected principal payment date" has the meaning set forth in the
prospectus supplement.
"events of default" has the meaning set forth on page 67 of this
prospectus.
"finance charge receivables" are periodic finance charges and other
amounts charged to accounts, including cash advance fees, late fees and annual
membership fees, if any plus any other amounts designated by the transferors
to be included as finance charge receivables including but not limited to
interest and investment earnings on the collection account and the special
funding account to the extent required. Finance charge receivables will
include the discount option receivables and will include the interest portion
of any participation interests. Finance charge receivables will also include
recoveries with respect to receivables previously charged off as
uncollectible. Finance charge receivables will not include insurance premiums
charged to the accounts.
"foreign person" means any holder of a note who, as to the United States,
is a nonresident alien individual or a foreign corporation.
"funding period" is the period from the series' closing date to the
earlier of:
(1) the date the series' invested amount equals the principal amount of
that series of notes; and
(2) the date specified in the related prospectus supplement; provided
that the funding period shall not exceed one year.
"invested amount" for a series on any date will be equal to:
(1) the initial outstanding principal amount of that series of notes as
of the related closing date for that series; minus
(2) the amount of principal paid to the related noteholders prior to that
date; minus
(3) the amount of unreimbursed investor charge-offs and other reductions
in the invested amount as described in the prospectus supplement with
respect to that series prior to that date.
110
If so specified in the prospectus supplement relating to any series of
notes, under limited circumstances the invested amount may be further adjusted
by funds on deposit in any specified account, and any other amount specified in
the accompanying prospectus supplement.
"investor charge-offs" means with respect to any series the excess of the
investor default amount for that series over the amount available to reimburse
such investor default amount described in the prospectus supplement.
"investor percentage" means for any class or series of notes, the investor
percentage calculated in the related prospectus supplement.
"note owner" means the beneficial owner of a note.
"participations" are undivided interests in a pool of assets primarily
consisting of receivables arising under credit card accounts.
"paying agent" means the indenture trustee, acting as the initial paying
agent, together with any successor to the indenture trustee acting in that
capacity, and any entity specified in an indenture supplement to act in that
capacity for the related series.
"principal receivables" means all receivables other than finance charge
receivables, and receivables which have been charged off as uncollectible in
accounts which have been designated to the trust. Discount option receivables
are included as finance charge receivables and principal receivables are
accordingly reduced by the amount of the discount option receivables.
"qualified account" means either a segregated trust account established
with the corporate trust department of a depository institution organized under
the laws of the United States or any one of the states thereof, including the
District of Columbia (or any domestic branch of a foreign bank), and acting as
a trustee for funds deposited in such account, so long as any of the unsecured,
unguaranteed senior debt securities of such depository institution shall have a
credit rating from each Rating Agency in one of its generic credit rating
categories that signifies investment grade.
"rating agency" means any rating agency selected by the transferors to rate
the notes of a series or class issued by the trust.
"reinvestment event" means, if a series is subject to reinvestment events,
the definition of reinvestment event as it would appear in the prospectus
supplement.
"required delivery date" means:
(1) on or prior to the closing date in the case of the initial accounts;
(2) the date that is five business days after the applicable addition
date, in the case of the addition of accounts other than automatic
addition accounts;
111
(3) the distribution date on which the quarterly opinion of counsel is
required to be delivered for automatic addition accounts; and
(4) the date that is five business days after the applicable date of
removal, in the case of removed accounts.
"required minimum principal balance" means unless otherwise described in
the prospectus supplement, relating to a series having a paired series, with
respect to any date:
(1) the sum of the invested amounts for each series outstanding on such
date; plus
(2) the required transferor amount; minus
(3) the amount on deposit in the special funding account.
"required transferor amount" means the product of the required transferor
percentage and the aggregate invested amounts of all series outstanding.
"required transferor percentage" means with respect to pool one, (a)
initially 7.0% or (b) any other percentage designated by the transferors;
provided, however, that if such designation is of a lesser amount, the
transferors shall (i) provide the servicer and the indenture trustee with
evidence that such action will not result in a reduction or withdrawal of the
then existing rating of any outstanding series or class of notes, (ii) a tax
opinion and (iii) deliver to the indenture trustee a certificate of an
authorized officer to the effect that, based on the facts known to such officer
at such time, in the reasonable belief of the transferors, such designation
will not have a Adverse Effect.
"revolving period" means, with respect to a series, a period during which
the trust will not pay or accumulate principal for payment to the noteholders
of that series. The revolving period for a series begins on the closing date
described in the applicable prospectus supplement and ends at the start of an
amortization period or an accumulation period.
"securities intermediary" means U.S. Bank Trust National Association or any
other entity which is a person, including a bank or broker, that in the
ordinary course of its business maintains securities accounts for others and is
acting in that capacity and which is also a depository institution organized
under the laws of the United States or any one of the states of the United
States, including the District of Columbia, or any domestic branch of a foreign
bank, and having a credit rating from each rating agency in one of its generic
credit rating categories which signifies investment grade.
"series amortization event" means an event which is designated as an
amortization event for a specific series, although the same event may
constitute a series amortization event for more than one or all series.
"series enhancer" means any provider of enhancement and/or any issuer of
any third-party credit enhancement.
"series final maturity date" means with respect to each series, the meaning
set forth in the related prospectus supplement.
"servicer default" has the meaning set forth on page 86.
112
"supplemental certificate" means a certificate representing a portion of
the transferor's interest which is transferred to an entity not a transferor.
"tax opinion" means, with respect to any action, an opinion of counsel to
the effect that, for federal income tax purposes:
(1) such action will not adversely affect the tax characterization as
debt of the notes of any outstanding series or class that were
characterized as debt at the time of their issuance;
(2) such action will not cause the trust to be deemed to be an
association (or publicly traded partnership) taxable as a
corporation; and
(3) such action will not cause or constitute an event in which gain or
loss would be recognized by any noteholder.
"transferor amount" means, with respect to a pool, on any date of
determination, an amount equal to the difference between (a) the sum of (i) the
total amount of principal receivables at the end of the day immediately prior
to such date of determination plus (ii) the related special funding amount at
the end of the day immediately prior to such date of determination minus (b)
the aggregated series invested amounts specified in each applicable prospectus
supplement of all series of notes in a related pool issued and outstanding on
such date of determination.
"transferor certificate" means a certificate evidencing an interest in the
transferors' interest.
"transferors' interest" means an interest that represents the right to
receive all cash flows from the trust assets not required to make payments on
the notes or to credit enhancement providers.
"transferor percentage" means a percentage equal to:
(1) 100%; minus
(1) the total investor percentages for all outstanding series; and, if
applicable, minus
(2) the total credit enhancement percentages for all outstanding series.
"trust amortization event" means, with respect to all series issued by the
trust, the occurrence of any of the following events:
(1) bankruptcy, insolvency, liquidation, conservatorship, receivership or
similar events relating to one or more of the following entities: the
trust, one or more of the transferors, including any additional
transferor, Conseco Finance or one or more of the account owners,
unless written confirmation is received from each rating agency that
the removal of one or more of such entities from this amortization
event will not result in a reduction or withdrawal of its rating of
any outstanding series or class;
(2) a transferor is unable for any reason to transfer receivables to the
trust in accordance with the provisions of the transfer and servicing
agreement; or
113
(3) the trust becomes subject to regulation as an "investment company"
within the meaning of the Investment Company Act of 1940.
"trust portfolio" means the portfolio of accounts designated by Green Tree
Bank, Conseco Finance Servicing Corp. and Conseco Bank as accounts of the
trust.
"trust termination date" means the earlier of:
(1) the day after the payment date on which the principal amount with
respect to each series outstanding is zero; or
(2) the dissolution of the trust in accordance with the transaction
documents or applicable law.
114
Annex I
Global Clearance, Settlement and Tax Documentation Procedures
Except in limited circumstances, the globally offered Conseco Private Label
Credit Card Master Note Trust Notes to be issued in series from time to time
will be available only in book-entry form. Investors in the global securities
may hold those global securities through any of The Depository Trust Company,
Clearstream Luxembourg or Euroclear. The global securities will be tradable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities
through Clearstream Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding global securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream Luxembourg or Euroclear
and DTC participants holding notes will be effected on a delivery-against-
payment basis through the respective depositaries of Clearstream Luxembourg and
Euroclear, in that capacity, and as DTC participants.
Non-U.S. holders of global securities will be subject to U.S. withholding
taxes unless those holders meet requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the global securities
will be represented through financial institutions acting on their behalf as
direct and indirect participants in DTC. As a result, Clearstream Luxembourg
and Euroclear will hold positions on behalf of their participants through their
respective depositaries, which in turn will hold those positions in accounts as
DTC participants.
Investors electing to hold their global securities through DTC, other than
through accounts at Clearstream Luxembourg or Euroclear, will follow the
settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against
payment in same-day funds on the settlement date.
Investors electing to hold their global securities through Clearstream
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional
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eurobonds in registered form. Global securities will be credited to the
securities custody accounts on the settlement date against payment for value on
the settlement date.
Secondary Market Trading
Because the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and transferor 's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants, other than depositories for Clearstream Luxembourg and Euroclear,
respectively, will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
Trading between Clearstream Customers and/or Euroclear
Participants. Secondary market trading between Clearstream customers or
Euroclear participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global securities are to be transferred from the account of a DTC participant,
other than depositories for Clearstream Luxembourg and Euroclear, respectively,
to the account of a Clearstream customer or a Euroclear participant, the
purchaser must send instructions to Clearstream Luxembourg prior to settlement
date 12:30. Clearstream Luxembourg or Euroclear, as the case may be, will
instruct the respective depositary to receive the global securities for
payment. Payment will then be made by the respective depositary to the DTC
participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream customer's or Euroclear participant's
account. Credit for the global securities will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the global
securities will accrue from, the value date, which would be the preceding day
when settlement occurred in New York. If settlement is not completed on the
intended value date, for example, the trade fails, the Clearstream Luxembourg
or Euroclear cash debit will be valued instead as of the actual settlement
date.
Clearstream customers and Euroclear participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to pre-position
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream Luxembourg or
Euroclear. Under this approach, they may take on credit exposure to Clearstream
Luxembourg or Euroclear until the global securities are credited to their
accounts one day later.
As an alternative, if Clearstream Luxembourg or Euroclear has extended a
line of credit to them, Clearstream customers or Euroclear participants can
elect not to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure,
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Clearstream customers or Euroclear participants purchasing global securities
would incur overdraft charges for one day, assuming they cleared the overdraft
when the global securities were credited to their accounts. However, interest
on the global securities would accrue from the value date. Therefore, in many
cases the investment income on the global securities earned during that one-day
period may substantially reduce or offset the amount of those overdraft
charges, although this result will depend on each Clearstream customer's or
Euroclear participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
participants can employ their usual procedures for sending global securities to
the respective depositary for the benefit of Clearstream customers or Euroclear
participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC participant a cross-market transaction will
settle no differently from a trade between two DTC participants.
Trading between Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream customers and Euroclear
participants may employ their customary procedures for transactions in which
global securities are to be transferred by the respective clearing system,
through the respective depositary, to another DTC participant. The seller will
send instructions to Clearstream Luxembourg before settlement date 12:30. In
these cases, Clearstream Luxembourg or Euroclear will instruct the respective
depositary, as appropriate, to credit the global securities to the DTC
participant's account against payment. The payment will then be reflected in
the account of the Clearstream customer or Euroclear participant the following
day, and receipt of the cash proceeds in the Clearstream customer's or
Euroclear participant's account would be back-valued to the value date, which
would be the preceding day, when settlement occurred in New York. If the
Clearstream customer or Euroclear participant has a line of credit with its
respective clearing system and elects to draw on that line of credit in
anticipation of receipt of the sale proceeds in its account, the back-valuation
may substantially reduce or offset any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
customer's or Euroclear participant's account would instead be valued as of the
actual settlement date.
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Clearstream Luxembourg or Euroclear, or through DTC if the holder has an
address outside the U.S., will be subject to the 30% U.S. withholding tax that
generally applies to payments of interest, including original issue discount,
on registered debt issued by U.S. Persons, unless each clearing system, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and that beneficial owner takes
appropriate steps to obtain an exemption or reduced tax rate. See "Material
Federal Income Tax Consequences."
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Conseco Private Label Credit Card Master Note Trust
Issuer
Conseco Bank, Inc.
Transferor and Servicer
Conseco Finance Credit Card Funding Corp.
Transferor
Series 2001-A
$530,000,000
Class A Floating Rate Asset Backed Notes
$72,000,000
Class B Floating Rate Asset Backed Notes
------------------------
Prospectus Supplement
------------------------
Underwriters of the Series 2001-A Notes
Credit Suisse First Boston
Banc One Capital Markets, Inc.
Lehman Brothers
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus
supplement and the accompanying prospectus as of any date other than the
dates stated on their respective covers.
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes will deliver a
prospectus supplement and prospectus until August 13, 2001.
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